Category: Credit Cards

Verizon was going to begin charging customers with its landline phone, FiOS cable and internet and DSL internet services an additional $3.50 every time they made a single payment by taking on credit card debt, according to the Consumerist. However, this may no longer be the case.

The site said when customers go to Verizon's official payment site, they are met with a message saying, "We recently let you know that one-time payments using a credit/debit/ATM card would soon be processed by a vendor who would charge a $3.50 fee. This change will not take place as scheduled and we will notify you in advance of any future changes."

There was some speculation that this policy was instituted in an attempt to convince more customers to enroll in its autopay system, which would not charge consumers for taking on monthly credit card debt. It would instead ensure that more customers paid their bills on time and in full.

The Fed announced that there are several proposed changes for Truth in Lending laws. The alterations to the rules are designed to further increase protections for consumers and to eliminate some ambiguity for lenders.

For example, the Fed proposed additional regulations for when a lender can revoke the terms of a promotional offer, it said. Now, when a bank promises no interest charges on credit card debt for six months after a new account is opened, it cannot change that agreement to the consumer's detriment unless the account goes delinquent for more than 60 days.

In addition, the Fed said application fees should be covered by the same limits it places on other charges during the first year of an agreement. Further, lenders must consider a person's individual income, rather than their household's, when setting limits on the amount of credit card debt they can accrue.

Many consumers have been able to successfully cut their total credit card debt in recent months, partly because of these federal protections.

Citibank said that its charge offs – credit card debt that is 90 days or more behind and deemed uncollectable – declined to 8.99 percent in September after it spiked at 11.18 percent in August, according to Businessweek. Prior to that, it had reached 9.75 percent in July. Citibank reported sharper improvements than any other major lender for the month.

Meanwhile, the bank saw its rate of delinquency – credit card debt that had gone 30 days or more without a payment – decline as well, though considerably less sharply, the report said. September's late balances made up 4.93 percent of all accounts, down from 4.95 percent in August.

Delinquent and defaulted credit card debt is often closely tied to the national unemployment rate. However, these figures have continued to decline over the last year even as joblessness has persisted across the country, hovering at or around 10 percent.

A reporter for the Associated Press participated in a one-month experiment to see how much it cost those who don't have a bank account and can't take on credit card debt.

The report said she piled up $93 in fees and charges that those who are part of the banking system never have to worry about. That works out to over $1,100 a year for those who go unbanked. For example, she paid $28 to cash a paycheck, $1.50 for every money order she had to send out to pay bills, and a dollar or more every time she swiped her prepaid debit card at a store.

The report said many consumers don't have the ability to take on credit card debt for a number of reasons. The majority of those households that are considered under- or unbanked bring in less than $30,000 a year, and rely on services like check-cashing companies and payday loans. Many also rely on prepaid debit cards, but these carry their own fees, including paying just to set up an account. In addition, some may charge up to a dollar a minute to call the issuer's customer service hotline, or $5 every time the user adds more money to the account. However, there are many hassles associated with not using a credit card or bank that consumers may take for granted. For example, if someone with a prepaid card wants to use it to take cash out of an ATM, they are often hit with hefty fees to do so, with some companies charging up to $5.

Many consumers who can't get a credit card may have a history of bad credit and are no longer able to qualify for a new account from a lender. Many banks have tightened restrictions on the minimum credit score a person can have to qualify for even the most basic card.

According to a new report in the New York Times, many large utility companies charge consumers for the convenience of taking on credit card debt to pay their bills rather than using other payment methods, including paying by debit card. For example, Con Edison charges people who use their credit cards to pay their electric bill $4.75 a month. National Grid, likewise, charges $2.25 for the transaction.

The report said the additional fees are related to the price credit card companies charge them to process every transaction. A Con Ed spokesman told the newspaper that if it didn't charge those who take on credit card debt when paying their bills, they would have to pass the costs onto every customer instead. And because that company is a public utility, it has to keep its prices as low as possible.

