Credit Card Blog

Credit card companies claim the amount of interest and fees they charge are based on the level of risk they take when extending credit to an individual. Risk is determined by an individual’s credit history and credit score. According to a study conducted by the Center for Responsible Lending, late fees applied by credit card companies seem to have more to do with the card issuer itself than a cardholders risk of defaulting.

The study showed there are generally two factors that impact the amount of late fees charged by a credit card issuer: the type of credit card issuer and the level of aggressiveness the company uses.

Type of Credit Card Issuer: The study indicates that the type of institution extending credit plays a large role in the amount charged for late fees. Credit union late fees are generally about half the amount charged by banks, with credit unions charging $20 for a late payment compared to a standard credit cards’ $39 late fee.

Aggressiveness Level of Company: the most aggressive credit card lenders charge higher late fees than less-aggressive lenders. If a bank is sending you notice after notice about their promotional offers are the same credit card issuers that will charge the highest late fees and use more aggressive collection practices.

Choosing a Credit Card

If you’re looking for a credit card but want to avoid high late fees in the event you make a payment late every now and then, you’ll want to take a look at how the credit card issuer you’re considering solicits customers. The more aggressive they are, the more likely they are to charge excessive late fees. Compare the credit card policies of various cards before choosing a card.

When you use a debit card to shop, should you pay the debit card fees or should it be left to the merchant? There is a provision in a Senate financial regulatory reform bill which would put limitations on the amount of debit card fees that merchants are required to pay. Lobbyists are defending the current system, and the average consumer doesn’t have a clue which team to root for.

Retailers asked for an amendment of interchange fee regulation. They said the increasing costs of fees associated with customer debit-card use makes it necessary. A supermarket trade group claims Visa’s debit card transaction fees for debit card use in grocery stores increased 30% in April.

Illinois Senator Richard Durbin created an amendment that would result in interchange fees having to be “reasonable and proportional to the actual cost incurred by the issuer or payment card network with respect to the transaction”, and would be regulated by the Federal Reserve. The fate of this amendment lies with the House-Senate committee with the financial regulatory bill.

People who are not in support of Durbin’s amendment feel consumers would be hurt through this change. Banks would offer smaller rewards programs, or end up charging higher fees to consumers for using their debit cards.

The Credit Card Accountability, Responsibility and Disclosure act, which passed in May 2009, was supposed to protect the general public from high interest rates and irresponsible acts made within the credit industry – as well as allow the government to better regulate this side of banking.

We have seen many positive things come from the legislation, but only a year later many card issuers have found loop holes to pass their higher costs on to customers, according to an article on the Wall Street Journal.

The main protection the Credit Card Accountability, Responsibility and Disclosure Act provides the public is from credit card companies raising interest rates on existing accounts, and on accounts that are in their first year of being opened.

Some examples of loop holes being used by credit card issuers:

JP Morgan’s Chase raises the minimum payments from 2% to 5% of the balance. The law affects how much they can raise interest rates, but there is no such provision to protect the minimum payments.

First Premier Bank charges $95 dollars for processing fees, before the account is even opened. First Premier Bank offers credit to individuals with less than perfect credit scores and histories.

Citibank increased some of their customers’ interest rates before they made a late payment, and then offered a partial refund of finance charges if the customer paid their bill on time. This gets Citibank around the law of not being able to raise customer’s interest rates due to making late payments.

Another popular ploy is to charge high processing or annual fees when opening a new card. For instance many cards will offer you a $300 spending limit, and a $75 annual fee. Again the law doesn’t specifically protect you from this action, because it does not affect the interest rate. Many banks are using this method to pass some of the costs to you.

In August, it is expected that the Federal Reserve will release a new set of rules affecting the credit card industry that address a provision that would require card penalties to be proportional to a company’s actual costs, as well as require that card companies evaluate interest rates for customers who previous saw interest rate increases every six months.

Credit card companies are on the hunt again, looking for new customers and using tantalizing cash back reward programs as bait. In this rough economy anything laced with money seems like a good idea. With careful consideration, planning and acknowledgment of the new rules that come with the new cash back, you can use this system to your advantage.

