Jose A' Garcia

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• Jose A. Garcia
• Associate Director For Research and Policy

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Unemployment rate 1999 to 2009
Bureau for Labor Statistics
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Credit Card Debt 1990-2009 (in billions)?
Federal Reserve Statistical Release G.19
Consumer Credit
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Credit Card Delinquency Rate 1991 1q to 2008 4q
Federal Reserve Statistical Release Delinquency
Rates on Loan and Leases at Commercial Banks
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Credit Card Charge Off Rate 2000 2008
Federal Reserve Statistical Release Charge Off
Rates on Loan and Leases at Commercial Banks
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Owners equity as percentage of household real
estate
Federal Reserve Statistical Release Z.1 - Flow
of Fund Accounts of the United States
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Net Percentage of Domestic Banks Tightening
Standards on Credit Cards
Federal Reserve Board Senior Loan Officer
Opinion Survey on Bank Lending Practices
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Median Family Income 1979-2006 (2006 dollars)?
Source The State of Working America 2008/2009
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Personal Savings as a Percentage of Disposable
Personal Income, 1989-2006
Source US Department of Commerce, Bureau of
Economic Analysis
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Home Equity Cash-Out Refinancing (billions of
dollars)?
The Joint Center for Housing Studies The State
of the Nation's Housing 2008
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Deregulation
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).
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.
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.
1978
1980
1982
1987
1996
1999
2005
1994
1997
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Household Survey Findings2008
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Methodology

• 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
• One-third of all low- and middle-income
  households qualifiedrepresenting 41 million
  people in 15 million households
• Margin of error is plus/minus 3.7 percentage
  points

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Sample Characteristics

• Median income 42,000
• 35 under 35K
• 36 between 35K and 50K
• 30 above than 50k
• Race and Ethnicity
• 84 White 14 African American 10 Hispanic.
• 74 Homeowners 26 Renters
• Education Level
• 5 less than HS diploma
• 29 HS diploma
• 31 some college
• 35 bachelors degree or higher

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Mean/Median Amount of Debt

• Mean
• 9,827
• Median
• 5,000

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Level of Credit Card Debt
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Length of time in credit card debt

• Mean
• 5 Years (62 months)?
• Median
• 5 Years (60 months)?

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Expected Time to Pay Off Debt

• Mean
• 3.4 years
• Median
• 2 years

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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

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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

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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

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Borrowing for the Basics

• Over 1/3 of households reported using credit
  cards in the past year to pay for basic living
  expenses
• Average number of months 5

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Predictors of Higher Relative Debt

• Why do some households have higher credit card
  debt than others?
• 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

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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

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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

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Hidden Credit Card Debt

• 26 of homeowners had refinanced their home in
  the past 5 years
• Half used the money to pay off credit card debt
• Amount paid off
• Mean 13,818
• Amount households still had in credit card debt
• Mean 13,971

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Credit Card APR and Fees

• Interest Rates
• Average APR 14.78
• 1 in 4 families pay 20 APR or higher
• Late Payments and Fees
• 50 had missed or been late one payment and paid
  late fees
• Average was 4 times Median, 3 times
• 51 reported interest rate increased as result of
  late payment

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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

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Savings Behavior

• 51 save on a monthly basis
• 17 less than 100
• 27 100-199
• 22 200-299
• Mean Savings 265

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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.

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Policy Recommendations

• Address Demand for High Cost Credit
• Enhanced Savings Incentives
• Better Protections Against Income Volatility
• Health Insurance Costs
• Create New High Wage Jobs
• Reform the Supply Side
• Eliminate Universal Default
• Late Payment Grace Period
• Limit Penalty Rate Increases
• Prohibit Retroactive Rate Hikes
• Usury Limits on Payday Lending