Category: Credit Cards

Interchange fees, which credit networks charge for everything bought with a credit or debit card, were recently the subject of a settlement between the Department of Justice and both Visa and MasterCard, according to a report in the Seattle Business Journal. These charges typically run between 2 and3 percent of a purchase price.

But under the terms of the settlement, these two credit networks will have to offer a low-fee card to consumers, which would carry an interchange fee of just 1.5 percent, the report said. While this card wouldn't carry any rewards programs, a number of major retailers are now considering offering people who use these cards discounts on their purchases.

Their incentive to do so is obvious, the report noted. Interchange fees of 2 to 3 percent on all purchases may seem like a relatively insignificant amount, but it costs the industry billions every year.

"It doesn't sound like much," Craig Shearman, vice president of public relations for the National Retail Federation, told the news source. "But it adds up – $48 billion between the two each year is collected by credit card companies."

However, some industry experts warn that it may be difficult for retailers to distinguish between the low-fee cards and normal ones, as the new pieces of plastic will carry no identifying marking. Because of this, most store employees won't know to enact the discount on their own, and it will be difficult for their payment processing systems to do anything to add the discounts after a card has been swiped.

Prior to the settlement being reached between the government and these networks, lenders often made businesses that accepted credit card payments enter into contracts saying they would not offer discounts to those who used forms of payment other than credit cards. Under the new rules, that will be allowed, the report said.

American Express was also sued by the Department of Justice, but rather than settle, it has decided to fight the suit.

However, a new study found that these accounts typically have far higher interest rates than those for traditional cards. U.S. Representative Anthony Weiner's office conducted a survey of 35 major retailers in New York City to determine the APR on credit card debt for store-issued accounts, and found that the average rate is 23.83 percent, about 22 percent higher than those granted by banks.

This rate is up slightly from the one observed in 2008, the report said. Two years ago, the average APR on these cards was 21.71 percent. The current rate is more than nine percentage points higher than the national average for bank-issued cards, which is currently 14.78 percent.

"As this survey demonstrates, store charge cards can be very expensive if you don’t pay the bill in full every month," Chuck Bell, programs director for Consumers Union, publisher of Consumer Reports, told Weiner's website. "Consumers need to be aware that store cards usually carry sharply higher interest rates than ordinary credit cards. Don’t succumb to high-pressure holiday pitches to open up a new store account without carefully checking the interest rate, penalty and late fees, and other fine print."

Radio Shack's account carried the highest rate on credit card debt, with an APR of 28.99 percent, the study found. Not far behind were both Staples and Best Buy, with rates of 27.99 percent. Home Depot and Sears both had cards carrying interest rates of more than 25 percent.

The study also looked at retailers' introductory deals, and found many offered no interest for several months as a way to draw in more customers. However, the fine print often contained language that saw retroactive interest rates applied to all credit card debt that hasn't been paid off within the allotted time period.

The federal government has already cracked down on many lender practices with the Credit Card Accountability, Responsibility and Disclosure Act, and several more additions to those regulations are currently being discussed.

American Express said the current economic climate, in which consumers seem wary of dealing with credit card debt, has many major lenders uncertain about the future, according to a report from the Wall Street Journal. In particular, banks are concerned about boosting the number of credit card accounts they handle.

In the wake of tighter restrictions the banks imposed as a means of cutting down on losses to delinquent and defaulted credit card debt, many have found consumers are no longer interested in new accounts, the report said.

"Consumers are saving more and borrowing less," said American Express vice chairman Ed Gilligan in a conference call with reporters. "Small businesses are cautious."

Gilligan also pointed to a tougher regulatory climate as a reason for additional declines in profits, the report noted.

Many consumers have made a greater effort to reduce their credit card debt in recent months by increasing their payments while also spending less on these accounts.

Only 27.6 percent of consumers said they will use their credit card accounts as their primary method of payment this holiday season, according to a new poll from the National Retail Federation. Instead, 43 percent say they will lean on debit cards, and 25.7 percent reported cash will be their preferred way to buy gifts.

"Many families may choose to leave credit cards at home as they shop this year, making sure to only purchase what's on their list and within their budget," said NRF president and CEO Matthew Shay.

