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Jose A. Garcia Associate Director For Research and Policy.

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Presentation on theme: "Jose A. Garcia Associate Director For Research and Policy."— Presentation transcript:

1 Jose A. Garcia Associate Director For Research and Policy

2 Unemployment rate: 1999 to 2009 Bureau for Labor Statistics

3 Credit Card Debt 1990-2009 (in billions) Federal Reserve Statistical Release: G.19 Consumer Credit

4 Credit Card Delinquency Rate: 1991 1q to 2008 4q Federal Reserve Statistical Release: Delinquency Rates on Loan and Leases at Commercial Banks

5 Credit Card Charge Off Rate: 2000 – 2008 Federal Reserve Statistical Release: Charge Off Rates on Loan and Leases at Commercial Banks

6 Owners equity as percentage of household real estate Federal Reserve Statistical Release: Z.1 - Flow of Fund Accounts of the United States

7 Net Percentage of Domestic Banks Tightening Standards on Credit Cards Federal Reserve Board: Senior Loan Officer Opinion Survey on Bank Lending Practices

8 Median Family Income 1979-2006 (2006 dollars) Source: The State of Working America 2008/2009

9 Personal Savings as a Percentage of Disposable Personal Income, 1989-2006 Source: US Department of Commerce, Bureau of Economic Analysis

10 Home Equity Cash-Out Refinancing (billions of dollars) The Joint Center for Housing Studies: The State of the Nation's Housing 2008

11 Deregulation 1978 1980 1982 1987 1994 1996 1997 19992005 Credit cards: Supreme Court rules that banks can charge the highest interest rate allowed by the state where they are located, not the state where their customer lives. South Dakota and Delaware respond by removing their usury laws. Credit cards: The Supreme Court decides that credit card fees, like interest, can be limited only by the issuers home state (which by now generally means South Dakota or Delaware). Bankruptcy reform: Responding 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.

12 Household Survey Findings 2008

13 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 qualifiedrepresenting 41 million people in 15 million households o Margin of error is plus/minus 3.7 percentage points

14 Sample Characteristics oMedian income $42,000 35% under $35K 36% between $35K and $50K 30% above than $50k oRace and Ethnicity: 84% White; 14% African American; 10% Hispanic. o74% Homeowners; 26% Renters oEducation Level: 5% less than HS diploma 29% HS diploma 31% some college 35% bachelors degree or higher

15 Mean/Median Amount of Debt Mean: $9,827 Median: $5,000

16 Level of Credit Card Debt

17 Length of time in credit card debt Mean: 5 Years (62 months) Median: 5 Years (60 months)

18 Expected Time to Pay Off Debt Mean: 3.4 years Median: 2 years

19 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

20 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

21 Reasons for Debt, cont 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

22 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

23 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

24 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

25 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

26 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

27 Credit Card – APR and Fees Interest Rates oAverage APR – 14.78 o1 in 4 families pay 20% APR or higher Late Payments and Fees o50% had missed or been late one payment and paid late fees oAverage was 4 times; Median, 3 times o51% reported interest rate increased as result of late payment

28 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

29 Savings Behavior 51% save on a monthly basis 17% less than $100 27% $100-199 22% $200-$299 Mean Savings: $265

30 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 dont feel the need to put money away in savings.

31 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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