Credit Card Blog

Transparent Financial Services, of Chicago, IL was awarded a grant from CEC (Chicagoland Entrepreneurial Center) to support TransFS’s rapid national growth. Clients of TransFS are businesses in need of financial services, such as locating a dependable credit card processor. Transparent Financial Services are recipients of this grant through the CEC’s Entrepreneur in Residence program. This program places startup companies displaying significant growth-potential with entrepreneurs who are experienced with business success.

Transparent Financial Services now have over twelve markets in the customer base of their comparison-shopping site offered to their clients through their credit card processing services. TransFS has a wide network of credit card processors bidding on each merchant’s services but, they are all bound by strict contractual stipulations. The system is carefully designed so that a client is not contacted by or connected with a credit card processor until they have officially chosen one through the services of Transparent Financial Services.

TransFS was established in 2008 and their client base of businesses now includes more than twelve various industries. The owners founded Transparent FS, while in Business school, after their many challenges as entrepreneurs trying to choose the best credit card processor and locating top quality financial service providers. They have developed a unique strategy which enables them to locate processing fees that are about 40% lower than average. TransFS has already saved some of their clients well over $72,000 per year in credit card processing server fees. Even their processing providers are rewarded when they adhere to contract regulations and earn TransFS certification, by becoming eligible for quicker contact with clients at reduced costs. Transparent FS also offers their services to all business clients free of charge.

Part of the new credit card rules to take place officially on July 1, 2010, include credit card statements that are less confusing and easier to read. Consumers have been complaining for years that the phrases used on their statements make it next to impossible to understand the information the statement contains and is therefore very misleading. In addition to the way content is worded, consumers have complained that critical information doesn’t appear on the statements every single month.

Improvements to the credit cards statement will include:

Key Changes in the Card Terms - Any changes must show up in the table shown at the top of every credit card statement. This table includes the interest rate, total balance owed, last month’s balance, current balance and amount of last payment. It will now show any changes including the increase of your interest rate and the date it will be effective.

Detailed Transactions- Details about each transaction that took place during the billing cycle, including a reference code, transaction date, post date, description of transaction, and amount charged for each purchase, will now appear on each monthly credit card statement.

Fees - All fees incurred during the billing cycle and how they were calculated will be included.

Interest Charges – A detailed listing of all of the interest charges during the billing cycle will be included.

Totals Year To Date- Created to show consumers how much they have spent throughout the year on fees and interest rates and must be included on all credit card monthly statements, new to the credit card changes in July 2010.

Make sure to review your credit card statements every month to watch for any changes or potential problems. The earlier you spot them, the easier they are to correct or improve.

If you thought credit scores were only used to help lenders decide whether or not they should extend credit – think again! Sure, you may know that there are employers who run a credit check before they hire; and that your car insurance premium is partly based on your credit score… but did you think your internet browsing would be affected by your FICO?

Google has started to experiment with their Google ads by showing more expensive products and services to individuals with higher FICO scores. Google has always been known for their pay per click advertising and the ability for advertisers to target specific markets – but is this taking it a step too far?

Right now, there is a database of about 2 million people through “Compete”, who agreed to share their credit score when applying for a new credit card. These people are then targeted with specific Google ads when they use their computer, based on what their credit scores are. This allows advertisers to reach consumers who qualify for their products – for example, advertisers trying to sell mortgages to people with FICO scores over 700 would only show their ads to this group of internet users. Primarily, this data will be used to target users seeking credit cards, but any company interested in displaying ads to a group of people with a specific credit score would be able to do so.

It’s been a well known “secret” that credit card companies analyze cardholder spending and how they make their payments as a method of determining risk. They’ve learned that people who buy certain brands are more likely to pay their bills late or not at all; and what sorts of products paid for with credit will pretty much predict the cardholder will always pay their bills on time.

