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CARD DEBT
From the May 2004 Issue of CardTrak®

In any given month, Americans owe $677 billion to bank credit card issuers, Brits owe $97 billion to bank credit card issuers, and Aussies owe $19 billion to bank credit card issuers. Based on current population figures, Americans owe $2311, the Brits owe $1616, and the Aussies owe $950, for every man, woman and child in their respective countries.

There has been some controversy as to whether these figures paint an accurate picture of the gross national credit card debt?

Some argue that the total amount owed on credit cards does not represent "real debt." Since a portion of total outstandings are paid-off in full each month, taking advantage of the issuer's interest-free grace period, "real debt" should be much lower than total outstandings.

Furthermore, the industry outstanding figure for the US market is somewhat skewed since it includes business credit cards.

Using this definition for "real debt, let's recalculate the numbers.

Last year, business credit cards racked up $220 billion in volume for the year, for an average of about $18 billion per month. U.S. cardholders charged nearly $1.3 trillion on credit cards during 2003, or about $108 billion per month. Approximately 60% of the $108 billion is paid-off in-full each month. Therefore, "real debt" for U.S. bank credit cards is $594 billion ($677 billion minus $18 billion for business credit cards and minus $65 billion for interest-free consumer credit cards).

Based on Bank of England and Reserve Bank of Australia data, interest-accruing credit card balances, or "real debt" is $66 billion for the United Kingdom and $13.5 billion for Australia.

Consequently, Americans owe $2,027, the Brits owe $1,100, and the Aussies owe $675 in "real credit card debt," for every man, woman and child in their respective countries, based on current population figures.

While it is true that the number of cardholders in the USA, UK, and Australia struggling with credit card debt has been rising over the past three years, the big picture does not look so bleak. Gross credit limits for credit cards in the USA are about $1.5 trillion, which means Americans have only tapped 45% of their available credit lines. In the U.K., aggregate credit limits total $245 billion, for 40% credit line utilization. Down under, gross credit limits total $50 billion, for 38% credit line utilization.

But wait, there's more.

The figures discussed so far do not include retail credit cards such as store credit cards and gas credit cards. CardWeb.com is still gathering retail card information for 2003. But Americans owe an estimated $78 billion on retail credit cards, or about $266 for every man, woman and child in the USA.

Therefore, Americans' "real, real gross national credit card" is approximately $2,293 per person, $3,632 per cardholder, about $6,400 per household, or roughly $8,000 per carded household (those with at least one credit card).

HALL OF FAME

MasterCard has created a "Co-Brand Hall of Fame" to honor excellence and innovation among its 9,500 North American co-brand payment card programs. The first year winners are the "Marathon Platinum MasterCard," the "Universal Entertainment MasterCard Card from Chase," and "Citi/AAdvantage Card" program. The "Marathon Platinum MasterCard" received the "Best Launch in 2003." Launched by Marathon Ashland Petroleum and Chase in August, the card allows card members to earn rebates for purchases at more than 3,900 Marathon brand locations. MasterCard says the launch fully engaged its dealers and employees in efforts to inform consumers about the new card, including targeted direct mail, comprehensive signage kits, employee sales training and contests, and television spots. The "Best Usage/Expansion Program in 2003' was awarded to the "Universal Entertainment MasterCard Card from Chase." Cardholders earn one point per dollar on all everyday purchases and two points per dollar on select Universal Parks and Resorts purchases. Points can be redeemed for movie and concert tickets, DVDs and CDs, Hollywood experiences, and online auctions of unique movie memorabilia. Chase also recently added instant card issuance in Universal Studios Theme Parks. The "Long Term Achievement Award" was given to the "Citi/AAdvantage Card." The card, launched in 1987, was among the first co-branded airline programs and today is one of the largest co-brand programs in the world. The card offers a network of more than 1500 participating companies where cardholders can earn rewards.

