NEWS RULES CRACK DOWN ON DEBT SETTLEMENT INDUSTRY
Companies that promise to reduce or eliminate credit card balances and other debt for customers will no longer be allowed to charge an upfront fee. The Federal Trade Commission said yesterday that the new rule is intended to crack down on the debt settlement industry, which has flourished in the downturn as borrowers struggle to pay their bills. The rule goes into effect Oct. 27. Debt settlement companies that violate the new regulations will be subject to a $16,000 fine per violation. The Federal Trade Commission’s rules only apply to for-profit companies. But the agency warned that it would go after companies that pose as nonprofits as well. Regulators cautioned customers to be wary of any organization that charges a steep upfront fee and makes promises that sound too good to be true.

Story by Candice Choi for AP

http://www.google.com/hostednews/ap/article/ALeqM5g9TJfXD8iEaYbnXgvlWkVUkd1rYgD9H8SCAO3

PROFIT NEARLY TRIPLES FOR AMEX, CAPITAL ONE
Higher spending on plastic and fewer bad loans at American Express Co. and Capital One Financial Corp. boosted the companies’ second-quarter profits. Both companies’ second-quarter profit nearly tripled. American Express profit rose to more than $1 billion from $337 million, and Capital One’s increased to $608 million, from $223 million. Like many banks that reported earnings this week and last, American Express and Capital One are benefiting from fewer losses on bad loans, but struggling with weak demand for new loans that would lift revenue. The results may remove any lingering doubt on the improving quality of card loans, even as unemployment remains stubbornly high.
Another bright spot: Delinquency rates, a key gauge of future losses, are at their lowest this year. While investors may be cheered by card issuers’ profits, the boost to earnings from releasing funds from credit losses isn’t sustainable. Ultimately, the companies will need growth in new accounts.

Story by Aparajita Saha-Bubna and Matthias Rieker for the Wall Street Journal

http://online.wsj.com/article/SB10001424052748703467304575383543553788932.html

MANY CREDIT CARD ISSUERS NOT PROVIDING FULL DISCLOSURE ON PENALTY RATES
Despite legislation to make credit card terms fair and easy-to-understand for consumers, the new regulations have opened the door to changes that can make cardholders “vulnerable and uninformed.” A Pew Health Group study shows that issuers have taken two steps forward in most areas, but also taken a step back with penalty rates. Some issuers no longer provide full disclosure of the terms of the penalty rate, or fail to correctly follow disclosure requirements required by the new Federal Reserve rules.

http://www.lowcards.com/blog/many-credit-card-issuers-not-providing-full-disclosure-on-penalty-rates/

HOW MUCH CREDIT CARD REWARDS COST THE POOR
According to the report, “Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations,” released Monday, the reward programs create “an implicit money transfer” to credit card users from noncard users (i.e. cash payers) because of the across-the-board price increases merchants put in place to cover the costs of accepting the cards. “This retail price markup for all consumers results in credit card-paying consumers being subsidized by consumers who do not pay with credit cards,” the researchers wrote in the report. The use of credit cards and rewards, according to the report, is positively correlated with income, meaning that lower-income consumers tend to be the ones not using credit cards and instead paying cash. After accounting for rewards paid to households by banks, the researchers concluded that the lowest income household (those making less than $20,000 a year) pays $23 a year, while the highest income household (those making $150,000 or more annually) receives a subsidy of $756 every year.

Story by Jennifer Saranow Schultz for the New York Times

http://bucks.blogs.nytimes.com/2010/07/26/how-much-credit-card-rewards-cost-the-poor/?src=busln

VISA SAYS JUSTICE DEPARTMENT IS CONSIDERING ANTITRUST LAWSUIT
Visa Inc., the world’s biggest payments network, said the U.S. Department of Justice may sue the company over a policy that bars merchants from charging extra to customers who pay with credit cards. Visa, American Express, and MasterCard disclosed in 2008 that the Justice Department was investigating the companies over so-called anti-surcharging policies and rules prohibiting merchants from “steering” customers to other forms of payment. The Justice Department’s antitrust division is “investigating whether certain credit-card network rules regarding merchants’ treatment of various payment forms, including credit cards, are anticompetitive,” said a Visa spokeswoman.

