Category: Credit Cards

Many consumers are quickly learning that the old method of getting a lower interest rate – calling the lender and asking – no longer works.

That is because the new Credit Card Accountability, Responsibility and Disclosure Act has clamped down on a number of other practices that have cut into the lenders’ bottom lines, says a new report in the Christian Science Monitor. As a result, credit card companies are going to continually raise interest rates to keep profits at their current level.

The Monitor said that the difference between the prime lending rate and the average credit card rate is the highest it’s been in six years. Credit card debt rates are likely to increase in the coming months as companies scramble to make up profits lost by the prohibition of high fees.

A recent report from Reuters said that the Federal Reserve is likely to raise its short-term interest rates, which will only result in a further increase in credit card limits, or at least lead to the re-introduction of annual fees that were not outlawed by the Credit CARD Act.

Many consumers across the country may have noticed that their credit card statements have changed recently.

Thanks to a provision of the Credit Card Accountability, Responsibility and Disclosure Act, credit card companies are now legally required to make their statements more clear so thatconsumers can better understand what they’re being billed for, and how much it’s costing them. According to television station KIVI in Boise, Idaho, there are a number of changes that some consumers may find unfamiliar.

One such change, the station said, is that there is a section that is labeled either "account information" or "account summary." This area shows the most basic information about the account – how much is owed, when the payment is due, and how much of the bill is made up of interest fees. Because this information is the most essential part of a bill, this is what consumers should keep in mind.

The station also says that bills must now include a debt report that shows how long it will take a consumer to pay off their bill if they just make the minimum payment, and another that shows the payment required to pay the debt off in three years, plus the resulting interest savings. This only serves to highlight the importance of paying more than the minimum.

While the Credit CARD Act requires lenders to disclose both initial interest rates and all rate changes, the station advises that all consumers keep an eye on their current interest rate, which must be clearly displayed on the bill. This will help consumers understand just how much they’re paying per month over their current balance.

The Credit CARD Act also requires that lenders make clear the fee for late payments, and keep the same due date every month. The station said both of these requirements will help consumers keep a more regular payment schedule.

However, there is a stipulation in the Credit CARD Act that says consumers must opt in to receive notifications that they have gone over their credit limit, which the station recommends.

A recent report in the Kansas City Star warned that some consumers may be unaware that the Credit CARD Act only changes the laws for personal credit cards, and not business cards. It warns that those tempted to transfer business payments to personal accounts would, in doing so, simply be turning their personal cards into a business card.

Despite a great deal of resistance, Representative Barney Frank says he will continue to fight to keep caps on so-called debit card "swipe fees."

The rule, proposed by Illinois Senator Dick Durbin, would keep banks from overcharging businesses for debit card transactions and then passing those charges on to the consumer, but the House wants to fight that proposal. According to a report in BusinessWeek, the House version of the bill would exempt government-issued prepaid cards and reloadable prepaid cards from these fee caps. It would also allow the Federal Reserve to take into account the cost of fraud prevention when determining whether swipe fees are "reasonable and proportional."

Visa and MasterCard alone made $19.7 billion on these fees alone last year, which averaged 1.63 percent of the cost of the transaction.

A MarketWatch report said such fees help pay for rewards on some cards, and to help offset the risk that is associated with using credit cards, given the high incidence of credit card fraud across the country. The downside of Senator Durbin’s plan, it said, is that the loss of these fees could mean watered-down rewards programs and even higher fees, leading to growing credit card debt.

The results of a study recently released by Mintel Comperemedia show that the new wave of cautious optimism being seen across the U.S. economy has created an upswing in the amount of direct mail marketing being sent out by insurance and credit card firms.

In the first quarter of 2010, the volume of credit card-related marketing materials sent through the mail rose by 36 percent over the three preceding months, as 1.2 billion messages were sent to American consumers. And while insurance-related marketing increased by a less-impressive 8 percent, Mintel Comperemedia’s study showed that the total volume reached fully 2.6 billion in the first quarter of 2010.

Andrew Davidson, a senior vice president at the company, said that "while it is unlikely that we will get back to the mailing levels during the boom years, there is a good deal to be optimistic about. The insurance and credit card industries still have room for growth as they expand their marketing efforts and, as the recovery gains momentum, we can once again anticipate growth in the mortgage and loans sector."

A new website run by the Federal Reserve will serve as a clearinghouse for all credit card plan details for companies that serve over 10,000 customers, allowing consumers looking to consolidate debt to have easy access to important information.

More than 300 credit card companies have plans listed on the website, which went live on Monday. The Federal Reserve says that, in addition to looking up information on plans they already participate in, consumers can compare different credit card offers to find the ones that are most appropriate to their situation.

The Federal Reserve added that the database will be updated once every three months, meaning that that new information will be added to the site on August 2.

The database was created as a part of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, and is among many measures in that law that attempts to crack down on what are seen as deceptive practices by credit card companies. Another law, currently in reconciliation between the House and the Senate, could place further curbs on large issuers like Visa and MasterCard.

