Category: Credit Cards

Many consumers who were able to maintain strong credit ratings even as they saw their credit card debt pile up during the recession may have a new way to reduce debt, as a number of major lenders are increasing the size of their promotional offers.

Many of the nation's top credit card lenders, like Bank of America, JPMorgan Chase, Citi and Wells Fargo, are now offering creditworthy consumers credit cards with lengthy introductory periods and rock-bottom promotional rates in the hopes of luring customers away from other institutions, according to a report from Bloomberg News. Most of these new accounts will come with a balance transfer fee of between 3 and 4 percent of the total debt.

In the past, low introductory rates were typically extended for between three and six months, but are now considerably longer, the report said. Bank of America's latest offer grants a zero percent rate through June 2012, and Citi's card gives users a 0.99 percent rate through February 2013.

A balance transfer such as this may be beneficial for consumers who want to get out of debt because it will notsignificantly add to their balance for some time.

JPMorgan Chase, the nation's second-largest credit card issuer, is currently working on completely revamping its entire lending business.

Under the direction of its head, Gordon Smith, JPMorgan Chase's credit card lending business has taken considerable strides in the last few years in terms of revamping the way it handles bad debt, deals with customer service issues and markets its various financial products, according to a report from Reuters. The marketing aspect has been particularly important to the company in recent years because of the amount of revenue that can potentially be generated by new customers.

For instance, Chase sent out 1.3 billion offers for new credit card accounts in the second quarter of the year alone, up from about 850 million on a year-over-year basis, the report said. But that strategy seems to have paid off because credit card spending on new accounts rose 53 percent over the last quarter of 2010.

Many consumers may be more comfortable in dealing with credit card debt these days as a larger number of them made efforts to get out of debt and rebuild their finances in the months since the recession ended.

The large amount of changes to the banking and credit card lending industries seen in the last several months are largely a reaction to increased federal regulation, and the U.S. Secretary of the Treasury believes that the changes put in place by lawmakers will overcome increased costs for consumers.

U.S. Treasury Secretary Timothy Geithner recently said that he believes the numerous regulations on the banking industry put in place by lawmakers over the last two years will benefit consumers and help reduce credit problems in the end, according to a report from CNN. Currently, the numerous increased charges and tighter lending restrictions are considered a sort of pushback against these regulations – essentially banks testing lawmakers to see what they can get away with.

However, Geithner vowed that the response from regulators will be even more significant if the trend continues, the report said.

Much of the most recent resistance from the banking industry is in response to a new rule that limits the amount banks can charge businesses for processing debit card purchases to 21 cents instead of the previous 44 cent average.

A new rule that limits the amount payment processing companies can charge businesses for debit card purchases went into effect over the weekend, but some say it could eventually lead consumers to take on more credit card debt.

The hotly-contested swipe fee limit is being simultaneously hailed by retailers and some lawmakers as a way to bring fairness and affordability to the marketplace, according to U.S. Sen. Dick Durbin of Illinois. Meanwhile, it's also being decried by the banking industry as the sides war over the high cost of processing debit transactions.

"Today, swipe fee reforms take effect and will finally help bring fairness, transparency and competition to a debit card system that for years has operated without them," Durbin said. "The best defense for American consumers and businesses against unfair fees is a transparent and competitive financial marketplace overseen by reasonable regulation."

Some experts worry that banks will attempt to drive consumers toward using their credit cards more often as a result of these changes, as it was recently revealed that Bank of America will begin charging consumers a monthly fee for using their debit card to make purchases.

One of the nation's largest credit card lenders will begin charging a monthly fee to consumers who want to use its branded debit cards, and some consumer advocates say it may be difficult to afford for those who have had trouble trying to reduce debt.

Bank of America recently announced plans to begin charging $5 per month for debit cards used to make purchases, and a number of other large financial national institutions including JPMorgan Chase and Wells Fargo are likely to follow suit, according to a report from the Wall Street Journal. The change comes in response to heavier federal regulation that the banking industry says will cost it as much as $6.6 billion annually. Bank of America estimates about $2 billion of that total will be from its revenues.

But consumer advocates are concerned about the changes because it will affect only customers with standard checking accounts, not those on premium accounts held by more affluent customers, the report said. That's because the accounts for wealthier bank customers tend to be more profitable to the bank than those with lower balances, and they are therefore exempt from nearly all fees Bank of America charges. The new fees go into effect October 1.

"I'm not making business decisions for [Bank of America], but I can only say from a consumer perspective, consumers are tired of being nickel and dimed," Norma Garcia, a lawyer for advocacy group Consumers Union, told the newspaper.

Both Wells Fargo and JPMorgan have been or soon will test their debit card fees as well, the report said. Beginning on October 14, select Wells Fargo customers in Nevada, Washington, Oregon, New Mexico and Georgia will be hit with a $3 fee for any month in which they use their debit card to make purchases. JPMorgan has been testing a $3 charge for debit card use in Wisconsin since February.

Among the new rules against which banks are rebelling is one that placed a limit on the amount banks could charge to businesses for processing debit card purchases. The Federal Reserve Board recently limited this fee to just 21 cents per transaction, down appreciably from the current average of 44 cents per purchase, but higher than the 12 cent limit that was originally proposed.