The number of consumers who will take on credit card debt was the lowest observed in the poll since 2002, the report said. Meanwhile, the rates of debit card and cash use increased.

Many lenders are trying to entice consumers to use their cards this season, upping rewards for every dollar of credit card debt they take on.

The total charge offs Chase dealt with in October reached the lowest point this year, according to a report on the lender's filing from the Associated Press. The month saw seriously delinquent credit card debt dip to 7 percent, down from 7.78 percent in September. The yearly high was 10.91 percent, observed in January.

Meanwhile, Chase also said that delinquencies – credit card debt that's 30 days or more past due – dipped as well, but only slightly, the report said. October saw this rate fall to 3.81 from 3.82 percent in September. The 12-month high was seen in December 2009, when it was 4.94 percent. Often, experts view these late payments as future indicators of charge offs.

Many consumers have made a greater effort to reduce their credit card debt recently by increasing their monthly payments while simultaneously spending less with these accounts.

Most major lenders say they will soon enact greater rewards programs in an attempt to convince more consumers to take on credit card debt this holiday season, according to a report from Bankrate. Many are offering 5 percent cash back on purchases with rewards cards at popular retail locations such as electronics stores, department stores, clothing stores, or even restaurants.

Others are making a greater effort to convince consumers to add to their credit card debt by offering steep discounts at their own online shopping sites, the report said. In some cases, these deals can save customers up to 20 percent. Similarly, they may offer more cash back for shopping with select online retailers.

Many consumers could be reluctant to add to their credit card debt this holiday season, as the national recession may have changed Americans' spending habits.

National consumer credit card debt has shrunk to $822 billion in recent months, and now makes up just 6.4 percent of all outstanding balances Americans owe to financial institutions, according to a report from CNN Money. That's down from 7.6 percent in 2004. In addition, the total has fallen 15.5 percent since the beginning of the recession thanks to a decline of $151 billion.

Meanwhile, the growth rate for credit card debt has been slowing since early 2008, but may soon begin expanding again, the report said. Even if the rate reverses itself, it would still take another two years to reach pre-recession levels.

The recession seems to have altered consumer attitudes toward credit card debt, as many have reported reducing their reliance on these cards for spending, and have also increased the rates at which they pay into the accounts every month.

A greater number of consumers say they will eschew credit card debt altogether this holiday season, as 40 percent of people said they will not use these accounts at all this year, up from 35 percent last year, according to a new poll from Morpace.

Meanwhile, every other category of people who say they will take on credit card debt this holiday season grew smaller, save for one, the report said. Only those who will do 60 to 79 percent of their shopping using cards held steady at 7 percent, while other groups shrank by a percentage point or two. Still, the number of people who will make all their purchases with these accounts came in at 15 percent.

Many consumers have altered their shopping habits in light of the recent recession, which saw them face greater financial difficulty and mounting credit card debt.

Elizabeth Warren said one of her primary focuses will be on cutting down the fine print in agreements so there are "no surprises" when consumers begin to deal with their credit card debt, according to a Marketwatch report.

"We want to focus on the consumer credit products that families deal with nearly every day," Warren said in the conference call with reporters, Marketwatch relayed.

Warren, who was appointed to be the face of the Consumer Financial Protection Bureau by President Barack Obama earlier this year, also said that she wants her organization to be at the forefront of technology to better communicate with consumers. The group is likely to begin operations in July of next year.

Many consumers have been wary of the effects of credit cards in recent months, as the national recession seems to have altered spending habits and money management techniques.

American Express CEO Kenneth Chenault and New York City Mayor Michael Bloomberg recently announced the creation of Small Business Saturday, the credit card lender announced. The event will begin on November 27, and the financial institution is prepared to reward small companies and consumers alike for participating.

The first 10,000 small business owners who sign up with American Express will receive $100 in free Facebook advertising, while the first 100,000 cardholders who pledge to make a purchase at these companies on November 27 will receive a credit for $25 that can be put toward their credit card debt.

Small Business Saturday will run the day after Black Friday, when consumers tend to be more willing to take on credit card debt.

However, many consumers have told various pollsters they are less likely to take on credit card debt this holiday season, and will instead rely on cash to make payments.