Story by Peter Eichenbaum for Bloomberg Businessweek.

http://www.businessweek.com/news/2010-07-29/visa-says-justice-department-is-considering-antitrust-lawsuit.html

LOWCARDS.COM WEEKLY CREDIT CARD RATE REPORT
Based on the 1000+ cards in the Lowcards.com Complete Credit Card Index, the average advertised APR for credit cards was 13,67%, down slightly from 13.68% last week. Six months ago, the average was 13.43%. One year ago, the average was 12.11%.

http://www.lowcards.com/blog/category/weekly-credit-card-rate-report/

CITY REAPING REWARDS OF CREDIT CARD PROGRAM
For the city of Colorado Springs, the words “Charge it!” are a good thing. Last year, the city earned more than $154,000 under a rebate program that
allows nearly one in three city employees to use government-issued VISA credit cards to make authorized purchases. The city of Colorado Springs has earned about $605,000 through its so-called P-card purchases since 2001, money that went into the general fund, which pays for day-to day operations.

Story by Daniel Chacon for the Gazette

http://www.gazette.com/articles/city-101980-reaping-card.html#ixzz0un9hbzgX

Read the rest of this entry »

The CARD Act has forced credit card issuers to make a number of good changes that are already benefitting consumers, but there is still room for improvement, so says a study by the Pew Health Group.

The study released last week–“Two Steps Forward: After the Card Act, Credit Cards are Safer and More Transparent–But Challenges Remain”–analyzed and compared the credit card marketplace before and after the CARD Act. The study reviewed credit cards offered online by the twelve largest banks and twelve largest credit unions–nearly 450 credit card offers.

Here are some of the major findings from the Pew Study:

* Rates continued to increase. Overall, purchase interest rates have increased 30% between December 2008 and March 2010. In December 2008, the median purchase APR was between 9.99% and 15.99%. In March 2010, the range was 12.99% to 20.99%.

* Penalty interest rates received the most attention and criticism in the report. The Federal Reserve rules “permit a creditor to apply an increased rate to an existing balance when an account becomes more than 60 days delinquent.” But the report said that the implementation of the changes has led the emergence of a “troubling new trend.” Some issuers such as Bank of America no longer list the amount and terms of the penalty rate in the terms and conditions. They only include a sentence in the fine print that states they reserve the right to impose a penalty fee.

The report argues that this goes against regulations; cardholders are entitled to know the pricing of their account, the penalty rates that could apply, and how high those rates could be. Altogether, one in five penalty disclosures mentioned the right way to “cure” (return to the original, non-penalty interest rate). Only three of ten banks that use penalty rates mentioned the legally mandated cure periods.

* 78% of banks offered an introductory rate for purchases and/or balance transfers. The median introductory period is seven months.

* No surveyed banks offered a fixed rate on any credit card.

* Rewards are now used to penalize cardholders for late or overlimit payments. 23% of surveyed bankcards put limitations on cardholders, preventing them from collecting rewards if there is a late payment or penalty on their account. Some issuers require a reinstatement fee for lost points, but this is not described in the terms and conditions.
For example, American Express will cancel points in Delta, Jet Blue, Hilton Hotels and Starwood Hotels accounts earned for that cycle if you have a late payment fee. They can be reinstated for $29 for each month.

* As of yet, legislation did not generate an increase in new annual fees. The number of cards that charge an annual fee actually dropped 1% from July 2009 to March 2010. However, during that time, the median annual fee increased from $50 to $59 for bank cards.