As an extension of this analysis, it’s possible that certain spending will start to affect your credit score. People who use their credit cards with the following industries may be among the first cardholders to experience credit score adjustments due to their spending habits:

• Gambling (casinos and racetracks)

• Pawnshops

• Liquor stores

• Marriage counseling

• Massages

• Spas

• Bail bonds

• Hospitals & Doctors offices

• Court fees

• Escort Services

• Thrift stores or secondhand stores

Based on research of cardholders making purchases with these industries and the probability of these cardholders paying their bills late or not at all – these are a few of the first industries that are considered suspect when a lender is deciding whether or not to extend you credit.

In 2010, the credit card legislation changes will provide regulations for just how far a credit card company can go to learn about you and your purchases. If you want to be sure your credit score isn’t being adjusted based on where you shop - be aware of where you are using your credit cards.

The new credit card reform laws will prohibit over-limit fees, double cycle billing, and interest rate hikes when payments are less than 60 days late. But that doesn’t mean you don’t have to watch out for any other fees. To make up for lost revenues, cardholders are likely to see other fees that are not specifically addressed in the credit card legislation.
Possible fees you should be on the look out for include:

• Fees for checking your balance
• Annual fees on credit cards that didn’t charge them previously
• Fees to participate in rewards programs
• Higher interest rates for everyone, regardless of credit scores
• An end to grace periods (interest will be charged immediately after a purchase rather than giving 20 days or so to make the payment before interest is charged)
• No 0% promotional offers 

Forbes.com writer, Michael Maiello wrote an article called “Credit Card Hypocrites”  which describes Jamie Dimon, the Chief Executive of JPMorgan Chase’s experience with the Troubled Asset Relief Program (TARP). Dimon calls the bank’s experience with TARP as traumatic, because of how the “rules changed” after the government gave the bank’s bailout money. Banks received the money and thought they could use it how they wanted, or however they saw necessary. But, in a move that Dimon complains about, the government went and changed the rules – by placing limits on how much money bank executives could receive, and by creating shareholder rights requirements, and even restricting the hiring of foreign employees.

In my favorite lines of Maello’s article, “The government changed the rules, and Dimon is traumatized. Now he knows how anyone with a Chase credit card feels. Or most any credit card, for that matter.”

Think about all the credit card users who received their credit cards with a certain dollar amount credit limit, and a certain interest rate. Think of how many of these cardholders started using their cards under those terms, only to find out three months later the interest rate was increasing, their credit limit was being lowered, and their due date was being changed. Credit card lenders have had the right to change credit card agreements whenever they wanted, and for any reason they wanted. Cardholder due dates could be adjusted without notice, causing the cardholder to make a late payment and then have to pay a late fee on top of it. The late payment triggered interest rate increases and additional penalties. Money already spent could be charged higher rates -and credit limits could be lowered BELOW the amount the borrower had already spent on the card – triggering over-the-limit fees!

Do American consumers have much sympathy for credit card executives like Jamie Dimon who are traumatized by the upcoming changes that will put a stop to these practices?

Doubtful.

Major lenders, including JPMorgan Chase, Bank of America and Citigroup oppose several pieces of the new credit card legislation. They don’t feel they should have to mail bills out 21 days before the payments are due, and if the bank is slow to process a payment they don’t feel they shouldn’t charge a late fee. A late payment is a late payment, regardless of “what” caused it to be late, right?! These banks are arguing that if they are to continue lending money to consumers they’ll need to do whatever they want to the borrowers, for any reason- as they have been doing for years.

Some of the banks are threatening to stop lending all together when the reforms take place. Will that really happen?

The new legislation regarding credit cards is designed to make credit more fair and transparent for Americans. There will be no more double cycle billing, no interest rate increases until an account has been late for 60 days or more, and credit card bills must be mailed 21 days before they’re due – among other changes.
Unfortunately, a bill sponsored by Sen. Richard Durbin (D-Ill) was not passed as part of the reform. It would have capped the total interest, fees and finance charges at 36% for all consumer credit. This is a cap currently placed on military family’s credit usage.
Payday loans are the worst abusers of interest rates, where they often make borrowers pay two or three times the amount they borrow in exchange for a few days advance on their pay. But the proposed interest rate cap would have applied to all consumer credit – payday loans, car loans, credit cards and mortgages.

