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Money Lending Club Social Money Lending
Small Business Marketing - Mobile Marketing - Word of Mouth
One of the biggest victims in the financial meltdown in the United States has clearly been consumer and small business credit card holders.
USA Today reports that at least one-third of U.S. credit card holders have had credit lines reduced or cancelled in 2008 and 2009, and the trend is accelerating. National Association of Small Business reports that over 40% of their members report contraction/cancellation of small business credit card lines from major small business credit card issuers.
Worse, many travelers in our ChangeWave Alliance Research network report they tried to use their Citibank co-branded credit cards on the road only to find that their charges were denied. It turns out that Citibank closed their accounts without any advanced warning.
It’s not just Citibank. Just about every major bank is limiting who they provide credit and how much credit they provide them. It’s not just sub-prime borrowers that are getting effected either. The Fair Isaac Corporation (NYSE: FICO) recently released a report that showed that 70% of credit card users that had their cards shut down had good credit.
If having access to credit shut off isn’t bad enough, the San Francisco Chronicle recently reported that having a single credit card closed can result in a short-term drop of more than 50 points from one’s credit score. That drop could be the difference between getting approved or denied for a mortgage, car loan, or other note.
Some in Congress conclude this situation needs new legislation. The Credit Card Act of 2009 was passed to “help” U.S. credit card holders from “viperous” credit card issuers.
Hmmm…let’s see how that turned out.
Citibank, Bank of America, and other credit card issuers have been sending customers letters informing them that their interest rates would be jumping dramatically. Some Citibank customers with perfect credit have even received letters informing them that the interest rates would be jumping to 29.99%.
Why? The Credit Card Holders Bill of Rights that was passed in May definitely has much to do with it. Citibank, and others are raising their interest rates now because they will be prevented from arbitrarily changing customers’ interest rates when the law goes fully into effect in February. By raising rates now, the higher-interest rates that customers are being switched to now remain in effect when the legislation fully takes effect.
How widespread is this “unintended consequence?”
A new report issued by Pew Charitable Trusts on Tuesday stated that credit card interest rates raised an average of 20% during the first two quarters of 2009, despite the fact that banks total cost of lending declined during that period.
How about a market-based solution?
LendingClub.com is a social lending network platform. It arranges three-year fully amortizing loans from lender/investor members to borrower members. With a minimum FICO score of 680 they arrange fair-priced credit to high quality borrowers at rates 50-75% lower than the major credit card companies offer.
I have been a lender on their platform for more than a year. I’ve averaged over 12% on my money that includes a 3% default rate. Credit card companies report over 10% default rates for their credit card holders.
Why the difference?
It’s the social lending environment versus the cold-hearted credit card companies. LendingClub.com borrowers are borrowing from real people; many of whom they have affinity with via church, school, business, or other mutual interests. LendingClub.com borrowers feel an obligation to their lenders that they do not to Citibank, or Bank Americard.
Ahorre December 4, 2009 07:30 AM