Consumers who are attempting to rebuild their credit and find greater financial flexibility by increasing their ability to take on credit card debt may still be faced with higher upfront fees for opening an account as a result of a U.S. District Judge's Ruling.

Judge Karen Schreier recently placed a preliminary injunction on a rule from the Federal Reserve Board over the upfront fees credit card lenders charge to riskier customers when they open new accounts, according to a report from the Sioux Falls Argus Leader. The institutions that filed the suit, First Premier Bank and sister company Premier Bankcard, claimed that the Fed's rule would cost them more than $1 million per month and wanted clarification on how it could charge subprime borrowers as a means of mitigating risk.

"First Premier has sufficiently demonstrated that it is 'likely' to succeed on the merits of its claim because the board acted in excess of its statutory authority," Schreier wrote in her decision, according to the newspaper.

Many consumers who worked to reduce debt may now be in a position where they want to open new credit card accounts to increase their financial flexibility, but high fees may not allow them to do so.

The number of companies who met standards designed to ensure that consumers were not hit with fraudulent credit card debt neither shrank nor grew in 2011, a new study found.

Just 21 percent of organizations surveyed reportedthat they completely met the Payment Card Industry Data Security Standard, a baseline for protecting consumer credit card information so that it's not compromised in a data breach, according to the latest annual Verizon Payment Card Industry Compliance Report. This is considered especially troublesome by security experts because a lack of compliance is often directly linked to data breaches that expose consumers' financial details and cause credit problems.

"We had hoped to see more organizations complying with the PCI standard, since we believe that compliance will ultimately improve the security posture of organizations and in all likelihood lead to fewer breaches," said Wade Baker, director of risk intelligence for Verizon. "By reviewing this report, organizations can see where to focus their efforts and implement our recommendations for helping to accelerate PCI compliance. Our end goal is a safer credit-card environment for consumers and businesses."

Among the most common problems companies had in meeting PCI DSS requirements were in the areas of protecting stored cardholder data, tracking and monitoring access to this information, regularly testing systems and processes and maintaining security policies, the report said. The most common probable reason for these failures is likely that becoming compliant is often difficult, though overconfidence in security systems and complacency may also be to blame. Further, some companies may also have other security considerations or issues on which they are focusing.

Verizon also recommended a number of ways for businesses to become compliant, the report said. For example, it may be a good idea to begin treating compliance as a daily process that can be improved upon every day, and putting a security official in charge of making sure the company is getting up to speed is one way to ensure that progress is being made. It may also be helpful to use a third party to help verify that compliance standards are being met, as there could be conflicts of interest that can arise with self-validation.

Millions of Americans have their personal, medical and financial information exposed in data breaches, resulting in a greater risk for fraud and identity theft to be committed using their credit card information.

Some experts have expressed concern over the way that one of the nation's top handlers of credit card debt is attempting to take over a major online banking business, but the lender says its focus will remain on issuing cards.

Capital One Financial says that its recent move to acquire ING's U.S. online banking unit will not affect its credit card accounts, according to a report from Reuters. In addition, the lender believes that because the credit card market has shrunken over the last few years – the size of its portfolio has dipped 25 percent since 2008 – the move will have little impact for the broader economy.

"This product diversification, combined with our conservative and industry-leading underwriting capabilities, helped make us one of only two credit card businesses not to lose money in any quarter during the Great Recession," John Finneran, general counsel for Capital One, told the Federal Reserve Board, according to the news agency.

Consumers have also been working rigorously to reduce debt and curb instances of delinquent and defaulted accounts in the months since the recession ended, putting the company and others like it on better financial footing.

The rate at which consumers fell so far behind in paying down their credit card debt slipped appreciably in the third quarter for one of the nation's largest lenders as Americans took more steps to reduce debt.

Discover Financial Services recently said that it saw profits more than double on a year-over-year basis during the third quarter of the year as it dealt with more card use by consumers and fewer delinquencies and defaults, according to a report from the Wall Street Journal. Card sales volume climbed 9 percent to a record $26.3 billion in the three-month period, while its delinquency rate slipped to 2.43 percent, a 25-year low.

"We achieved record results again this quarter as a result of further improvements in credit performance and record sales volume," said David Nelms, chairman and chief executive, told the newspaper. "We think we're back in growth mode so I would hope that we can sustain a year-over-year growth rate in receivables going forward."

Many of the nation's top lenders have seen instances of both delinquency and default drop considerably in the last year, leading to higher profits for nearly all of the banking industry.

The Durbin Amendment to the Dodd-Frank Act was designed to help protect consumers, but may end up resulting in higher costs for making credit card purchases.

The Federal Reserve Board recently capped the amount payment processing networks could charge businesses for accepting debit transactions, but now these networks are likely to boost the fees for credit purchases to make up the lost revenue, according to a report from the consulting firm Ideal Cost. As a result, consumers may face more credit card debt as a result of merchants charging more to accept credit purchases.

"The Durbin Amendment touted itself as the end-all of all unreasonable merchant fees," said Robert Livingstone, president and founder of Ideal Cost. "Whether it was poorly drafted to purposely support only certain industries or miswritten completely by accident, it will result in harming American merchants. In this economic climate merchants are burdened with rising costs in almost every other aspect of their business. The last thing that they need is an unsubstantiated rate increase."

Higher prices may make it more difficult for consumers to reduce debt, and as such, it's important for Americans to keep an eye on their spending to ensure they're being responsible.