This isn’t a new concept actually. In 1886, all states had interest rate caps in place. When banks began lending through credit cards in the 1950’s, banks in state’s with higher interest rates started lending to Americans living in other states where the caps were lower and charging them the higher interest rates. In 1978, The Supreme Court ruled that the National bank Act allowed lenders to charge the highest interest rate permissible in their home state – so what happened? Credit card companies moved their businesses into states that had higher interest rate caps – or none at all – so they could charge what they wanted.

It’s doubtful that anyone could successfully argue against the need for some sort of reform to some of the credit card industry practices. While some of the changes included in the upcoming reform are going to benefit everyone – like having longer statement cycles to pay your bill without penalties and no more double cycle billing – the majority of the changes aren’t as great as they seem at first glance. The problem is with more government regulation of the finance industry, it appears that people who have been responsible with their personal finances are going to end up paying for the mistakes of others.

Who will qualify for credit cards?

Not many people currently have FICO scores greater than 750, but you will need a score that high to qualify for credit cards or home loans from banks once the reform has gone through. Even people who have been responsible with their finances may currently have credit scores under 750 – but they’ll be prevented from obtaining credit just like people who continuously spend more than they can afford to pay back.

If you do qualify for a credit card, you can bet that you’ll have to pay an annual fee in order to use it. Credit card companies have to cut fees in many areas under this reform, so they will compensate by raising fees that are still allowed – like annual fees.

Kids and Parents Graduate With College Debt

The reform will not allow people under 21 to obtain credit cards unless they have a parent co-sign. College kids will convince parents to co-sign because let’s face it, parents don’t want to worry that their kid’s don’t have access to emergency funds when they’re on the other side of the country at college, right? So yes, parents will give in and co-sign and parents will start experiencing the same credit card debt as college students upon graduation.

Higher Interest Rates

The new legislation will provide a provision that prevents companies from increasing interest rates after a missed payment for at least 60 days – but after that 60 days the companies can increase the interest rate to any “reasonable” rate they want. What if they increase their interest rates to 30% or more on over due balances? Your debt could double every three years even if you make your minimum payment.

After using his weekly video address on 5/9/09 to continue his call for credit card reform, President Obama is pushing congress to have a bill ready for signing by Memorial Day.  In the address, Obama says, “There is no time for delay. We need a durable and successful flow of credit in our economy, but we can’t tolerate profits that depend upon misleading working families. Those days are over.”

For more than a month, the President has been talking with Congress to pass legislation to prohibit most of the more aggressive fees, interest rates and penalties that credit card companies charge their cardholders.  He’s met with the leaders of the largest credit card companies to try and get them to agree with the need for such changes,but most say the proposal of such legislation will only make it more difficult to lend money and therefore have a negative affect on the recovery of the economy.

As an increasing number of credit card companies are agreeing to settle cardholder debts, it’s important that individuals recognize that there may be minor tax consequences associated with the settlement. A debt settlement is when the creditor allows the account holder to pay less than what is owed and consider the account paid in full.

A partially or fully forgiven debt through a settlement is sometimes considered as taxable income by the IRS and must be reported on your tax return if you saved more than $600 during the settlement. So if you owed $5000 on your credit card, and settled for $2,500 you would have to report $1,900 as income ($2,500 minus $600). The credit card company that settles the debt will send you and the IRS a Form 1099-C reporting the forgiven amount.

There are exceptions to having to count the forgiven debt as income, for individuals who are insolvent at the time of the settlement. Insolvent means you owed more than the fair market value of your assets.

A settled debt typically is marked as such on your credit report as well, which is better than a bankruptcy, but not as good as “paid in full” or “paid as agreed”.

If you do end up having to pay taxes on the amount of debt forgiven, chances are you will still come out ahead than if you continued to struggle and repay that debt with 27% interest and credit card late fees.