Chase Drops $10 Monthly Service Charge

Sometimes banks do listen to complaints from their customers.

On Friday, JP Morgan Chase announced that it is going to drop a $10 service charge that it added to certain credit card accounts earlier this year.

Chase is also refunding $4.4 million that it already collected. Chase said the reason for the reversal and refund is customer feedback.

"Credit card issuers have been very active during the first few months of 2009--raising rates, adding fees, and lowering credit limits. The addition of a $10 monthly fee by Chase really angered its cardholders and they loudly objected. This was essentially a $120 annual fee and a terrible deal for consumers," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

"Issuers have the right to change rates and terms for any time and any reason, but cardholders still have the right to complain. If your rates have been increased for no apparent reason, contact your issuer and ask them to restore your original rate. Remind them you have every right to change credit card companies if they don't change your rate. This is also a good time to contact your Senators and House Representatives because both houses are currently considering several credit card reform bills."

Here are some other recent changes that issuers have made that are not very popular with consumers:

* Capital One increased the rates for new customers on fifteen cards. They increased the rate for the Platinum Prestige card from 7.15% to 11.9% and the rate for the No Hassle Points card (excellent credit) from 8.15% to 13.90%.

* Citi changed its ThankYou reward structure on March 1. Previously, cardholders could redeem 20,000 Thank You points for any domestic flight up to $400 in value. In March, the structure changed to 100 points per $1. You now have to redeem 40,000 points for a $400 flight.

* Bank of America and Citi began charging a 3% fee for all transactions made outside the US in US dollars. The fee previously was not added when foreign transactions were made in US dollars.

*Starting May 1, Discover will charge a 2% foreign currency transaction fee.

Credit Card Tips During a Divorce

Credit card debt is a factor to consider during a divorce. You aren't just separating your lives, but your finances as well. If you do this correctly, you can avoid a financial mess and go on with your life. If it is done incorrectly, you could have a financial disaster that ruins your credit and you will pay much more than lawyer fees.

Here are some credit card issues to address if you are going through a
divorce:

1. Get a complete picture of your debt. Get a copy of a credit reports from all three agencies for you and your spouse. Make a list of every open credit account and whether it is a joint or individual account. You may be surprised to find active accounts that you didn't know existed.

2. Close joint accounts. Joint accounts are held by you and your spouse together, and both of you are equally responsible for the debt. The creditor reports account activity to the credit bureau in both of your names. This affects the personal credit score for both individuals.

Each person is responsible for the debt, regardless of how the debt is distributed in the divorce. If an account is left open, your ex-spouse can add more debt, make a late payment, miss a payment, or default, and you will also be held responsible. It will not only be costly for you, it can hurt your credit score and trigger a rate increase for all of your credit accounts.

By law, a creditor can't close an account because of a change in marital status, but the account can be closed at the request of either spouse. However, a creditor does not have to change a joint account into an individual account. They can require you to reapply for credit on an individual basis. They will treat this as a new application and will either accept or deny your application.

When you close the account, notify the credit card company about the divorce with a certified letter. Ask them to provide a current account statement and tell them that you do not intend to be held liable for any debt accumulated after the date of the written letter. Request that they put the account on inactive status so that no new additional charges may be added and stipulate that once the balance is paid in full, the account is to be closed completely. Follow up with a phone call to your credit card issuer.

If you close an account with an outstanding balance, you still have to pay off the balance. Create a payment plan and make sure that you continue making payments on time so you won't hurt your credit score and incur the late fees. Monitor your account each month to make sure your ex-spouse is also making the correct payment. Pay off your balance as quickly as possible.

If one spouse is assigned the credit card debt, close the joint account and roll it into a new account in the spouse's name.

3. Remove names from each other's accounts. Close all joint accounts and have your name removed from accounts that will continue to be used by your spouse. This will limit your responsibility for new debts from by your spouse (you will still be responsible for old debts incurred up until that point). If your spouse is an authorized users in any of your accounts, revoke the authorization. Send the request by certified mail.