A few years ago, Visa and MasterCard agreed to reduce the cost of interchange fees they charged utility companies to process a transaction whenever a consumer took on credit card debt to pay their bill, the report said.

However, even the reduced costs can present problems because Visa's rules often prohibit them from charging more to cover these fees, the report said. Meanwhile, MasterCard allows educational and government institutions, including public utilities, to charge the convenience fee with no third party involved. As a result utilities that engage in this practice typically have to hire a third-party company to process payments involving credit card debt, the report said. It did so instead of raising rates.

In recent months, more businesses have begun complaining about the interchange fees lenders charge them to process transactions that result in credit card debt. Even small businesses can see their costs rise by thousands of dollars a year by allowing customers to pay by credit card. However, recent laws allowed merchants to begin instituting minimum payment amounts that allowed them to mitigate the cost of these transactions, which typically range between 2 and 4 percent of the total price of the purchase.

According to the latest statistics from the Federal Reserve Board, the amount of nationwide revolving credit, which is typically associated with credit card debt, declined by $5 billion between July and August, from $827.2 billion to $822.2 billion. This drop, which totaled 7.2 percent, was the same proportion observed in July, and slightly less than June's reduction of 7.5 percent.

Meanwhile, total consumer credit, which includes both credit card debt in addition to other borrowings such as auto loans and mortgages – also known as nonrevolving credit – fell about $3.3 billion. This marked a decline of about 1.7 percent at an annualized rate after the Fed revised its estimate of July's fall up to 2 percent from 1.8 percent. Currently, total consumer debt amounts to $2,414.3 trillion.

This was the result of a 1.2 percent increase in nonrevolving credit, which rose from $1.59 trillion to $1.592 trillion, the Fed said.

In recent months, many consumers have attempted to shed some of their credit card debt, and this may be evidenced in declines so far this year of 8.5 percent and 7.2 percent in the first and second quarters, respectively, the Fed noted. In the fourth quarter of 2009, revolving credit tumbled 12.4 percent.

Banks have been more selective about the kind of consumer to whom they will lend money. Many have boosted minimum credit scores for consumers to qualify for loans for both assets and those which may lead to credit card debt. In fact, most types of institutions, such as commercial banks, finance companies, credit unions and savings institutions all tried to scale back their loan volume, while the federal government made a more concerted effort to help borrowers get access to lines of credit.

However, many financial experts are now wondering if all the declines in consumer credit card debt in recent months are due to Americans being more conscientious about paying off their bills or the high national charge off rates. These have remained elevated even as delinquencies in general fell to lows not seen since the beginning of the recession. However, charge offs have also slowed over the summer.

According to a report in the Wall Street Journal, Citi and GE reached an agreement on the sale of about $1.6 billion of the banking company's credit card debt. However, that is a relatively small amount when compared to what Citigroup wants to free itself from.

The report said Citi Holdings, the banking giant's division in charge of reducing its unwanted loans, securities and businesses, held about $465 billion in assets as of June 30. That includes CitiFinancial North America, the company's biggest consumer finance business. However, the amount has been whittled down by about 20 percent, from $582 billion in the second quarter of 2009, when Citi decided to try to sell or cut down assets that didn't "fit with its banking strategy."

Currently, Citi Holdings makes up about 24 percent of Citigroup, the report said.

The credit card debt Citi sold to GE was taken on using cards it did not issue under its own brand. Rather, they are "retail partner" loans, for which delinquency rates are slightly higher than for its normal accounts. In all, Citi handles retail credit card businesses totaling about $50 billion for a number of large companies, such as Home Depot and Exxon Mobil.

Last month, Citi Holdings also announced it would sell the company's 80 percent share in Student Loan Corp. to Discover Financial for $600 million. It also sold $3.5 billion in commercial real estate loans to JPMorgan Chase in August, and spun off or sold several overseas ventures in Latin America, Japan and Europe.