CARD STOCKS

The anticipated increase in short-term interest rates has already spooked investors in the nation's top credit card players. MBNA is trading about 8% lower than one-month ago, while American Express dipped 3%, and re-bounding Capital One slipped about 1% compared to April 19th. MBNA is nearly 16% off its 52-week high, while AmEx is off 8% and Capital One off 7%. According to CardData's "Payment Card Stock Index," credit card issuers are down 8.5% year-to-date to an index share price of $25.88. MBNA is now trading at $25 per share, compared to $27 last month, and compared to its 52-week high of nearly $30. AmEx now trading at $49.50 per share, compared to $51 last month, and compared to its 52-week high of $54. Capital One is trading at $71.98 per share, compared to $72.40 last month, and compared to its 52-week high of $77.67. Capital One's Chairman/CEO, Richard Fairbank, this week began to unload up to one million stock shares in the Company. MBNA recently noted in its SEC filings that a 100 basis point increase in interest rates could reduce net income by $67 million for the year. MBNA said it could offset its costs by raising interest rates for cardholders but the company noted there is a lag of about 45 days before rate hikes take effect upon cardholders. Several top issuers have begun to migrate back to variable interest rates to ease the impact of rising rates.

DEBIT CARD FEES

Members of the Senate Banking, Housing, and Urban Affairs Committee have asked the Federal Reserve Board to conduct a study on debit card fees and the adequacy of existing disclosures of such fees to consumers. The Board is soliciting comment on whether the existing disclosures required by the EFTA effectively make consumers aware of the imposition of debit card transaction fees by their financial institution when they choose to use a PIN. The Board also seeks the public's views on the need for, and the potential benefits of, requiring additional disclosures in each periodic account activity statement to reflect such debit card fees. The Board has also been asked to study the prevalence of debit card PIN-use fees being imposed, and the feasibility of requiring real-time disclosure of such fees at the point of sale, among other issues. The Board is also exploring on the benefits of requiring disclosure of the amount, source, and recipient of each fee, as well as a summary of the total amount of such fees for the period, and calendar year-to-date. Comments are due by July 23rd.

PRE-SCREENED SOLICITATIONS

The Federal Reserve Board is seeking public comment for a report to Congress on consumers' ability to block prescreened credit card solicitations. The FRB says its study must cover the current statutory or voluntary mechanisms that are available to a consumer to notify lenders and insurance providers that the consumer does not wish to receive prescreened solicitations; the extent to which consumers are currently utilizing existing statutory and voluntary mechanisms to avoid receiving prescreened solicitations; the benefits provided to consumers as a result of receiving prescreened solicitations; whether consumers incur significant costs or are otherwise adversely affected by the receipt of prescreened solicitations; and, whether further restricting the ability of lenders and insurers to provide prescreened solicitations would affect (1) the cost consumers pay to obtain credit or insurance; (2) the availability of credit or insurance; (3) consumers ' knowledge about new or alternative products and services; (4) the ability of lenders or insurers to compete with one another;and (5) the ability to offer credit or insurance products to consumers who have been traditionally underserved. Public comments are due by July 23rd and the report to Congress is due December 4th.

NCO CIVIL FINE

PA-based NCO Group, one of the nation's largest debt-collection firms, this month agreed to pay $1.5 million to settle FTC charges that it violated the FCRA by reporting inaccurate information about consumer accounts to credit bureaus. It is the largest civil penalty ever obtained in a FCRA case. The FTC charges that NCO reported accounts using later-than-actual delinquency dates. "Section 623(a)(5)" of the FCRA requires the actual month and year the account first became delinquent to be noted, in order to measure the maximum seven-year reporting period the FCRA mandates. Violations of this provision are subject to civil penalties of $2,500 per violation. Under terms of the settlement, NCO is also required to implement a program to monitor all complaints received to ensure that reporting errors are corrected quickly.