Basically speaking, when credit card companies are talking about cash back rewards, they are saying that they will give you back a percentage of what you spend on certain things. For instance, Discovery card gives a 5% cash back reward on fashion shopping. Lets say you make a $400 purchase: At 5% you get $20 back for buying things you were going to buy anyway. Typically speaking Discovery card actually rotates what goods are available for rewards, but generally rotates between gas, fashion items, and amusement park tickets.

Many credit cards are making new rules to tie with these cash rewards, so be aware. If you pay late even once, you risk any and all rewards you accrued up until that point in time, though some will offer reinstatement fees to get you back into the rewards program. Many have annuals charges, or spending caps that make you eligible, for instance they may require a certain amount spent before its eligible for cash back. Some companies are even limiting what stores qualify for rewards. So if you’re applying for a card with cash back rewards make sure you understand all the terms and conditions, and any penalties that may come up.

There are some things you can do to kind of get an edge on these programs. First and foremost, understand your contract, including penalties for late payments and spending requirements to remain eligible for rewards. Pay on time every month to stay eligible. Try not to keep a balance you can’t pay off in a month, especially since the interest rates are high in the double digits now. Keep in mind that many cards have a maximum they will pay out, so spend what you would need to be eligible for rewards, but then not any higher as there is no added incentive to do so. Lastly watch out for expiration dates and changes half way through your program, as changes can happen with out any prior notice, and most companies have a history of doing so.

A bill approved by the U.S. Senate on May 13^th will allow merchants to set minimum and maximum transaction amounts for debit card purchases. Previously, you could buy anything with a debit card, regardless of the amount, and for store owners – if the purchase was small, like a pack of gum, it meant paying more in debit card service fees than the profits made on the purchase. With this bill, merchants will be able to set limits to ensure their profitability on debit card purchases.

MasterCard and Visa have been concerned over credit and debit card regulation for a long time. They are credit and debit card processing networks, and don’t receive all of the interchange fees directly, but their revenues do depend on how much people spend on their cards. If merchants restrict purchases, they fear they will experience large drops in revenues as people will be less likely to use their cards.

MasterCard is determined to fight this bill until it is finalized into law. While the bill isn’t restricting the amount Visa or MasterCard can charge in interchange fees to merchants on credit card purchases, they’re concerned that the regulation on debit transactions will open the door to more regulation in the future.

Reuters reports:

“MasterCard U.S President McWilton said in a speech earlier on Sunday that MasterCard was “very concerned” about the amendment and “working very hard to make sure” that it would not be attached to the final financial regulation bill.”

Swipely is a new twitter-like social network, however instead of tracking your status, it tracks your purchases. It launched with venture capital of $8.5 million dollars.

What does Swipely do? You simply link your credit card to your Swipely account, and any purchases you make will appear throughout the day, similar to a tweet. For instance, if your friend purchased a McDonalds meal, it will simply show up as “Andrea just purchased a meal at McDonalds” on her Swipely account.

The first thought through your mind should be about the security of the network and access to your credit card information. Swipley promises that third party security specialists protect your credit card, so your credit card information will never show up anywhere, just announcements of what you‘re buying.

Unlike a similar Facebook application, this one won’t post how much you spent, just merely the services and where you purchased.

The idea behind it is to give your friends something to talk about. They may find they have more in common with you or vice versa based on purchases made. Or more commonly it’ll give you something to tease them about or vice versa. It’s just another way to start a conversation, or share interests. It’ll allow you to share more details about what you do in any given day with your friends and family.

Of course there are people who will say that this is way too intrusive, and people who feel that way don’t need to use the program. Most bloggers discussing Swipely don’t understand the purpose or need to share credit card purchases with friends and family in order to generate conversation.  But, maybe Swipely will be used by parents who give their teenagers debit or credit cards to monitor their kids spending habits as it happens – rather than waiting for the statements to arrive?

Will you use Swipely?

