Beyond the tragic events of September 11th, this year has earned many economic distinctions. Since mid-year, credit card debt has declined at an unprecedented rate. Chargeoffs, or credit card losses, have hit the highest level in 11 years. Unemployment made the highest one-month jump in 21 years and remains at levels not seen in six years. Personal bankruptcies set an all-time record in the second quarter and on a fiscal year basis. The Feds have cut interest rates to the lowest point in 40 years, driving the prime rate down to its lowest level since 1965. Mortgage rates have declined to a 30-year low. The list goes on and on.

The contraction in revolving debt was more significant than previously indicated by the monthly figures previously released by the Federal Reserve. During October, Americans cut $3.7 billion off revolving credit, translating into a negative annual growth rate of 6.4%. The revised figures show that American consumers have been cutting credit card since June when total revolving credit topped $700 billion. Since then consumers have trimmed revolving credit, mostly credit card debt, by $11.3 billion. The decline may be attributed to the steady migration of credit card debt to home equity loans, which now carry interest rates that average half of the current 14.48% credit card APR. However the effect of the September 11th events undoubtedly played a significant role in the card debt contraction as consumers adjust lifestyles. According to the Federal Reserve, revolving debt stood at $689.0 billion during October.

The government’s latest report shows the nation’s unemployment rate jumped to 5.7% in November from 5.4% in October, and 4.9% in September. The November unemployment rate is the highest level in six years. The change between September and October was the highest one-month jump in 21 years. According to the Bureau of Labor Statistic, the number of unemployed persons increased by 419,000 to 8.2 million in November. Since October 2000 unemployment has risen by 2.6 million and the unemployment rate has increased by 1.8 percentage points, of which 1.4 percentage points have come since the beginning of the recession in March.

Bankruptcy filings downshifted a bit during the third quarter, compared to Q2, but 2001 is still on track to rank as the second highest year for bankruptcies on record. However, on a fiscal year basis, the total number of bankruptcies filed has set an all-time high. In the 12-month period ending Sept 30, bankruptcy cases totaled 1,437,354, up 14% compared to the fiscal year ending Sept 2000. The previous high for bankruptcy filings during a fiscal year was in 1998, when filings reached a total of 1,436,964. Of the 1,437,354 filed over the past 12 months, 1,398,864 were personal filings. Chapter 7 filings rose 16.5% and Chapter 13 filings rose 8.2% during FY 01. The number of bankruptcy cases filed during the third calendar quarter totaled 359,518 compared to the record-setting 400,394 filed in the second calendar quarter.

The Feds have made 11 rate cuts so far this year, driving down rates for home equity loans and automobile loans. However credit card interest rates have bottomed out at historical lows and may be headed upward early next year. The average overall bank credit card interest rate slipped by 7 basis points (0.07%) during November to 14.41%, after falling 209 basis points (2.09%) since January 1. Some issuers offering variable rate cards are now setting higher spreads for new cardholders. Citibank’s new Smart MasterCard carries a prime +12.99% interest rate structure, a significantly higher spread than offered on any previous Citibank card. On the other end of spectrum, Simmons Bank recently raised its APR from 7.00% to 8.95% after a recent federal court decision removed the Arkansas bank usury law. Floor rates continue to collar pricing too. Bank One/First USA, the nation’s third largest issuer, recently launched a Cash Rewards Platinum VISA offering a prime +6.99% APR but with a 13.24% floor. Meanwhile, the nation’s largest issuer of fixed rate cards, MBNA, has lowered its rate on some new cards to a fixed 12.99%, but continues to preserve higher pricing within its portfolio.

ONLINE DECLINE?

While there is mounting evidence that online shopping is exploding this holiday season, a new survey says the number of U.S. households subscribing to online services declined nearly four percent during the third quarter. Telecommunications Reports International says its research shows the online market has peaked. The firm found that 67.9 million U.S. customers subscribed to online services as of the end of the third quarter, down from 70.7 million three months prior, or a loss of 2.7 million subscribers. Compared to figures from TR’s Online Census a year ago, the current online customer base is about 7.4% higher than the 63.2 million users tallied at the end of the third quarter of 2000. However, the 3.9% decline for the third quarter of 2001 compares to a 1.5% rate of growth during the same period last year and 10.7% growth rate during the third quarter of 1999. Overall, TR’s Online Census found that of the six access methods tracked, only two, cable modem and DSL, showed any sizable increases in subscribers during the third quarter. AOL, with 31.3 million subscribers, signed up 1.2 million new users during the third quarter, the smallest quarterly gain since the spring of 1998.

