As credit card charge-off rates continue on a path to hit record lows next year, the number of consumers seeking credit-counseling help also is declining.
Consumers have resolved their credit card problems to such an extent over the past year that nonprofit credit-counseling firms are noticing a significant decline in demand for their services, resulting in layoffs at some firms.
And as the number of troubled credit card accounts declines, a certain provision of the Credit Card Accountability, Responsibility and Disclosure Act, designed to provide help for troubled credit card borrowers, is getting scant use, according to one of the nation’s largest nonprofit credit-counseling organizations.
The CARD Act requires credit card issuers to include a toll-free telephone number on all credit card statements directing customers that need help to nonprofit credit-counseling agencies. Since the rule went into effect on Feb. 22, 2010, the National Foundation for Credit Counseling estimates that its toll-free line has been listed on some 500 million credit card statements.
But over the past 15 months, only 150,000 consumers have called the number the foundation established to track credit-counseling inquiries prompted by information on credit card statements, the foundation says.
“Calls that are coming into our national locator line included in many credit card statements are relatively few, considering that we’re still arguably in one of the worst economic cycles,” Gail Cunningham, a foundation spokesperson, tells PaymentsSource. “Although the worst of the economic mess is over, consumers really seem to have cleaned up their act and are using their credit cards much more responsibly.”
Under the CARD Act, issuers may provide a toll-free number of their own that routes consumers to a nonprofit agency, or they may use one of various nonprofit credit counseling agencies’ toll-free numbers that route callers to their nearest local affiliated agency.
The foundation, with members representing some 800 nonprofit credit-counseling locations across the nation, says telephone calls coming through other channels for credit-counseling help also are down.
The total number of consumers that received credit counseling last year from the foundation’s member agencies declined 17.9%, to 3.2 million from 3.9 million in 2009, and the foundation expects the number to decline further this year.
The foundation did not disclose the number of consumers who have sought counseling so far this year, but Cunningham confirms that its members are reporting staff layoffs caused by declining demand for their services.
“Business is slow,” Cunningham says.
The falloff in demand for credit-counseling is no surprise, given lenders’ crackdown on credit card borrowers beginning in 2008, Ezra Becker, vice president of consulting and research at the Chicago-based credit bureau TransUnion LLC.
The recession triggered massive credit card defaults and delinquencies, which caused lenders to slash credit lines, close underperforming accounts and restrict credit lines to new customers, Becker tells PaymentsSource.
The average U.S. credit card charge-off rate, which is near 7% from a peak of more than 11% last year, has fallen because issuers closed millions of troubled accounts and restricted lending except to the most creditworthy borrowers (
Consumers in turn have relied less on credit cards for everyday spending, turning instead to debit cards, cash and checks, Becker says. This has caused a decline in the total amount of outstanding credit card receivables, although recently certain lenders have begun increasing individual credit lines slightly (
“Although lenders are starting to increase marketing for new card accounts, which is stimulating demand, we are not going to see a rapid change in existing trends,” Becker says. “Consumers continue to be very cautious, and the economy is still slow. But whether there has been a permanent change in how people manage their finances remains to be seen. People tend to have short memories. ... Time will tell, when things stabilize, whether people are going to fall into trouble again by overspending on credit.”
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