Spotlight on Financial Services

"A new study conducted by Dove Consulting for the American Bankers Association documents for the first time that plastic payment devices (debit and credit cards) are now the most common form of payment at the point of sale..."


Michael E. Staten		Robert W. Johnson

JANUARY 2004

Economic Growth Ahead,
but Consumer Spending Will Slow

There is much good economic news circulating at the start of this new year. However, expectations of a resurgent consumer sector should be tempered with the knowledge that business investment is driving growth at the moment. Consumer spending has benefited from tax cuts and the record-setting mortgage refinancing boom, but those benefits will play out early in 2004 and will not be repeated.

Economic Growth Ahead, but Consumer Spending Will Slow

Bankruptcies Grew 5.5% in 2003

Personal bankruptcy filings slowed during the last few weeks of 2003, but still set an all-time record, exceeding 1.6 million for the year. After posting double-digit growth rates during the first half of the year, total filings finished 5.5% higher than the previous year, as of December 27, 2003.

Mixed Results for Subprime Delinquencies

According to a survey of top mortgage loan services regularly conducted by Inside B&C Lending (Bethesda, MD), the weighted-average delinquency rate (30+ days) for subprime mortgage loans was 9.34% at the end of the third quarter, 2003, down 54 basis points from the previous quarter. The percentage of loans seriously delinquent (more than two payments past due or in foreclosure) declined to 7.82%, down 50 basis points from the previous quarter.

Home Prices Rose During Third Quarter 2003

There was more good news for homeowners (and discouraging news for renters) in the third quarter as home prices rose nationally at an annualized pace of 5.56%, the fastest pace in nearly a year. Home price appreciation had been decelerating during the previous three quarters.

Home Equity Lines of Credit Can Harm Credit Scores

In her article in a recent Wall Street Journal, Kaja Whitehouse reports some unwelcome consequences arising from homeowners’ affinity for home equity lines of credit (HELOCs).

Plastic Trumps Checks and Cash

A new study conducted by Dove Consulting for the American Bankers Association documents for the first time that plastic payment devices (debit and credit cards) are now the most common form of payment at the point of sale, displacing checks and cash. Debit and credit cards account for 52% of all point of sale transactions, while cash and checks combine to account for 47%.

Credit Card Solicitations Drop

Reed Albergott reported recently in the New York Times that credit card solicitations by mail had dropped significantly through the third quarter of 2003. One reason for the slow growth, or even slight decline, is that the amount of credit card debt is so high that card issuers are not trying to enlarge their market as energetically as in previous years.

Online Sales Set New Holiday Record

The Internet continues to grow in popularity as a shopping tool. Online holiday shopping rose 30% in the last two months of 2003.

Drop in Per Capita Credit Card Debt

According to the annual Credit Card Survey by Myvesta.org, a nonprofit consumer education organization, the average amount of credit card debt carried by individuals dropped from $3,250 at the end of 2002 to $2,294 at the end of 2003, a decline of 29.4 percent.

Manufactured Housing Loans Haunt Fannie Mae

First, Fannie Mae had some accounting problems. Now, Patrick Barta tells us in the Wall Street Journal that there is a problem with Fannie Mae’s $9 billion portfolio of manufactured housing loans, i.e. mobile homes.

No More Mandatory Arbitration for Freddie Mac Loans

In yet another attempt to deter predatory behavior on subprime mortgage loans, Freddie Mac has announced that, beginning August 1, 2004, it will no longer buy subprime mortgage loans that contain mandatory arbitration clauses.

Another View

At times those of us involved in consumer credit are tempted to forget that there are a number of people who currently view consumer debt as an unfortunate blight on the economy. One such person is Bob Herbert, an economist and columnist for the New York Times. We provide a summary of his recent article to be sure that we acknowledge the views of those who are critical of consumer credit.

FCRA, the Fact Act and Identity Theft

Last month in this column we reported that Congress passed the Fair and Accurate Credit Transactions Act of 2003 which preserved a uniform national credit reporting system and gave consumers important new protections. This month we provide more detail on how the new act will help consumers cope with and ultimately prevent identity theft.

Debit Card Litigation Resolved

According to the article in the New York Times by Jennifer Bayot, the nation’s retailers have finally been notified of the approval of a $3 billion settlement with VISA USA and MasterCard International.

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