tagged w/ Credit Card Companies
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By David Ellis, staff writerFebruary 17, 2010: 2:58 PM ET
NEW YORK (CNNMoney.com) -- If you haven't heard, big changes are soon coming for the credit card business.
The CARD Act, which was signed into law last May, will finally go into effect Monday, meaning big changes for the millions of card-carrying Americans across the country.
Among other things, it will eliminate some of the more egregious practices of the past like so-called "double-cycle billing", arbitrary rate increases and hefty fees for exceeding your credit limit.
But while the new law also promises consumers more transparency about their credit card bill, cardholders still need to watch out for a whole new series of traps and tricks.
Higher fees: For starters, consumers could suddenly find themselves socked with a variety of new fees and charges.
Banks and other card issuers have already been aggressively implementing new fees or raising existing ones to help make up for any potential revenue lost as a result of the CARD Act.
Last May, for example, Discover Financial Services (DFS, Fortune 500) announced it would start charging a 2% fee on all purchases made outside the United States.
And whereas 3% was once the standard charge for rolling over a balance from one credit card to another, issuers like JPMorgan Chase (JPM, Fortune 500) are now assessing customers a 5% fee, according to Bill Hardekopf, CEO of the card rating site LowCards.com.
But with the new law setting no restrictions on the types of fees issuers can implement, consumers should pay particularly close attention to the "Terms and Conditions" section of their statement so they know exactly what they are being charged for, warn experts.
"Fees are the one source of revenue that will become more and more important," said Hardekopf.
Tougher to get a card: As Congress moved closer to passing the law last spring, banking industry advocates cautioned that shaking up the status quo would mean that credit would be more difficult to come by for consumers.
So far, that seems to be playing out as predicted.
The amount of credit made available to consumers by credit card companies plunged by $252 billion, or 7%, between March and September of last year, according to IRA Bank Monitor.
Credit is poised to tighten even further. As part of the CARD Act, credit card companies will be severely restricted in how they market cards to college students, potentially shrinking an important part of their business.
But issuers are also expected to implement much more severe underwriting practices. Some may demand, for example, details on an applicant's income or proof of other savings.
Consumers with poor or even a mediocre credit history, as a result, may find it much more difficult to get a card or have their credit limit extended after the new law takes effect on Feb. 22, said Joseph Ridout of the advocacy group Consumer Action.
"I think it is fair to assume that credit card companies are going to scrutinize their potential customers a lot more closely than they did in the past," he said.
Fewer rewards: Consumers may also be increasingly unable to enjoy the fruits of their spending as a result of the new law.
It wasn't that long ago where a cardholder could easily earn credit towards a free airline ticket or cash back for every dollar spent. But issuers are now quietly becoming more stingy with their rewards in an effort to save money.
American Express (AXP, Fortune 500), for example, recently told its co-branded card customers they would not be able to accrue reward points on their purchases if they were late with a payment. Only by paying a $29 fee could they recoup those points.
To avoid missing out, experts suggest that consumers carefully read any notices they get from their credit card company about changes to their loyalty or rewards program.
"Rewards can be another way of penalizing people too," notes Nick Bourke, manager of the Pew Safe Credit Cards Project.
Rising rates: One of the biggest victories for consumers in the new law are a series of limits on how and when credit card companies can set interest rates.
Whereas in the past, banks could raise your annual percentage rate just for missing a payment on your cell phone bill or without giving a consumer much advance notice, such practices will soon be outlawed. Issuers now have to alert you at least 45 days in advance before raising your rate under the CARD Act.
The new law won't shield consumers from rate hikes altogether, though.
In recent months, banks have moved consumers over to so-called variable rate cards, whose rates fluctuate based on the direction of the prime rate. And with that rate at historic lows, experts said consumers should be prepared for at least a moderate increase in their APR at some point.
The new law also does not include any sort of interest rate cap banks and issuers can charge customers that are late on their payment by two months or more.
Credit card companies may remain reluctant to impose any usurious rates ahead of a review of penalty rates and fees by the Federal Reserve scheduled for later this year and given the public discontent for banks these days.
But that doesn't mean the days of big rate hikes are gone for good, Bourke said -- especially for consumers who are overwhelmed by debt. So experts suggest consumers should take extra care to stay current on their bills.
"The [CARD] Act doesn't absolve anyone from having to pay back their bills or take people out of harm's way if they run into trouble," said Bourke.By David Ellis, staff writerFebruary 17, 2010: 2:58 PM ET
NEW YORK (CNNMoney.com)... more
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Hidden details about the interest charged on partly-paid or overdue credit card balances is unfairly costing customers, consumer advocate group Choice says.
A study of 20 credit card companies showed the amount of interest charged on a credit card can depend as much on when a provider stops and starts charging interest and how fairly they apply interest-free days as the actual advertised interest rate.
American Express, Bankwest, Commonwealth Bank, ANZ and Westpac were named as the most unfair credit card providers.
