Garcia

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					Jose A. Garcia
Associate Director For Research and Policy
                  Unemployment rate: 1999 to 2009

                    9
                                                                      8.5
                    8

                    7

                    6

                    5

                    4

                    3

                    2

                    1

                    0
                    1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bureau for Labor Statistics
                 Credit Card Debt 1990-2009
                 (in billions)‫‏‬

               1200
                                                                                    $962      $956
               1000
                                                                  $749
                 800
                 600                         $508

                 400     $238
                 200
                    0
                    90

                           92

                                   94

                                          96

                                                 98

                                                        00

                                                              02

                                                                    04

                                                                          06

                                                                                08

                                                                                         09
                  19

                         19

                                19

                                        19

                                               19

                                                      20

                                                             20

                                                                   20

                                                                         20

                                                                               20

                                                                                     b
                                                                                    Fe
Federal Reserve Statistical Release: G.19 Consumer Credit
                                                                                                19
                                                                                                  91
                                                                                                19 :01




                                                                                                               0
                                                                                                                   1
                                                                                                                       2
                                                                                                                           3
                                                                                                                               4
                                                                                                                                   5
                                                                                                  9 2 :0                               6
                                                                                                19 :01 0
                                                                                                  9 3 :0
                                                                                                19 :01 0
                                                                                                  9 4 :0
                                                                                                19 :01 0
                                                                                                  9 5 :0
                                                                                                19 :01 0
                                                                                                  9 6 :0
                                                                                                19 :01 0
                                                                                                  9 7 :0
                                                                                                19 :01 0
                                                                                                  9 8 :0
                                                                                                19 :01 0
                                                                                                  9 9 :0
                                                                                                20 :01 0
                                                                                                  0 0 :0
                                                                                                20 :01 0
                                                                                                  0 1 :0
                                                                                                20 :01 0
                                                                                                  0 2 :0
                                                                                                20 :01 0
                                                                                                  0 3 :0
                                                                                                20 :01 0
                                                                                                  0 4 :0
                                                                                                20 :01 0
                                                                                                  0 5 :0
                                                                                                20 :01 0
                                                                                                  0 6 :0
                                                                                                20 :01 0
                                                                                                  0 7 :0
                                                                                                20 :01 0
                                                                                                                                              Credit Card Delinquency




                                                                                                  0 8 :0
                                                                                                                                              Rate: 1991 1q to 2008 4q




                                                                                                     :0 0
Federal Reserve Statistical Release: Delinquency Rates on Loan and Leases at Commercial Banks




                                                                                                       1:
                                                                                                          00
                                                                                                                                       5.56
                   Credit Card Charge Off Rate: 2000 –
                   2008

                 9
                                                                                                                                                          7.85
                 8
                 7                                                                                                                                                                                                 6.25
                 6
                 5
                 4
                 3
                 2
                 1
                 0
                     1985 1q
                               1986 2q
                                         1987 3q
                                                   1988 4q
                                                             1990 1q
                                                                       1991 2q
                                                                                 1992 3q
                                                                                           1993 4q
                                                                                                     1995 1q
                                                                                                               1996 2q
                                                                                                                         1997 3q
                                                                                                                                   1998 4q
                                                                                                                                             2000 1q
                                                                                                                                                       2001 2q
                                                                                                                                                                 2002 3q
                                                                                                                                                                           2003 4q
                                                                                                                                                                                     2005 1q
                                                                                                                                                                                               2006 2q
                                                                                                                                                                                                         2007 3q
                                                                                                                                                                                                                    2008 4q
Federal Reserve Statistical Release: Charge Off Rates on Loan and Leases at Commercial Banks
                    Owners’ equity as percentage of
                    household real estate

                  70.0%

                  60.0%

                  50.0%

                  40.0%

                  30.0%

                  20.0%

                  10.0%

                   0.0%
                       2005       2006 2007- 2007- 2007- 2007- 2008- 2008- 2008- 2008-
                                        1q    2q    3q    4q    1q    2q    3q    4q


Federal Reserve Statistical Release: Z.1 - Flow of Fund Accounts of the United States
                       Net Percentage of Domestic Banks Tightening
                       Standards on Credit Cards

                               80

                               70

                               60

                               50

                               40

                               30

                               20

                               10

                                 0
                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q

                               20 1q

                               20 3q
                                    1q
                            00

                                 00

                                 01

                                 01

                                 02

                                 02

                                 03

                                 03

                                 04

                                 04

                                 05

                                 05

                                 06

                                 06

                                 07

                                 07

                                 08

                                 08

                                 09
                            -10
                          20




                            -20
Federal Reserve Board: Senior Loan Officer Opinion Survey on Bank Lending Practices
           Home Equity Cash-Out
           Refinancing (billions of dollars)‫‏‬
          350                                                                                     327


          300                                                                             278.3
                                                                                                        253.7
          250

          200                                                             165.8
                                                                                  156.9

          150                                                     128.1
                                                            97
          100
                                      50.8    46
                               27.7                 31.6
           50     15.2 22.9

             0
                 1995         1997           1999          2001       2003            2005              2007

