ó Americaís torrid love affair with the credit card
appears over. In its place is a less passionate, more
spending and mounting personal debt characterized the
run-up to the 2008 financial crisis. The subsequent
Great Recession was marked by frugality and a long slog
back. Now Americans are comfortable enough to take on
more debt, especially credit card debt. Just not too
was evident in Federal Reserve data released last week
that showed the amount of credit extended to consumers
grew at an annual rate of 9.7 percent in July. Revolving
credit ó bank-issued credit cards and retail store
cards ó grew at an annual rate of 7.4 percent. That
was almost three times Juneís annualized rate of 2.5
growth rate stands out when compared with last year,
when the full-year rate of the growth of debt on bank
cards and retail cards was 1.3 percent. Card debt was
largely flat in the two previous years and it had fallen
sharply in 2009 and 2010, when Americans frowned on
website CardHub, a place for consumers to shop for cards
and rates, projects a $41.9 billion net increase in
credit card debt this year, 8 percent more than in 2013
and 14 percent above 2012.
CardHub study earlier this year raised concerns that
consumers are paying off less debt than they did a year
of a credit bubble as before the crisis? Theodore
Iacobuzio, MasterCardís vice president of global
insights, a research unit, isnít worried.
people are going back to using the credit card, but theyíre
not going back to how they used them before," he
the financial crisis, Americans had about seven
general-purpose credit cards per household, he said,
excluding debit and store cards. Today the average is
about four, he said.
are using credit cards now as one of several financial
tools, along with debit and prepaid cards. And theyíre
paying off much bigger chunks of what they borrow.
are now being used by consumers as a way to navigate
economic waters . . . not as wish fulfillment,"
Iacobuzio said, adding, "I canít emphasize enough
how much of a 180 this was."
payment delinquency rates, which tend to be high when
consumers have overextended themselves, are at record
lows. From April through June, 2.25 percent of credit
card accounts were delinquent.
suggests two overlapping realities: Many Americans have
sharply paid down their credit card debt and are wary of
taking on more, while others who defaulted on their
payments can no longer get credit cards.
2.25 percent delinquency rate is the lowest since the
Federal Reserve began publishing the number in 1991, and
roughly a third of the peak of 6.78 percent during the
same period in 2009, when the financial crisis was in
the return to credit cards is growth in prepaid cards
from companies such as Green Dot and Wal-Mart, which
have become a viable alternative to checking accounts
and debit cards.
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cards are bank-like. Consumers can check their balances
online or via text message, without the fees and
relationship of a bank account or bank-issued credit
card. With so many jobs lost during the Great Recession,
and so many Americans working two or even three jobs to
make ends meet, the prepaid card was a good fit for many
think that has definitely helped the growth in
prepaid," said Madeline Fernandez, the chief
customer officer for Green Dot, based in Pasadena,
Calif. "Itís unfortunate that thatís the way weíve
been helped, but itís definitely made consumers think
about how are they managing their finances, how much
debt they want to take on."
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sums loaded onto general-purpose reloadable prepaid
debit cards nearly tripled from 2008 to 2012, to $76.7
billion. Researcher Mercator Advisory Group Inc.
projects the number will rise to $168.4 billion by next
year, according to CardHub.
cards are generally used for three major purposes:
alternatives to checking accounts, alternative check
cashing tools and managing allowances to children or
electronic payments such as benefits to recipients.
are able to load workersí pay onto the cards. By
virtue of being prepaid, the cards arenít subject to
overdraft fees or minimum payments as a debit or credit
card would be.
Dot estimates a potential customer pool of 160 million
who earn less than $75,000 annually.
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and higher-income families also are using more prepaid
cards, according to a study by the Federal Reserve Bank
was surprised at how rapidly the market seemed to react
once these mass-market general-purpose prepaid cards
were available," said Susan Herbst-Murphy, a
co-author of the study, titled "Millennials with
Money." "I donít know if thatís an
indication there was pent-up demand. The market was away
ahead of the industryís ability to develop
cards are more popular with younger consumers, many of
whom may not have yet taken out their first credit cards
or car loans.
was always an expectation that younger people would
adopt these products. Ö (They) adopt products that are
in the marketplace when they are making those early
decisions," said Herbst-Murphy, a senior industry
specialist at the Fed bankís Payment Cards Center.
Green Dotís Fernandez said the demographic was
changing for users of prepaid cards as they became a
mainstream tool. They began as a product for those
considered "unbankable" because of poor credit
histories, frequent job changes or questionable
the demographic is slightly more female than male, a
little more African-American," she said. "And
weíre seeing the ages between 35 and 50, as a general