DUMMY MASTERCARD

A Largo, FL-based firm has been ordered to pay more than $12 million in consumer redress over a bogus MasterCard credit card offer. The FTC says Peter Porcelli, and his Bay Area Business Council and American Leisure Card companies victimized tens of thousands of consumers offering a low-interest unsecured MasterCard credit card for an advance fee. Although consumers paid $199 or more for the credit cards, no consumers received credit cards. Instead, consumers received a temporary "dummy" card with a MasterCard logo and the name "Bay Area Business Council" or "1st American Leisure Card" on the front, and a non-magnetic black strip on the back. When consumers complained or tried to activate the card they were told for the first time that, for an additional fee, they could obtain a debit card, but never a credit card. The defendants also did not tell consumers that in addition to the requirement that they deposit their own money in advance for any purchases they wished to make with the debit card, they would pay substantial fees every time they attempted to use the card. The court order stems from FTC charges filed in August 2002.

PONI CARD

NJ-based American Cash Exchange has rolled-out the first POS foreign-denominated money transfer product to offer a newspaper-published interbank exchange rate. The new "Poni Cards," which include the "Poni Cash Card" and the "Poni PIN Card," are being sold this month in $1000, $2000 or $3000 pesos values. There are no hidden or back-end fees charged and no bank account is required to transfer the funds. Also, no statements are issued and no ID is necessary. However, the recipient of the funds is required to provide their name and address in order to receive their free "Poni Cash Card." ACE's technology controls and monitors the flow of funds through a system of endemic heuristics developed and implemented for the purpose of addressing the "USA PATRIOT Act" and other money laundering issues. The cards also include a free call to Mexico used to disclose the "Poni PIN," a numeric string found under a scratch off. The new cards can be purchased this month at 100 retail locations in the launch markets of Las Vegas, Phoenix and Tucson. In Mexico, over 150,000 "Poni Cash Cards" have already been freely distributed in migrant communities in seven states. American Cash Exchange is the only non-bank, non-credit card company authorizing withdrawals from over 19,000 ATMs in the Mexican ATM network.

GIVING CARD

Vista, CA-based Cybertel Communications reported it has signed-up 8,000 charitable organizations to be recipients of the "Giving Card" rebates. The card, launched in mid-January, is an affinity product that enables credit card holders from MasterCard, VISA and American Express, who are members of affinity groups, to contribute to their affinity group or favorite charity by registering their currently held credit cards on "The Giving Card" Web site and using their credit cards at selected merchants. Cybertel says the participating organizations to-date, range in size from family foundations with only a few supporters to mega organizations with international influence and supporters from coast to coast. Cybertel is a fully integrated telecommunications service provider.

CARD BLITZ

MasterCard this month blitzed sixteen St. Louis Schools to teach 2,400 students financial responsibility as part of the "JA in a Day" program. The massive event comes at a time when children have more impact on the economy than ever before. According to a YouthPulse Study by National Harris Interactive, American kids, teen-agers and young adults (aged 8 to 21 years) have annual incomes totaling $211 billion - most of which they spend, rather than save. MasterCard International is a leading global payments solutions company that provides a broad variety of innovative services in support of our global members' credit, deposit access, electronic cash, business-to-business and related payment programs.

SMALL BIZ OUTLOOK

Fifty-six percent of respondents in a new poll believe changes in the U.S. economy will have a positive impact on their business in the next 12 months while 12% of small businesses expect that changes in the U.S. economy will have a negative impact on business in the coming year. One third of those surveyed believe economic growth has had a positive impact on business while 53% of respondents said that recent growth in the U.S. economy has had no noticeable impact on their business. The findings come from MasterCard International's "Small Business Economic and Spend Outlook Survey" which polled U.S. businesses with annual revenue between $100,000 and $10,000,000.

The study found that managing expenses/finances was cited by more than 27% of respondents as the number one concern facing small businesses. Almost three quarters of small businesses note that T&E spending has either increased or remained the same in the last six months with only 26% reporting decreases in T&E spending. MasterCard also found that 40% report using business payment cards (rather than personal payment cards) to make business purchases. More than half of small businesses surveyed receive rewards for business purchases. The majority of small businesses surveyed (54%) leverage rewards for personal use, such as vacations and cash back while about a third of small businesses are using rewards earned to purchase supplies for their company.

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