Credit card skimming is a crime on the rise. Simply speaking, card skimming is when someone other then you obtains your pin and your card number and then uses it to withdraw the money in you account or makes purchases with your card number and pin. These type of crimes generally rise with a bad economy. The worst part is that you can be victimized by someone in another country, and they don’t actually need to have physical possession of your card to use it.

Generally speaking there’s multiple ways to get this information, although most involve literally watching you type in your pin and seeing your credit card number. Sometimes cameras are put above ATMs to spy on you will you enter the info, but most often the person is peeking over your shoulder.

Online purchases may also be the target of these thieves, however in ever case you essentially give them the information, and that’s what makes it so scary. Vigilance is going to be the key here. Keep an eye on your card the entire time the transaction is going on, and keep any receipts you receive and destroy them properly.

So a few tips on how to stop yourself from being a victim:

First and foremost, get your money from a teller whenever possible. If your going to use an ATM, use only one you trust, for instance, the grubby looking one in a convenience store, may not be your best choice. Hunch over the screen, cover the key pad with your free hand, and take and destroy your receipt. Look carefully at the swiper on the ATM before sliding your card through, to ensure it’s the one that belongs on the machine and not one installed by a card skimmer.

If your going to be making a lot of purchases online or in a few stores, then you might use a “disposable” credit card you can purchase at gas stations and banks. Load those up and use those online, that way even if it gets skimmed it’s limited to the amount of money you put on the card, and they don’t have access to your actual bank account.

As more individuals make an effort to pay back their debt, consumer borrowing has been declining. Revolving credit – mostly credit-card borrowing, has declined at 13.1% the annual pace in February, while non-revolving credit, like car loans and school loans, dropped at 1.6% the annual rate in the same month.

The American Bankers Association released survey results that showed defaults on consumer loans dropped greatly during the fourth quarter. It’s too soon to say the worst is over though, as the credit card defaults are still at historical highs. J.P Morgan Chase (as well as other credit card lenders and loan lenders) predict they will continue operating at a loss for the rest of 2010.

Credit card issuers are continuing to reduce credit lines when issuing credit, canceling cards for their riskiest customers and closing unprofitable credit cards. Banks are writing off more credit card debt as noncollectable. Bank of America Corp reduced the affinity card programs typically targeted to college alumni associations, charities and social groups by 12%.

As consumers reduce their spending to focus on paying back debt, the recovery of the economy will also be slowed. While individual households may benefit from less debt, less consumer spending hurts the economy as it accounts for about 70% of the economy’s financial picture.

According to a recent article posted on businessweek.com, credit card rates for small business cards are on the rise. Thanks to the bad economy and higher loss rates, issuers have been raising rates.

According to data from BillShrink, the APR on 33 small business credit cards went up from 11% last August to 12.3% in March 2010. While rates have gone up for consumer cards as well, some of that rise is said to be due to the CARD Act reforms passed last year. Those new regulations don’t cover small business cards however.

If the government decides to extend credit card reform to cover small business cards, expect lower credit lines, and generous rewards, but with lower fees and less rate changes and penalties. Small business card purchases are still seen as a growth market in the industry and the so issuers are competing for new customers.

Most of the increase in interest rates is likely due to the increased risk credit card lenders take when the economy is suffering. The rates are projected to continue their upward trend according to Ben Woolsey an analyst at creditcards.com. In regards to credit card interest rates he says, “It’s going to keep edging upward a bit, because credit losses aren’t going to improve for the banks until unemployment heads down.”

It’s that season again: the leaves are falling, the holidays are coming, and the Salvation Army’s red kettles will soon be out in force. If you’ve got the holiday spirit but don’t like to carry cash, consider donating with your credit or debit card. You can swipe your card right in person at certain locations, or you can make a donation online at the Salvation Army web site.

Salvation Army members say that this convenient new payment arrangement was put in place to help young adults give more. The organization is also branching out online by incorporating social networks such as Facebook.

The nation’s high unemployment rate has caused many families to turn to the charity for aid. The Salvation Army helps feed and clothe 4.5 million people during the holiday season, and they accept donations of money and goods all year long.

The Red Kettle campaign will kick off on Friday, November 13th. To find out more, visit the Salvation Army’s web site today.