4. Pay off the credit card debt before the divorce is final, even if you have to liquidate marital assets. This will prevent the possibility of future financial problems. If your ex-spouse declares bankruptcy, then the credit card company will turn to you for full payment.

5. After the divorce is finalized, monitor your credit report to see if any errors or problems pop up from the joint credit you had during your marriage.

Pitfalls of Paying Taxes with a Credit Card

April 15th is one month away. While many consumers struggle to find ways to pay their income taxes, credit card issuers are encouraging people to use the convenience of paying with their card.

But consumers should avoid paying their income taxes with a credit card.

Credit card payments of taxes are actually made to third-party providers which are contracted by the Internal Revenue Service. Most processors charge a 2.49% fee for processing your credit card payment, making this an expensive convenience. Some, like FileYourTaxes.com, charge as much as 3.93%

The 2.49% processing fee adds $199 to an $8,000 tax bill. If you don't immediately pay off the credit card bill, interest charges add even more. Assume you charge $8,000, your interest rate is 15% and you pay $400 per month--it will take 24 months to pay off the balance and you will pay an additional $1,333 in interest payments.

Along with this significant processing fee, consumers should also consider several other factors before using their credit card to pay their taxes:

* Check your credit limit. If you are anywhere close to your limit, this should not be an option for you. Issuers are now very sensitive about debt loads and customers who are close to their limit. This sends a warning to issuers that you are a risk for default. They could increase your interest rate because of this. Other lenders may subsequently increase your rates.

* Verify that the tax payment will be treated as a purchase and not a cash
advance. Cash advances come with a high interest rate and typically a 3% cash advance fee.

* Be careful how you provide your credit card number. The IRS warns filers not to write the credit card number on the return and do not mail in the credit card.

* If you are considering a credit card payment because you don't have money for your total payment, a better option may be an installment plan with the IRS or a loan from your bank or credit union. You will have to pay fees and interest, but the interest rate is probably lower than your credit card rate, and will not affect your debt utilization ratio.

* Obtaining reward points for using your credit card is not a good reason to charge your income taxes. The typical reward card offers 1% back for cash, points or miles.

"Last year, we recommended the Citi CashReturns card. It offered 5% cash back for three months and there was no limit to the cash you could earn. It was a fairly good deal for paying your taxes, even with that 2.49% processing fee. This year, that same card only offers 1% cash back. This is an example of how issuers have cut back on their rewards," says Bill Hardekopf, CEO of LowCards.com and author of
The Credit Card Guidebook.

"Consumers should not use their credit cards to pay off their taxes. Instead, they should use their tax refund to pay off their credit card bill. Paying down your credit card debt improves your debt utilization ratio, which improves your credit score, which improves interest rates for other loans and that can improve your financial stability," says Hardekopf.

Credit Card Delinquencies on the Rise

Credit card delinquencies are a growing problem for credit card issuers and,as a result, issuers are making changes.

Several issuers recently reported that charge-off rates are now exceeding 7%. Since credit card delinquencies are indirectly tied to unemployment, and unemployment numbers continue to rise, analysts are predicting that the charge-off rate could increase to as much as 9%-10%. Charge-offs are bad for both the issuer and the cardholder.

* According to data compiled by Bloomberg, the average charge-off rate, reflecting loans the banks don't expect to be repaid, was 7.1% in January, compared with 4.6% a year earlier.

* In January, American Express reported that the annual net charge-off rate (a measure of credit default) rose to 8.29% in January, up from 7.23% in December. The rate for loans at least 30 days delinquent increased to 5.28% from 4.87%.

* Also in January, Capital One's annual net charge-off rate was 7.87%, up from 7.71% in December. The rate for loans at least 30 days delinquent increased to 5.02% from 4.78%.

* Chase warned that net charge-offs could reach 7% for the first quarter.

* Fitch Ratings anticipates charge-offs will be more than 8% in the coming months and possibly 9% during the second-half of 2009.