Given the apparent decline in online U.S. households, another recent study found a high prevalence of aggressive online marketing tactics on the Internet including those used by credit card issuers. More than 30% of the top Web sites based in the USA employ such tactics as “spawning”, “mouse-trapping”, “seeding”, “framing” and “home-jacking”. The study, released by Cyveillance International, found “spawning” or “pop-ups” to be the most widely used tactic to boost response. “Pop-ups” or “pop-unders” are the automatic launch of new browser windows upon entering a site, upon exit, on delay, or other triggers. “Mouse-trapping” tactics were found on 5.2% of the sites on the Internet. “Mouse-trapping” disables the user’s ability to go back, exit or close while viewing a page. Among the others cited in the ‘Top 10 Tactics’: “invisible seeding” or the hiding of content to optimize search engine rankings; “unauthorized software downloads” which leaves behind software that can contain embedded advertising or tracking capabilities; “spoof pages” created specifically for the purpose of attracting search engine traffic for higher ranking on search results; “typo-piracy”/”cyber-squatting” which uses misspellings and derivations of a brand to divert traffic to an unintended site; “home-jacking” which substitutes a new home page setting or changes to the user’s “favorites” list; “visible seeding” which creates a false affiliation with popular brands; “mislabelling links” or the false labelling of hyperlinks; and “framing” which keeps users on the original site while viewing content of another through the original site’s window.

PAYPAL COMPETITION

While the most successful person-to-person payment service is seeking to hit pay dirt by going public, competitors continue to make runs at PayPal. Citibank’s c2it person-to-person payment service has removed the transaction fee charged to its customers to send money online in the U.S. The move by Citibank is aimed directly at wresting PayPal users away from popular online auction Web sites such as eBay. Citibank launched its c2it service one year ago and has since signed up more than 225,000 users while PayPal has more than 10 million users. Earlier this year Citibank changed its fee structure from a flat $2 fee to a fee ranging from 1.0% to 2.2%, depending on the amount transferred, with a 50 cents minimum. Citibank’s P2P payment service is delivered under various brands such as America Online Quick Cash. Citibank is also offering online sellers the opportunity to earn a $5 bounty for every new user they refer to c2it. When a seller includes the c2it logo on the item for sale, or on his or her Web site, and a user clicks on the logo and successfully enrolls in c2it, the seller earns the $5 referral bonus.

Meanwhile, MasterCard and CertaPay announced they have signed an agreement to offer a platform that facilitates person-to-person payments between MasterCard cardholders. MasterCard recently introduced support for a new payment transaction in its authorization and clearing systems to enable its members to clearly identify P2P transactions, which had not been possible prior to April 2001. Through this alliance with CertaPay, MasterCard’s members may implement CertaPay’s P2P offering, designed to support MasterCard payment cards and to seamlessly integrate into a financial institution’s online banking infrastructure. The platform leverages the financial institution’s own security and brand strategies. CertaPay’s P2P E-mail Money Transfer application enables consumers to send and receive money, in real time, using only an e-mail address, from their own financial institution’s online banking or online account management services.

LEGAL EAGLES

The Federal Trade Commission and the Illinois Attorney General charged a group of Illinois-based companies with operating a massive scheme whereby consumers were offered a credit card for a $219.95 fee and then never received a card. As a result a U.S. District Court judge shut-down the firm. The FTC says the defendants also continued their scheme even after the FBI executed a search warrant against them on Sept 6th. The Illinois firms include: 1st Financial Solutions, Inc., American Benefits Club, Inc., Rockwell Holdings, Inc., and John F. Boone, doing business under their respective names and various fictitious names, including: “1st Freedom,” “1st Choice Financial Solutions,” and “Card Services.” 1st Financial Solutions and American Benefits Club are both headquartered in Park Ridge, Illinois. Rockwell Holdings is based in Schaumburg, Illinois, and John F. Boone is an officer of Rockwell Holdings. Earlier this month, the FTC shutdown a group operating out of New Jersey for deceptive telemarketing of advance fee VISA or MasterCard credit cards. A U. S. District Court, at the request of the Federal Trade Commission, also froze the assets of and closed down a marketer of gold catalog cards in early November.

Las Vegas-based First National Bank of Marin has settled a class-action lawsuit and has reached a final agreement with the OCC in regard to the company’s solicitation and marketing materials for its sub-prime VISA cards. First National agreed to reimburse certain customers who applied for the Bank’s credit card between July 27, 1996 and May 31, 2001 and who incurred specific charges, including enrollment fees and certain finance charges. Bank officials have agreed to set aside a reserve of not less than $4 million to cover consumer claims from both the class-action settlement and the OCC agreement. The Bank says it did not admit to any wrongdoing and believes the OCC lacks legal authority to enforce the FTC Act. First National also says the OCC’s interpretations of the FTC Act are incorrect and contrary to the interests of both financial institutions and consumers.

LUNCH MONEY

The pilot MyLunchMoney.com got underway this month. The new service enables parents to use credit cards for prepayment of school lunches. Using the Web site, parents log on or call a service center to prepay for their child’s school food charges, using either a VISA or MasterCard account. Parents will access the Web site using a secure login, then will activate their account and establish funding amounts and spending guidelines. The initial pilot will take place at a middle school in Poway, California. The pilot will run through February, with a full market launch expected in March.