"Many consumers would be surprised to learn they could have two cards with exactly the same interest rate and use them in the same way yet have one charging twice as much interest than the other if they pay late," Choice spokesman Christopher Azine said.
"The tricks of the trade make it much harder to compare the relative merits of different credit cards because the headline interest rate is only part of the story."
Most credit card companies backdate their interest to the date of the purchase if a repayment is late, Choice said, meaning just one day late can result in higher interest being charged retrospectively for up to 55 days.
Partial repayments are also unlikely to stop that backdating occurring, Choice said.
For example if a customer were to underpay a $2000 bill by just $10, the extra interest would still be charged on the whole $2000.
Fairer credit card providers, such as Bendigo Bank, Heritage Building Society, Teachers Credit Union and some GE cards, only charge interest on the shortfall, Choice said.
Mr Azine called on all credit card providers to use the same charging methods, and for customers to be aware of the finer details.
"It's a simple matter to tweak systems to employ fairer systems but while most customers don't understand the tricks they will inevitably continue," he said.
http://news.smh.com.au/breaking-news-business/study-names-unfair-credit-card-companies-20100125-msru.htmlHidden details about the interest charged on partly-paid or overdue credit card... more
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Clicking here will sign your name: "Credit card companies shouldn't be getting rich off of Americans' generosity. They should waive all fees on charitable contributions from today on."
Sign the petition
Dear MoveOn member,
As the tragedy in Haiti unfolds, Americans are generously donating millions of dollars to aid organizations.
But when Americans donate to charity with their credit cards, the credit card companies get rich. In some cases they keep 3% of the donation as a "transaction fee," even though that's far more than it costs them to process the donation.
It's outrageous and wrong—and it needs to stop.
Can you sign this petition to the CEOs of the major credit card companies demanding that they waive their processing fees for all charitable donations? Clicking here will add your name:
http://pol.moveon.org/nofees/o.pl?id=18607-7961245-xljIXMx&t=3Clicking here will sign your name: "Credit card companies shouldn't be... more
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"NEW YORK (AP) -- It's no mistake. This credit card's interest rate is 79.9 percent.
The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It's a strategy other subprime card issuers could start adopting to get around the new rules.
Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card's credit line.
In a recent mailing for a preapproved card, First Premier lowers fees to just that limit -- $75 in the first year for a credit line of $300. But the new law doesn't set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.
"It's the highest on the market. It's the highest we've ever seen," said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.
The terms are eyebrow raising, but First Premier targets people with bad credit who likely can't get approved for cards elsewhere. It's a group that tends to lean heavily on credit too, meaning they'll likely incur the steep financing charges.
So for a $300 balance, a cardholder would pay about $20 a month in interest."
Read more in the full article (link below):
http://search.finance.yahoo.com/news/Credit-cards-newest-trick-799-apf-3359014390.html?x=0&.v=4"NEW YORK (AP) -- It's no mistake. This credit card's interest rate is... more
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The New York Post reported this morning that lawmakers are discussing JPMorgan Chase CEO Jamie Dimon as a potential replacement for current Treasury Secretary Timothy Geithner.
Leaving aside concerns that appointing a Wall Street CEO to the Treasury's top position would draw heavy criticism over Wall Street's coziness with Washington, it's not clear that Dimon would be a natural fit in the Obama administration. According to the Wall Street Journal, Dimon departs from White House policy on a handful of key issues.
For one, President Obama has pushed establishment of a consumer-protection agency that would keep watch over credit card and mortgage companies, but Dimon opposes the agency on grounds that it will drive up costs. JPMorgan says recent legislation regulating credit cards could cost the bank up to $750 million a year, a burden that may be passed along to consumers.
And while the White House's position on how to handle too-big-to-fail banks is still evolving, Dimon has staunchly defended big banks' right to exist -- and to fail. In a Washington Post op-ed this month, Dimon wrote:
"...ending the era of "too big to fail" does not mean that we must somehow cap the size of financial-services firms. Scale can create value for shareholders; for consumers, who are beneficiaries of better products, delivered more quickly and at less cost; for the businesses that are our customers; and for the economy as a whole. Artificially limiting the size of an institution, regardless of the business implications, does not make sense. The goal should be a regulatory system that allows financial institutions to meet the needs of individual and institutional customers while ensuring that even the biggest bank can be allowed to fail in a way that does not put taxpayers or the broader economy at risk."
Anonymous sources told the NY Post that Dimon "would love to serve his country," but is demurring. He has no plans, he says, to leave JPMorgan for the next "six or seven years."
For now, Geithner is still contending with critics in Congress. He was attacked last week during an appearance before Congress's Joint Economic Committee. "Mr. Secretary, the public has lost all confidence in your ability to do your job," Rep. Kevin Brady (R-Texas) told him.The New York Post reported this morning that lawmakers are discussing JPMorgan Chase... more
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For two decades, the nation's top credit rating agencies have managed to fend off a crackdown from Washington by relying on a surprising ally - the First Amendment.
