Hoping to capitalize on the perception that consumer borrowers are overextended, Bankcard Holders of America is offering a service that encourages credit card customers to accelerate their debt payments.
For $10 the Hemdon, Va., advocacy group is offering Debt Zapper, which tells cardholders how much money they will save by increasing their monthly installments, and how much those higher payments will shorten their repayment terms.
The report, delivered by mail, is based on software called Zilch, developed by Practical Applications of Laurel Bay, S.C.
"We are providing a service to people who don't own computers,"' said Gerri Detweiler, executive director of Bankcard Holders.
The 75,000-member group tested the offering at the beginning of this year. The official release came on Wednesday.
Revolving Debt on the Rise
The offering comes at a time when revolving debt, which includes credit cards, has been growing steadily, even as overall consumer debt has been leveling off.
Federal Reserve data show that revolving credit at the end of May was $264 billion, up from $247 billion last May.
A survey recently conducted for American Express Travel Related Services Co. showed 11% of cardholders make only that the minimum payment each month, and 32% sometimes pay the minimum.
The American Banker's consumer surveys in the past two years have shown a growing disenchantment with debt. Increasing numbers of consumers said that they believed debt levels are generally too high and that they were trying to save more.
Rep. Charles Schumer, D-N.Y., introduced legislation in April that would increasc disclosure requirements. It would require, among other things, that issuers tell cardholders on monthly statements how long it will take them to pay off their debt by paying the minimum.
Observers Are Skeptical
Most bankers and analysts do not believe Debt Zapper and other such products will have much of an impact.
"We see that consumers are fairly sophisticated about paying their debt," said Cynthia Graham, president and chairman of card services at Barnett Banks Inc. "Our customers, according to in-house studies, only pay the minimum balance when they have temporary cash-flow problems, usually around holidays."
Frederick A. White, president of First Annapolis Consulting, which advises financial institutions on credit cards, added, "Credit cards have gone from being the highest[-priced] form of debt to being very competitive, so there are actually more opportunities for consumers to lower their rate rather than pay down a high-rate card."
Some banks, including the Bank of Lancaster County, Greenfield, Pa., and Colonial National U.S.A. of Bloomington, Del., have bought Zilch, and are looking at ways to use it as a consumer advisory tool.
The Bank of Lancaster is considering the software as part of a budget counseling program, aimed at low- to middle-income customers who were either rejected for a loan or anticipate such a problem.
The counseling program is being developed, in part, to help the bank meet its Community Revinvestment Act requirements.