Banks try social networking, jump on Twitter wagon

By Kathy Chu and Kim Thai, USA TODAY

Social networking is becoming an increasingly popular way for banks to reach consumers amid the economic downturn.

Wells Fargo (WFC) and Bank of America (BAC) have begun to "tweet" — post messages of 140 characters or less on Twitter.com — with customers about everything from bank fees to product features. Discover Financial (DFS), American Express (AXP) and Citigroup (C) have launched Facebook or MySpace pages. Some banks even put marketing videos on YouTube.

"Social media is a whole new world, and you cannot afford to not be a part of it," says Pamela Blase, a spokeswoman for UMB Financial of Kansas City, Mo., which tweets about everything from the bank's financial stability to the industry's prospects.

Banks say they're establishing presences on social-networking sites to tap into a growing demographic and to control the conversation about their brands. Yet the economic turmoil, some say, makes it even more important to reach out to customers any way they can.

"There's a lot of worry out there," says Ed Terpening, vice president of social media at Wells Fargo, one of the first banks with a group of employees dedicated to social networking. "That means that we have to stay close to our customers."

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The appeal of social networking, according to Steve Furman, Discover's director of e-commerce, is that it provides "pure, instant" communication with customers.

In general, banks and card issuers have been slower to embrace social networking than other industries have. But social networking has become popular enough that, for many institutions, it's not a question of if but when to establish a presence on these sites, says James McGovern of Corporate Insight, a financial-services research firm.

Yet as a growing number of banks become proficient in the social-networking world, the norms of customer service are being upended. Increasingly, today's online interactions between banks and consumers are peppered with shorthand, typos and even slang.

"It sounds like you need 2 talk 2 someone abt your specific situation," read a recent Twitter post from a Wells Fargo rep.

Adding to banks' challenges, social-networking sites are becoming another venue for consumers to complain — and complain is exactly what they're doing as credit card rates and fees rise even as the economy struggles and unemployment rises.

Jesse Hattabaugh, a software engineer from San Francisco, recently posted this message to banks on Twitter: "Stop making your living off my late fees! You fine me more than you loan me!"

Advanta Shuts Down Credit-Card Lending Amid Surging Charge-Offs

By Hugh Son

May 12 (Bloomberg) -- Advanta Corp., the issuer of credit cards for small businesses, will halt new lending for its 1 million customers next month as the recession causes a surge in loan defaults.

Lending ceases June 10. Advanta will use as much as $1.4 billion to pay investors of its securitized credit-card loans part of the debt’s face value, the Spring House, Pennsylvania- based company said yesterday in a statement. Advanta said it’s preserving capital after charge-offs, or uncollectible debt, reached 20 percent on some cards as of March 31.

“This is a Hail Mary pass: They’re hoping they can stay alive barely until the environment changes,” said David Robertson, president of the Nilson Report, the Carpinteria, California-based industry newsletter.

Advanta has reported three consecutive quarterly losses and has seen its shares plunge from about $30 in June 2007 to $1.13 at the close of New York trading yesterday. The U.S. jobless rate reached 8.5 percent in March, a 25-year high, squeezing sales for small business owners. The economic slowdown affected Advanta’s customers across the country, Chief Financial Officer Philip Browne has said.

“We’ll be shutting down accounts for future transaction activities, but many of the customers will maintain balances and pay us off over time,” Browne said yesterday in a telephone interview. “We’ll have to service and collect on that, and that will be the first order of business for the company.”

Curtailing Business

Shutting accounts won’t accelerate payments for existing balances, Advanta said. While the company is “free to do new business in the future,” it doesn’t expect to do so until the plan is under way, according to the statement.

More than 90 percent of Advanta’s small business customers will have “adequate” access to alternative credit after the company halts lending, Browne said.

Advanta was the 11th-biggest U.S. credit-card issuer at the end of 2008 with about $5 billion in outstanding balances, and the only major lender focused on small business borrowers, Robertson said.

The company’s announcement yesterday is “a big sign that the credit-card industry has problems that are going to be around for several years,” said the Nilson Report’s Robertson.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net;

Students Become Prey for Cards Charging 18% After Free Lunch

By Alexis Leondis (Source Bloomberg)

May 8 (Bloomberg) -- Irena Cabrilo got a free lunch during her freshman year at the University of North Texas in exchange for signing up for a credit card from Bank of America Corp. Eight months later, she was carrying a $1,500 balance and struggling to pay an 18 percent interest rate.

“They made it sound so easy,” said Cabrilo, now a senior majoring in marketing and advertising. “Just sign up, you’ll get approved and have access to money. They don’t talk about interest rates and what will happen to your credit history.”

Average credit-card debt among graduating college seniors increased to more than $4,100 last year from $2,900 in 2004, according to a study by SLM Corp. About 85 percent of students have at least one credit card, according to the study, conducted every four years by Reston, Virginia-based SLM, also known as Sallie Mae, the largest lender to U.S. students.

The Senate may vote on a bill as early as May 11 that would prevent credit-card companies from targeting college students such as Cabrilo by requiring parental consent for a borrower under age 21 unless there is proof of independent income or completion of a financial literacy course. A Senate panel approved the restrictions, which also limit credit-card interest rates and fees, in March.

“Credit cards should be a leg-up for college students, not a leg-trap that snares them in unbearable debt,” said Senator Charles Schumer, a New York Democrat. “This new legislation will help protect students from unfair lending practices.”

Students Targeted

Credit-card issuers market to students because they want to inspire brand loyalty from a young age and believe parents will step in if their children default, according to Bill Hardekopf, chief executive officer of LowCards.com, a Birmingham, Alabama research firm. The lenders also expect college graduates to have higher-paying jobs, he said.

Many students need the credit-card accounts because they don’t have sufficient financial aid or enough savings to cover college costs, the Sallie Mae study said. More are turning to credit cards as the gap between financial aid packages and tuition widens, said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group in Washington.

Tuition and fees have risen 5.9 percent at four-year private institutions to $25,143 a year and 6.4 percent at public schools to $6,585 since last year, according to the New York- based College Board. Tuition, fees, room and board surpassed $50,000 a year for the first time in 2007 at George Washington University. Current annual rates at Ivy League schools, such as Harvard University in Boston, exceed $45,000.

Fewer Loans

Fewer private student loans, which often have variable interest rates, and “PLUS” loans are being originated because of stricter underwriting standards, according to Mark Kantrowitz, publisher of FinAid.org, a college funding information Web site based in Cranberry Township, Pennsylvania. Parents and graduate students may take PLUS loans, which require good credit and have fixed interest rates, to cover the balance of tuition.

Private education loan originations were $1.5 billion in the first quarter, down from $2.5 billion a year earlier, based on data provided by Sallie Mae.

Credit-card interest rates are often higher than private student loan rates, and funding college costs with credit cards should only be used after exhausting other loans and for necessary expenses, said Kantrowitz. “You should live like a student while you’re in school so you don’t have to live like a student after you graduate,” he said.

Recent graduates who are repaying their debts should make the minimum payment on every loan and apply any remaining money to the loan with the highest rate, Kantrowitz said.
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