The Joint Center for Housing Studies: The State of the Nation's Housing 2008
 Deregulation
                               Credit cards: The
                               Supreme Court decides
                               that credit card fees, like
Credit cards: Supreme
                               interest, can be limited
Court rules that banks can
                               only by the issuer’s home
charge the highest interest
                               state (which by now
rate allowed by the state
                               generally means South
where they are located, not
                               Dakota or Delaware).
the state where their
customer lives. South Dakota
and Delaware respond by                      Bankruptcy reform: Responding
removing their usury laws.                   to credit card companies’
                                             complaints of “bankruptcy abuse”
                                             and “surprise bankruptcies,”
                                             Congress imposes new
                                             requirements on filers, including a
                                             means test. Exempts private
                                             student loans.
Household Survey Findings
          2008
Methodology

o 1,205 Households Surveyed by Phone
    Household income between 50% and 120% of
     Local median income

    Have credit card debt for longer than three months

o One-third of all low- and middle-income
  households qualified—representing 41 million
  people in 15 million households

o Margin of error is plus/minus 3.7 percentage
  points
 Sample Characteristics
o Median income $42,000
  • 35% under $35K
  • 36% between $35K and $50K
  • 30% above than $50k
o Race and Ethnicity:
   • 84% White; 14% African American; 10%
       Hispanic.
o 74% Homeowners; 26% Renters

o Education Level:
   •   5% less than HS diploma
   •   29% HS diploma
   •   31% some college
   •   35% bachelor’s degree or higher
Mean/Median Amount of Debt


      Mean:
      $9,827

      Median:
      $5,000
Level of Credit Card Debt


Over $10,000                Under $2,500
    27%                         29%




 $7,501-
 10,000
   14%                     $2,501-$5,000
                                21%
           $5,001-$7,500
                9%
Length of time in credit card
debt


            Mean:
      5 Years (62 months)‫‏‬

            Median:
      5 Years (60 months)‫‏‬
Expected Time to Pay Off Debt

         Mean:
        3.4 years

        Median:
         2 years
Compared to 3 years ago…

Compared to 3 years ago, is the total
amount of credit card debt less, about
the same or more?

   45%    Less
   26%    About the same
   29%    More
Reasons for Debt
48%   Smaller purchases of non-essential goods
      and services that add up over time
41%   Car repairs
32%   Home repairs
29%   Major purchase of non-essential good or
      services

25%   Major household appliance
24%   Layoff or loss of a job
Reasons for Debt, con’t

15%   Starting or running a new business

13%   Money given to, or used to pay the debts of
      relatives

11%   Tuition or college expenses for spouse,
      partner or self

 9%   Tuition or college expenses for a child
Borrowing for the Basics

o Over 1/3 of households reported
  using credit cards in the past year to
  pay for basic living expenses


  Average number of months: 5
Predictors of Higher Relative
Debt
o Why do some households have
  higher credit card debt than others?
o Regression results:
    Higher relative debt due to use of
     credit cards to pay for basics
    Higher relative debt households
     were those who reported running
     up credit card debt due to a layoff
     or helping a family member
Medical Expenses and Credit
Card Debt

                 52%
  of households reported medical
expenses contributed to their credit card
                 debt



              $2,252
average amount of medical expenses on
             credit card
Medical expenses contributing to
credit card debt


 26% Prescription medications

 23% Dental expenses

 20% Visits to the doctor

 13% Hospital stays

 13% Emergency room visits
Hidden Credit Card Debt
o 26% of homeowners had refinanced
  their home in the past 5 years

o Half used the money to pay off credit
  card debt
o Amount paid off:
  Mean: $13,818

o Amount households still had in credit
  card debt:
  Mean: $13,971
Credit Card – APR and Fees

Interest Rates
o Average APR – 14.78
o 1 in 4 families pay 20% APR or higher

Late Payments and Fees
o 50% had missed or been late one payment
  and paid late fees
o Average was 4 times; Median, 3 times
o 51% reported interest rate increased as
  result of late payment
Methods used to pay down
debt
59%   Tax refund
45%   Worked extra hours/Got extra job
34%   Savings
24%   Money from EITC
17%   Money from family member or
       friend
16%   Retirement funds
Savings Behavior

51% save on a monthly basis
   • 17% less than $100
   • 27% $100-199
   • 22% $200-$299

Mean Savings: $265
Reasons for Not Saving

48% “There is no money left over after paying all
    the bills”

26% “Used to save regularly, but monthly costs
    have risen.”

21% “Used to save regularly, but income has
    dropped.”

3%    “You don’t feel the need to put money away
      in savings.”
Policy Recommendations

Address “Demand” for High Cost Credit
   o Enhanced Savings Incentives
   o Better Protections Against Income Volatility
   o Health Insurance Costs
   o Create New High Wage Jobs

Reform the “Supply Side”
   o Eliminate Universal Default
   o Late Payment Grace Period
   o Limit Penalty Rate Increases
   o Prohibit Retroactive Rate Hikes
   o Usury Limits on Payday Lending

				
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