Covering charge card reform

“Veni, vidi, Visa!”

One of the sporadic shopaholics in my family coined that take-off on Julius Caesar’s “I came, I saw, I conquered,” line about 20 years ago, while wielding her plastic with gusto.

The quip was a scream, but for millions of Americans who racked up debt with similar abandon, lenders got the last laugh. Over the past decade or so, all sorts of arcane accounting devices were developed to wring the most revenue out of an open charge card balance, from double-cycle billing to boost finance charge to universal-default rules that hike interest rates if borrowers are spotted make a late payment – to another vendor. Rule changes were sprung on customers via microscopic type on plain little black-and-white folded pamphlets.

Still, we gorged on easy money, and everyone laughed at numerous tales of easy credit being extended to dogs, babies and garden gnomes as banks furiously churned out pre-approved offers for more. Then the economic tides turned, a wallet load of credit cards ceased being a status symbol and consumers were aghast when they took a good hard look at what they’d signed up for.

As of June, we owed about $917 billion on revolving credit accounts, according to the Federal Reserve’s G-19 Consumer Credit report. Congress got in on the act and earlier this year passed the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which President Obama signed into law in May.

Here’s the White House fact sheet on the bill; some of its provisions kick in today. From now on, credit card issuers have to mail bills three weeks before they are due, and they’ll have to give customers 45 days to mull their options – including a new payoff plan - when rate increases loom.

For more on the credit card reform provisions, more of which take effect in February, here’s a Consumer Reports page devoted to the act and related info.

One caveat: Many consumer advocates – and journalists – trumpet the new legislation as a triumph over evil predatory lenders. To be sure, issuers’ ingenuity definitely has been in overdrive when it comes to some of the convoluted fee and billing structures, and there is no question that glitzy marketing materials eclipsed the plain-Jane contracts that bind so many people to debt.

But it’s not a one-sided story, so don’t write it that way. Many prompt payers will see their rates rise, too, as banks compensate for revenue lost elsewhere. Those who use cards for convenience and rewards, without carrying a balance, may see the return of annual fees and the shriveling of points programs. Always look for the contrarian view when reporting on consumer affairs.

Consumer Action, in their just-released annual survey, takes a look at the pros and cons of the bill, as well as other trends in credit card policy.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Checking up on local banks

Bank shares took an especially heavy beating in Monday’s stock market sell-off, and no wonder. Despite billions of taxpayer dollars spent on bailouts, financial institutions are failing at a pretty fast clip this year.

According to a report in Monday’s The Wall Street Journal, citing the FDIC, 77 banks have failed this year – five of them last Friday – and some 300 more are viewed by federal regulators as at risk.

And last week, the Congressional Oversight Panel supervising TARP bailout funds released this report warning that many banks are still holding troubled assets on their books.

The problem is particularly acute for smaller banks, the report says, because they hold more commercial loans, with a high default risk, and more whole loans, which also can be wiped out by default faster than a pool of securitized loans. Meanwhile, smaller banks don’t have the same access to capital as larger institutions.

“Given the ongoing uncertainty, vigilance is essential,” the report urges. They’re speaking to federal regulators, but as a journalist you should take this as a sign that your local banking institutions deserve a second look.

It’s not an easy task – banking and finance are complex disciplines with confusing and arcane accounting conventions, terminology, you name. Because they don’t produce ‘stuff’ or provide tangible services like hair cuts or computer repair, they record their numbers differently than those in other sectors.

For starters, here’s a very good article from Investopedia.com about analyzing a banking institution’s income statements, complete with explanatory graphics.

It explains how banks derive income – basically by taking deposits and lending the money out to others at a profitable interest rate. Major risks are that the borrower will default or that interest rates will fall and the bank be obligated to pay out more than it actually earns on loans.

Get to know the regulators at your state level; the National Association of State Credit Union Supervisors and the Conference of State Bank Supervisors can point you in the right direction.

Federal regulatory sites abound and you’ll need to dig to determine who’s in charge of specific companies in your market. The Web sites of the 12 Federal Reserve banks, as well as the federal Comptroller of the Currency, Office of Thrift Supervision and the Federal Deposit Insurance Corp. all offer other educational materials online.

One interesting place to start is this FDIC database; you can run a report by county or other parameters showing each financial institution ranked by market share of deposits. It’s a fast and convenient way to find out which institutions your readers trust the most with their cash.

Then, check those banks against the American University’s Investigative Reporting Workshop’s BankTracker database. In addition to detailing how much TARP money specific banks received, the database – a synthesis of FDIC reports on thousands of banks -- depicts each institution’s ‘troubled asset ratio’ compared to its capital and loan-loss reserves. The closer those two figures, the riskier the bank’s situation and the numbers provide an excellent opening for interviews with local bank execs.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.