In the wake of a successful amendment to the Senate’s financial reform bill that would cap debit card processing fees for issuers, Bloomberg News reports that credit card processing fees could be next.

The news agency cites a client note from Stifel, Nicolaus and Co. analyst Chris Brendler, which asserted that credit card interchange fees would be "inevitably next" on the list of card issues tackled by U.S. lawmakers.

Bloomberg News also says that Visa and MasterCard had previously been successful in derailing legislative attempts to regulate swipe fees, which are charged to merchants each time consumers use their cards to pay for goods or services.

Experts say that the cap on debit card swipe fees – and a possible similar limitation on those for credit cards – could help merchants reduce prices across the board, easing the financial burden on Americans whose finances took a turn for the worse during the recent recession. It could also allow those in particularly dire straits to afford debt counseling, should they need it.

An amendment to an omnibus financial regulation bill currently being considered in the U.S. Senate – which was recently approved by that chamber with 64 votes – will place strict caps on so-called interchange fees that credit card issuers charge merchants for processing payments made with debit or credit cards.

According to financial news and analysis website The Motley Fool, the caps on interchange fees will not directly harm the bottom lines of companies like Visa and MasterCard. However, the website quotes Visa’s annual report as saying that "if we cannot successfully defend our ability to set default interchange rates to maximize system volume, our payments system may become unattractive to issuers and/or acquirers."

Proponents of the amendment say that it will shift the burden of these interchange fees off of merchants, who say that the fees can seriously harm their profits on low-margin sales.

However, consumers could see a reduction in the number of establishments able to accept debit cards, and experts say that the effect on an already-stretched U.S. consumer base might not be universally positive, making for increased demand for consumer debt counseling.

A new study released Monday by Portfolio.com has found that young adults looking to avoid the eventual need to consolidate debt may want to move to the Southwest region where the job conditions are the best in the country.

According to the study, the latest in the website’s ‘U.S. Uncovered’ lifestyle trend reports, Austin, Texas was found to be the best metro area in the country for young adults to reside.

The reasoning for the city’s appeal, said demographer G. Scott Thomas, was because of its 2.8 percent employment growth rate – the fastest growing rate in the country – along with the 99,200 jobs it has added in the last five years.

"Entrepreneurs looking to jump-start their business and marketers looking for the disposable income of this crucial demographic now know where to focus," said J. Jennings Moss, editor of Portfolio.com. "The Southwest is making headway in attracting younger crowds and re-establishing itself as a destination for those in their 20s and 30s looking for opportunities during the recession."

Following Austin was Washington D.C., Raleigh, North Carolina, Boston, Massachusetts, and Houston Texas.

Conversely, Detroit, Cleveland, and Dayton, Ohio were found to have the worst economic climate for young adults. Detroit alone has shed 343,700 in the last five years.

Americans who are struggling through debt counseling and feel that their economic troubles have no end in sight may be able to take solace in knowing they’re not alone and a majority of Americans are finding it difficult to accumulate wealth.

According to a recent survey from Bankrate.com, 70 percent of Americans believe it is more difficult to get rich now than it was in the past. Additionally, a majority feel that it will only become harder to get rich in the next 10 years while only 24 percent feel it remain as difficult as it currently is.

Furthermore, 63 percent currently feel they are less than likely to get rich during their life. The main reasons for their lack of wealth were either "job loss or income reduction" or "too many bills and not enough income," each of which was chosen by 27 percent of respondents.

However, according to Julie Bandy, Bankrate’s editor-in-chief, realizing that a life of wealth may not be a given may actually stimulate some to be more responsible with their money and make better financial decisions.

"By recognizing that a windfall isn’t around the corner for most of us, consumers can begin taking real, actionable steps towards making a brighter financial future," she said.

One of the new regulations established by the Credit Card Accountability Responsibility and Disclosure Act designed to mitigate credit card debt consolidation has already had a direct affect on the market and affected the earnings of a major creditor.

According to its financial report for the fourth quarter of 2009, Discover Financial Services’ earnings declined by $77 million in comparison to data from one year earlier, the creditor reported on Thursday.

While net yield on loan receivables increased by 0.82 percentage points in comparison to Q3 2008 figures to 9.37, the figure was nonetheless a 0.53 percentage point decline from the previous quarter.

According to the report, the quarter-to-quarter declines were due to the implementation of the CARD Act that allowed customers to opt out of rate changes. Increases in lower rate student loan balances and the liquidity reserve were also referenced as reasons for the decline.

"Our biggest concern was that credit-card yields came down," Capital Markets analyst Scott Valentin said in an interview, according to Bloomberg. "Relative to expectations, it was a little disappointing."

The survey also showed that in addition to the volume of Discover Card sales had declined by 1 percent compared to 2008 figures, the net charge-off rate in the fourth quarter of 2009 had also risen to 8.31 percent while the delinquency rate jumped to 5.31 percent.