To reduce their risk of failed loans, credit card issuers have become cautious lenders. They have tightened lending requirements and require higher credit scores. Some issuers are increasing interest rates, accepting fewer applications, lowering credit limits, and closing inactive accounts. Some are even trying to buy out some or their accounts which are at the highest risk of default.

"Charge-offs are failed, non-collectable loans. Since credit card debt is unsecured, issuers don't have any collateral for the loan. A charge-off is lost money for issuers. They are losing billions of dollars in charge-offs, so they must make adjustments to pay for these losses and make it a priority to avoid them," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Let's not forget that credit card issuers are in this business to make money. There is a direct relationship with issuers and cardholders. The changes issuers make to save their business affect the cardholders who are going through their own financial struggles. The changes issuers must make to stay in business make it even harder
for some cardholders to make their monthly payment."

Charge-offs aren't only bad for issuers, they are also bad for cardholders. If you do not pay anything on your credit card balance for several months, the credit card issuer might assume that you do not intend to pay at all and they may charge-off your account. After the account is charged off, the outstanding balance is then classified as a loss. This means the lender has given up hope of collecting on the credit card debt.

A charge-off is not a magic eraser that simply removes the debt, and it certainly does not free the cardholder from paying the debt. After the charge-off, the loan will likely be turned over to a collection agency. Unless you declare bankruptcy, you will have to pay something for that debt, plus interest and fees. To make the situation worse, charge-offs are devastating to a credit score. It shows that you have a history of not paying your bills, which means that lenders will give you very high interest rates for any future loans that you apply for, whether that be a car loan, a home loan, or even a new credit card. Charge-offs can stay on your credit
report for up to seven years.

"If you have fallen behind and there is no way you can pay your monthly payment right now, contact your credit card issuer and work out a payment plan. Don't procrastinate and hope that your situation will suddenly improve. Issuers are much more willing to work with you if you let them know as soon as you are aware of the problem, " says Hardekopf. "If you are suddenly behind on multiple loans, contact the National Foundation of Credit Counseling and they can help you with a payment plan."

Will TALF Work in the Credit Card Industry?

Yesterday, the Federal Reserve officially launched TALF--Term Asset-Backed Securities Loan Facility. It is a $200 billion program that is intended to start money flowing for small employers, credit card issuers, and auto lenders. While the government intends to use this to stimulate lending, it may not work exactly as expected in the credit card industry.

The purpose of TALF is to use $200 billion in loans to encourage investors to buy AAA securities that are backed by new consumer and small business loans. The Fed says the program could generate up to $1 trillion of lending for businesses and households. Requests for loans will be accepted starting March 17. Funds will be dispersed later in the month. If TALF works, it unclogs the credit pipeline, making it easier for Americans to finance large and small purchases at lower rates, and helping revive the economy.

"Basically, TALF encourages lenders to lend more money, and consumers to borrow and spend that money. Ideally, this helps the economy to recover. But we have to remember that questionable loans are one of the reasons we got into this economic mess. Unfortunately today, consumers are deeper in debt, have possibly lost their job or have experienced a pay cut or furlough, and have seen the value of their home and investments drop. This is probably not a good time for consumers to do significant borrowing and increase their debt, even it it will help stimulate the economy," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

"Credit card issuers also aren't in a position to increase their lending. They are trying to stay afloat despite a growing delinquency rate that threatens to pull them under. American Express even offered $300 as an incentive for some of their higher risk customers to pay off their balance and close their account," says Hardekopf. "Issuers and financial institutions joined together to create a website, HelpWithMyCredit.com, and a toll-free number to help their cardholders pay off their credit card balances instead of defaulting or declaring bankruptcy.

"Currently, credit card issuers are still trying to recover and survive. Despite loud protests and anger from their cardholders, issuers have increased interest rates, lowered credit limits, and raised the standards for credit card approvals. It is not clear whether issuers are going to take the money and make new loans or just use it to get rid of some the bad debt they have on the books. Even if TALF does open the credit markets again for more lending, I am not sure the U.S. government
should be introducing a program to encourage easier access to credit for consumers in this recession," says Hardekopf.