Despite their key role in the most recent economic calamity, the three big bond raters--Standard & Poor's, Moody's and Fitch--seem poised to do it again. With help from two of the most storied constitutional lawyers in the country, the raters have successfully argued that when they make a mistake -- say, awarding the top triple-A grade to a multibillion-dollar bundle of bonds that later default -- they cannot be sued or held accountable.
That's because ratings are opinions, the agencies claim, protected by the constitutional right to free speech.
A Huffington Post Investigative Fund examination of court filings, congressional testimony and Securities and Exchange Commission documents illustrates how the companies have repeatedly invoked that right to free speech to dodge government regulation and court action. The raters have never lost a courtroom battle to a disgruntled investor, not even in the Enron scandal. Enron enjoyed high grades on its bonds just four days before it filed for bankruptcy in 2001.
Critics of the rating companies argue that they are misusing the Bill of Rights to protect a flawed but highly profitable business.For two decades, the nation's top credit rating agencies have managed to fend off... more
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Visa Inc. on Wednesday said its fiscal third-quarter profit jumped nearly 73 percent, as recent cost-cutting helped offset declining payment processing volume driven down by the recession.
Executives with the world's largest electronic payment network said they see recent stabilization in the economy. They offered a slightly more optimistic outlook for Visa's fiscal fourth quarter, citing recent moderation in the payment volume decline.
"The velocity of the downturn has slowed," Chief Financial Officer Byron Pollitt told analysts on a conference call, adding that it was too early to characterize the shift as a broad economic turnaround.
San Francisco-based Visa reported net income of $729 million, or 97 cents per share, for the three months ended June 30. That's up from a profit of $422 million, or 51 cents per share, in the year-ago period.
Excluding one-time items including a gain from Visa's sale of an interest in its Brazilian affiliate, Visa's adjusted quarterly profit was $507 million, or 67 cents per share.
Analysts surveyed by Thomson Reuters expected a profit of 67 cents per share. Analysts' estimates typically exclude one-time items.
Visa's revenue rose 2 percent to nearly $1.65 billion, slightly above analysts' forecast of about $1.64 billion.Visa Inc. on Wednesday said its fiscal third-quarter profit jumped nearly 73 percent,... more
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Credit card companies are raising interest rates and fees seven months before new rules go into effect that will limit their ability do so, much to the irritation of Congress and consumer advocates.
Chase, for instance, will raise the minimum payment required of some of its customers from 2 percent to 5 percent of the statement balance starting in August. Chase and Discover have increased the maximum fee charged for transferring a balance to the card to 5 percent of the amount, up from 3 percent and 4 percent, respectively. Bank of America last month raised the transaction fee for balance transfers and cash advances from 3 percent to 4 percent. Card issuers including Bank of America and Citi also continue to cut limits and hike up rates, which they have been doing with more frequency since January.
"This is a common practice and will continue to be common, because issuers can do these things for really no reason until February," said John Ulzheimer, president of consumer education for Credit.com, which tracks the industry. "It's what I call the credit card trifecta — lower limits, higher rates, higher minimum payments."
The flurry of activity, which the banks say is necessary to shore up their revenue losses, has irked members of Congress, who passed a new credit card law that was signed by President Barack Obama in May. The law, among other things, would prevent card companies from raising rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months. The law would also require banks to get customers' permission before allowing them to go over their limits, for which they would have to pay a fee.
On Wednesday, Sen. Charles Schumer, D-N.Y., once again requested that the Federal Reserve invoke its emergency powers to place a limit on interest rate hikes.
"This is what many of us feared about a law that didn't take effect right away," Schumer said. "It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law, and it is just plain wrong."Credit card companies are raising interest rates and fees seven months before new... more
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This week the Senate takes up a bill that would seriously clamp down on some of the industry's most unsavory practices, a piece of legislation that President Obama has said he wants on his desk by the end of the month. The bill, which builds on rules issued by the Federal Reserve Board and other agencies at the end of last year, would do away with interest-rate hikes on existing balances, prohibit issuers from putting customer payments toward lower-rate balances first and abolish the practice of raising a customer's interest rate because he was late paying a bill to someone else.
The credit-card companies, though, may not be the only ones we need to be protected from. Every penny of Americans' nearly $1 trillion in revolving debt started with someone — some individual person — whipping out a piece of plastic and making a decision to use it.
In one experiment, Drazen Prelec and Duncan Simester of the Massachusetts Institute of Technology found that people were willing to pay twice as much for basketball tickets when they were using a credit card as opposed to paying cash. Credit-card spending just doesn't feel like real money. In another study, Nicholas Souleles of the University of Pennsylvania and David Gross of the consultancy Compass Lexecon calculated that the typical consumer unnecessarily spends $200 a year in interest payments by keeping a sizeable stash of cash in savings or checking while at the same time carrying a credit-card balance.
(Full article at link.)This week the Senate takes up a bill that would seriously clamp down on some of the... more
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