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:

00

2001

:01:

00

2002

:01:

00

2003

:01:

00

2004

:01:

00

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