Fed Proposes Extra Step For Store Credit

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During the holiday shipping season, many consumers will be offered retail credit cards in exchange for relatively little personal information. The Federal Reserve wants to change that. It is proposing regulations that would require companies to solicit more financial information before offering lines of credit. Financial Advisor Glinda Bridgeforth, author of 'Girl Get Your Credit Straight', discusses what the new rules could mean for retail companies and your pocketbook.

MICHEL MARTIN, host:

Banks, of course, aren't the only place you can turn to for credit. For years, large retailers have been more than happy to provide instant credit on the spot to clients with few questions asked, and a discount often thrown in for good measure. But that practice may be about to change if the Federal Reserve has its way. The Fed is proposing new regulations that would make it tougher for retailers to hand out credit cards on the spot. We wanted to know more about this. So we called Glinda Bridgforth, author of "Girl Get Your Credit Straight." She's also a financial advisor and she's with us now. Glinda, welcome.

Ms. GLINDA BRIDGFORTH (Author, "Girl Get Your Credit Straight"): Hello, Michel.

MARTIN: So we've all been there, I think. A store clerk says you can save this amount, open up your credit card today, get your 15 percent off on all the day's purchases. What's so terrible?

Ms. BRIDGFORTH: Well, I think what is a little concerning about that for me is the fact that a lot of people get caught up into impulse spending because of that offer, because of that opportunity. The fact that they could get 15 percent off is wonderful. And we definitely want people to save money on purchases but if you're buying additional things that you hadn't planned on buying then that just increases your debt and can cause you further problems in the future.

MARTIN: Well, consumer advocates are saying that these proposed rules - and the rules, by the way, would require customers to hand over more information before a credit card is granted, income information, for example. Currently, apparently what they just do is tap into a database around credit history or payment history and they don't ask for income information or income verification. So the proposed plan would be for customers to hand over more information. Now, consumer advocates say these rules are a victory for Americans who are bombarded with easy credit. On the other hand, other people say, well, that's just patronizing. It's your job to - this is access to credit for people who may not have a mortgage and that this is patronizing. People should be able to handle their own business. What do you say about that?

Ms. BRIDGEFORTH: Well, I definitely feel that people have a personal responsibility in terms of accepting the offer or not accepting the offer. I think that because of the fact that the retail store credit cards tend to have a very high interest rate, between 20 to 30 percent, and - you know, as opposed to some other cards or some other ways that people can go about making their purchases and so forth. I just have a concern that there's a high percentage of people that would go with emotion and would go with the impulse purchases and not actually think clearly, give themselves the opportunity to think clearly about can I really afford this additional amount of debt.

MARTIN: And do you think - you think that that concern outweighs the access to credit from people who otherwise might not have it in other ways.

Ms. BRIDGEFORTH: I'm just very concerned that individuals have had, you know, access to - this does give access to a lot of individuals who may not have had credit in the past or had enough credit, but there's nothing wrong with credit. It's good credit that is important. You cannot abuse the credit.

And so I think that financial education and personal responsibility is a really big part of what needs to happen, as opposed to just this quick, you know, would you like to get credit, and people accepting it.

MARTIN: And it has to be said that the delinquency and default rates on store-branded cards, which are also known as private-label cards, are usually higher than general-purpose cards that can be used anywhere because it's believed that customers, if they get into financial distress, are more likely to make payments on a general-purpose card, which could be used for anything, as opposed to a card that is accepted at only one place.

So, Glinda, what do you advise your clients? Do you tell them stay away from those store-branded cards?

Ms. BRIDGEFORTH: Under most circumstances, yes, I would suggest that. It does affect your credit score. It's good to have credit. You need to be able to have credit and show that you can repay on time. If the individual is responsible and will do that, then fine. I have no problem with that, as long as they are paying the bill off within 30 days, 60 days.

The problem comes when people are just making the minimum payment. Any savings that they might have gotten because of that instant credit, that 15 percent, is offset because of the high finance charge that they're paying.

Credit scores are extremely important right now. They're only second to Social Security Numbers. And basically, it - your credit score determines your interest rates, whether you can live in a certain place because landlords look at credit scores, your insurance and even employment opportunities. They look at your credit scores.

I can just see a terrific backup at the cash registers, given the fact that people will need to show proof of income. However, I still don't necessarily think that that is a good indication on their ability to repay if you don't, in fact, know what all of their expenses are and you just look at what's showing up on the credit report.

MARTIN: OK, Glinda, very briefly, can I get in your business?

Ms. BRIDGEFORTH: Sure.

MARTIN: Do you own any store credit cards?

Ms. BRIDGEFORTH: No, I don't. I don't.

MARTIN: You don't. OK.

Ms. BRIDGEFORTH: I've got - I have two personal credit cards and one business credit card.

MARTIN: OK. So then I won't ask what you're getting me for Christmas, however you plan to pay for it.

(Soundbite of laughter)

MARTIN: Glinda Bridgeforth is the author of "Girl Get Your Credit Straight." She is a financial advisor. She - besides your good wishes, of course. She joined us from her home office in Detroit. Glinda, thank you, and happy holidays to you.

Ms. BRIDGEFORTH: Thank you. Same to you, Michel.

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