jose a. garcia associate director for research and policy
TRANSCRIPT
Jose A. GarciaAssociate Director For Research and Policy
Unemployment rate: 1999 to 2009
8.5
0
1
2
3
4
5
6
7
8
9
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Bureau for Labor Statistics
Credit Card Debt 1990-2009 (in billions)
Federal Reserve Statistical Release: G.19 Consumer Credit
$238
$508
$749
$962 $956
0
200
400
600
800
1000
1200
Credit Card Delinquency Rate: 1991 1q to 2008 4q
Federal Reserve Statistical Release: Delinquency Rates on Loan and Leases at Commercial Banks
5.56
0
1
2
3
4
5
6
1991
:01:
00
1992
:01:
00
1993
:01:
00
1994
:01:
00
1995
:01:
00
1996
:01:
00
1997
:01:
00
1998
:01:
00
1999
:01:
00
2000
:01:
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2001
:01:
00
2002
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2003
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2004
:01:
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2005
:01:
00
2006
:01:
00
2007
:01:
00
2008
:01:
00
Credit Card Charge Off Rate: 2000 – 2008
Federal Reserve Statistical Release: Charge Off Rates on Loan and Leases at Commercial Banks
6.25
7.85
0
1
2
3
4
5
6
7
8
91
98
5 1
q
19
86
2q
19
87
3q
19
88
4q
19
90
1q
19
91
2q
19
92
3q
19
93
4q
19
95
1q
19
96
2q
19
97
3q
19
98
4q
20
00
1q
20
01
2q
20
02
3q
20
03
4q
20
05
1q
20
06
2q
20
07
3q
20
08
4q
Owners’ equity as percentage of household real estate
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
2005 2006 2007-1q
2007-2q
2007-3q
2007-4q
2008-1q
2008-2q
2008-3q
2008-4q
Federal Reserve Statistical Release: Z.1 - Flow of Fund Accounts of the United States
Net Percentage of Domestic Banks Tightening Standards on Credit Cards
-20
-10
0
10
20
30
40
50
60
70
80
Federal Reserve Board: Senior Loan Officer Opinion Survey on Bank Lending Practices
Median Family Income 1979-2006 (2006 dollars)
$50,697$53,714 $53,349 $59,398 $58,407
$25,523 $25,125 $25,052$28,100 $27,000
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
1979 1989 1995 2000 2006
Median Family Income
20th Percentile--Upper Limit
Source: The State of Working America 2008/2009
Personal Savings as a Percentage of Disposable Personal Income, 1989-2006
0.4%
2.1%
1.8%
4.3%
2.4%
3.60%
4.6%
5.8%
7.73%7.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Source: US Department of Commerce, Bureau of Economic Analysis
Home Equity Cash-Out Refinancing (billions of dollars)
15.2 22.9 27.750.8 46
31.6
97
128.1
165.8156.9
278.3
327
253.7
0
50
100
150
200
250
300
350
1995 1997 1999 2001 2003 2005 2007
The Joint Center for Housing Studies: The State of the Nation's Housing 2008
Deregulation
19781980
19821987
19941996
19971999
2005
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 issuer’s 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.
Household Survey Findings2008
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
$2,501-$5,000 21%
Over $10,000 27%
$5,001-$7,500 9%
Under $2,500 29%
$7,501- 10,000
14%
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 Debto 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
$2,252average 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 Rateso Average APR – 14.78o 1 in 4 families pay 20% APR or higher
Late Payments and Feeso 50% had missed or been late one payment
and paid late feeso Average was 4 times; Median, 3 timeso 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 Credito Enhanced Savings Incentiveso Better Protections Against Income Volatilityo Health Insurance Costso Create New High Wage Jobs
Reform the “Supply Side”o Eliminate Universal Defaulto Late Payment Grace Periodo Limit Penalty Rate Increaseso Prohibit Retroactive Rate Hikeso Usury Limits on Payday Lending