Credit Card Blog | UniBul - Part 2

Posted by Uni Bul on Wednesday, April 9th, 2014, 5:00 am

Economists Keep Telling Them This Cannot Go On. Yet Americans Keep Slashing Credit Card Debt. Wow.

Economists Keep Telling Them This Cannot Go On. Yet Americans Keep Slashing Credit Card Debt. Wow.

More than 5.5 years after the collapse of Lehman Brothers crippled the financial infrastructure of the Western World, the aftershocks of the catastrophe are still being felt. Still, just how is it possible that our collective credit card debt is much, much lower than its level at the eve of the meltdown and has remained just about flat for about four years now? After all, the recession is long gone and the recovery, such as it is, has pushed us onward. Not to mention that the population has just kept growing. Well, here we have more of the same in February...

Posted by Uni Bul on Tuesday, April 8th, 2014, 5:00 am

People Have Really Had It With Debt Collectors. Yet Life Would Be Worse Without Them. Yes, Really.

Why Do We Need Debt Collectors?

That is the question tackled by three researchers in a new paper for the Federal Reserve Bank of Philadelphia. On the face of it, third-party debt collection should have no place in our financial system. “Informational, legal, and other factors”, the researchers note, “suggest that original creditors should have an advantage in collecting debts owed to them”. Not to mention that, when doing the job themselves, the original creditors keep all they can recover, whereas when relying on others, they only get back about 80 percent of the collected debt, on average. Yet, third-party debt collectors not only exist, but they thrive, employing more than 140,000 Americans and recovering more than $50 billion each year. How can that be?

Well, the researchers identify one major factor, which they believe is giving third parties a sizable advantage and is the reason why original creditors are hiring them. It all comes down to the collection methods employed by the two parties. The original creditors, the paper argues, convincingly, tend to use softer debt collection methods, because they care about their reputation. Lenders don’t want to antagonize debtors who may, in due time, become profitable customers once again, nor do they want to create a bad name for themselves and scare away potential new customers. Oh, and they certainly don’t want to attract regulatory attention.

Third-party collectors, for their part, exist solely for the purpose of recovering debt, which means that they don’t have to worry about maintaining customer relationships. After all, debt collectors’ customers don’t choose to do business with them — they simply fall into their laps. The customer whose happiness a debt collector really cares about is the lender who hired her. All that being the case, we can understand why a third-party agency would be less lenient with debtors than the original creditor could afford to be.

But the paper’s main point is that third parties do bring efficiency to the debt recovery process, which is why lenders rely so heavily on them and is also why we have developed a specialized payment processing solution for them. The paper also lends support to another recent Philadelphia Fed paper, which found a direct negative correlation between the level of strictness of debt collection regulation and the availability of consumer credit. But let’s take a look at the new paper...

Posted by Uni Bul on Monday, April 7th, 2014, 5:00 am

What Americans Are Doing with Their Credit Cards Is Simply Extraordinary. Chart #2 Says It All.

What Americans Are Doing with Their Credit Cards Is Simply Extraordinary. Chart #2 Says It All.

Americans are now using their credit cards much more for their transactional convenience than as a form of debt, the latest Credit Card Market Monitor report from the American Bankers Association tells us. To put it another way, we see credit cards today more as a plastic form of cash than we see them as a source of credit to be tapped now and repaid sometime in the future, if and when we can get around to it.

To be more precise, and as we will see in the charts that follow, the report’s data for this year’s first quarter show that, even as the monthly credit card purchase volumes have increased, the average ending balances have fallen by close to 5 percent. And as we have been paying back an ever larger share of our credit card debt for several years now, our credit card delinquency and default rates have consequently fallen to their lowest levels on record.

But here is the thing. Even though all the data have been telling an unambiguous story of Americans managing credit card debt a great deal more responsibly than we have done in a very long time, card issuers still don’t seem to trust us. For while the super-prime borrowers’ credit limits keep rising, those of everyone else are still falling. And it’s not as though only the super-prime accounts’ delinquency and default rates have vastly improved over the past few years — that has been true across all risk categories.

Perhaps the issuers are seeing in the data something I don’t? Or perhaps they are expecting Americans to revert to their free spending habits of old any day now? Well, I can’t read the card issuers’ collective minds and I certainly cannot divine what Americans’ attitude toward credit card debt will be, say, one year from now. What I can say, however, is that there is absolutely no clue that I can see in the data pointing toward a return to some kind of a wastefully extravagant pattern of credit card use anytime soon. But don’t take my word for it, here are the latest data...

Posted by Uni Bul on Friday, April 4th, 2014, 5:00 am

A Credit Card Payment Is So Incredibly Simple… Until You Take A Closer Look.

How Your Credit Card Payments Are Processed

Every now and then I will come across a new description of the credit card transaction process. These take various shapes, some are supported by visual representations of the various interactions that take place after a card payment is initiated and, as you would expect, some are better than others. But I’m always grateful to the authors for giving me the opportunity to refresh my own knowledge.

Well, the latest such description to come my way is an infographic produced by Singapore’s iMoney and It is a good effort to get at the heart of the issue, visually pleasing and, I think, straightforward enough for everyone to understand. However, straightforwardness and simplicity usually come at the cost of accuracy and this graph is no exception. For, whereas the transaction process is correctly presented (albeit there is something to be desired in the authors’ choice of terms), that is not the case in the offered explanation of “how banks & credit card companies make money”, as I will explain in a bit.

I also felt like comparing the iMoney graph to the ones produced by the credit card networks themselves. After all, Visa and MasterCard should know best how their transaction processes work. Whether they also know best how to present these processes to the lay public will be up to you to decide...

Posted by Uni Bul on Thursday, April 3rd, 2014, 5:00 am

These Hackers Are So Sophisticated, It’s Scary… And Yes, They’re Out To Get Your Credit Card

On Mules, Experts, Administrators and the Inevitability of Data Hacking

If you can get scammed, you will be, a new report on cybercrime and stolen data just published by the RAND Corporation, a think tank, informs us. The cost to enter the black market of hacked data is already low and falling, even as the level of sophistication of the participants is increasing, we learn. Law enforcement is trying to keep up with the criminals and the number of takedowns is indeed increasing, the authors note, yet the black market is growing at an accelerating rate, the players are continually getting more creative and innovative and seem to be winning the struggle.

The paper’s bottom line: the black market for stolen data will keep growing, continue to innovate and adapt and continue to mature. Yes, the criminals will suffer a setback every now and then along the way and some of them will end up serving jail time, but such events, highly publicized though they will be, will do little to change the long-term trend.

If such a conclusion sounds defeatist to you, I guess the authors’ reply might be that this is simply where their analysis leads them and if the outlook looks bleak, well, that’s not their fault. For my part, I am inclined to accept the paper’s conclusions. We’ve been fighting hackers for about two decades now, employing all kinds of data security measures, devising rules, guidelines and best practices and yet, if anything, data heists seem to be increasing in frequency, becoming ever more sophisticated and are pulled off on an ever larger scale. Helpfully, RAND’s paper features a nice chart, which lends support to this observation. Let’s take a look at the research...