Many lending giants may have become concerned about the state of consumer credit in America in recent months, as some people have had trouble paying off their credit card debt. While delinquencies – accounts 30 days or more behind – have declined, they're still elevated above levels observed prior to the economic crisis. The same is true of charge offs – accounts 90 days or more behind and deemed uncollectable – though the most recent statistics saw an increase in this type of credit liability for the first time in a few months.

American Express will wage a "multiyear" court battle against the U.S. Justice Department over its suit regarding interchange fees, and the government's allegations the credit network's policies are anticompetitive, an Associated Press report said. In a conference call the day thesuit was filed, vice chairman Ed Gilligan said the company had "no intention of settling this case."

Gilligan added the government's "proposed remedy would promote steering customers from one payment network to another, and that is a one-sided approach that will do nothing to enhance competition," the AP said.

American Express typically charges store owners more for interchange fees than the other networks the Justice Department sued, MasterCard and Visa, the AP reported. As a result, AmEx said merchants will encourage customers to use its competitors to take on credit card debt rather than allow them to pay with a card that would cost the retailer more.

In the settlement, both Visa and MasterCard said they would allow merchants to begin offering customers discounts or rebates for using a particular type of card when taking on credit card debt, the AP reported. However, American Express contends that its policies actually protect cardholders, who tend to be more affluent and take on credit card debt more frequently than other consumers.

"In effect, the government is arguing that we cannot freely negotiate with our merchants about how they treat our card members at the point of sale," American Express general counsel Louise Parent told the AP. She added that contracts with retailers are "intended to shield consumers from pressure by merchants not to use the cards of their choice."

Interchange fees, more commonly known as swipe fees, have been a point of contention between store owners and credit card networks for some time. Even relatively small retailers can pay thousands of dollars per year just to process transactions for their customers. Advocates argue that this leads to higher prices across the board, and negatively impacts those who choose to pay for their purchases with cash.

The study, called the Verizon Payment Card Industry Compliance Report, found that groups that suffered data breaches were 50 percent less likely to comply with minimum security standards than those that did not. In addition, only 22 percent of organizations were PCI compliant at the time of the investigation.

However, data breaches that may lead to fraudulent credit card debt are easily preventable, the report said. While 78 percent of organizations are not compliant with minimum PCI standards, the average group meets 81 percent of all procedures required. In fact, 75 percent were at least 70 percent compliant with testing procedures, meaning more vigilance may be all that's required to meet the lowest level of necessary security.

The study also found there is a correlation between the frequency of data breaches and the problems groups face when trying to become PCI compliant. Of the 12 requirements that make up PCI Data Security Standards, three of them – protecting stored data, tracking and monitoring access to network resources and cardholder data, and regularly testing security systems and processes – cover parts of compliance that are the most vulnerable.

Verizon also found that by comparing PCI assessment data and analysis of data breaches that can result in fraudulent credit card debt, it was able to identify the most popular attack methods used by scam artists. The use of malware and other hacking accounted for the largest portion at 25 percent, but SQL injections were close behind at 24 percent. The exploitation of default or guessable credentials – that is, passwords or login names that aren't changed from software standards or common phrases – was next at 21 percent.

More often, though, data breaches that may result in fraudulent credit card debt for customers or clients are the result of carelessness, such as lost or improperly secured computers or backup disks. Many times even simple encryption software can help to mitigate the threat of identity theft as a result of someone's sensitive personal or financial data being leaked.

Visa and MasterCard could reach a settlement as part of an antitrust suit from the U.S. Justice Department as early as this week over the interchange fees they charge vendors, according to a report from the Wall Street Journal. At issue is the way the networks attempt to prohibit store owners from encouraging customers to take on credit card debt with accounts that would carry lower swipe fees. The practice, known as "steering," is technically legal in some circumstances.

The suit comes because the Justice Department deemed Visa and MasterCard's rules related to how merchants are discouraged from these practices related to credit card debt to be "anticompetitive," though the settlements likely won't include any fines because it's a civil case.

In the past, networks actively prohibited store owners from setting minimum amounts for purchases involving credit card debt, though the federal regulations outlawed these restrictions.