* Cash advance and balance transfer fees increased on average by one-third between July 2009 and March 2010–from 3% of each transaction to 4%. At the same time, cardholders are reducing their cash advances. In 2009, cash advances dropped by more than 40%.

* Only 5% of issuers disclosed the minimum payment formula as part of the application process. Those that did required 1% of principal balance.

There were also several recommendations from the Pew study:

* Full disclosure of penalty fees. The issuer should clearly list actions that can trigger the fee, what the fee will be, and how/when the rate will return to a non-penalty fee.

* Monitor transaction surcharges to protect against deceptive hidden costs. Rising balance transfer fees equate to higher effective rates.

* Apply total monthly payment to the balance with the highest rate.

* Penalty rate should be no more than seven percentage points above the non-penalty rate.

Read the rest of this entry »

Despite legislation to make credit card terms fair and easy-to-understand for consumers, the new regulations have opened the door to changes that can make cardholders “vulnerable and uninformed.”

The Pew Health Group study (Two Steps Forward: After the Card Act, Credit Cards are Safer and More Transparent–But Challenges Remain) released last week analyzed and compared the credit card marketplace before and after the CARD Act. The study reviewed credit cards offered online by the twelve largest banks and twelve largest credit unions–nearly 450 credit card offers.

The study shows that issuers have taken two steps forward in most areas, but also taken a step back with penalty rates. Some issuers no longer provide full disclosure of the terms of the penalty rate, or fail to correctly follow disclosure requirements required by the new Federal Reserve rules.

Before the CARD Act, credit card issuers clearly disclosed the penalty rate and the terms in the application process because this gave them the legal right to raise rates immediately and without notice as soon as accounts became past due or cardholders went over their credit limit. This full disclosure was in their best interest because increasing interest rates generated more revenue.

After the CARD Act, the Federal Reserve added new rules for the penalty rate. While these rules benefit cardholders, they have also allowed issuers to withhold important pricing information which can leave cardholders uninformed about the complete conditions of their credit card.

Here are the new rules for applying penalty rates:

* Issuers are permitted to apply an increased rate to an existing balance when an account becomes more than 60 days delinquent. Issuers can also increase rates to the penalty rate on new transactions any time after the account has been open for one year.

* The cardholder must be given at least a 45-day notice before the rate is increased.

* According to the Federal Reserve Board rules, “the credit card issuers
must disclose if the rate increase is due to the consumer’s failure to make a minimum periodic payment within 60 days from the due date for that payment. In those circumstances, the notice must state the reason for the increase and disclose that the increase will cease to apply if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.”

* These rules also say that “the notice also must state the circumstances under which the increased rate will cease to apply to the consumer’s account or, if applicable, that the increased rate will remain in effect for a potentially indefinite time period. In addition, the notice must include a statement indicating to which balances the delinquency or default rate or penalty rate will be applied, and, if applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment.”

“The cardholder must make six on-time monthly payments that start at the time of the penalty, or the issuer can charge the penalty rate indefinitely,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

* Starting on August 22, 2010, issuers must perform a review of accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk and market conditions) give reasons to reduce the rate.

The application of these rules varies widely by credit card company. Here is the terminology used by the six major issuers when describing this penalty rate:

Chase–If an APR is increased for any of these reasons (late payment, exceed credit limit, payment returned) the Penalty APR will apply indefinitely to future transactions. If we do not receive any Minimum Payment within 60 days of the date and time due, the Penalty APR will apply to all outstanding balances and future transactions on your Account; but if we receive six consecutive Minimum Payments when due, beginning immediately after the increase, the Penalty APR will stop being applied to transactions that occurred prior to or within 14 days after we provided you notice about the APR increase. (Penalty APR is 29.99%)

American Express–If the Penalty APR is applied for any of these reasons (late payments, returned payments), it will apply for at least 12 billing periods in a row. It will continue to apply until after you have made timely payments, with no returned payments, for 12 billing periods in a row. (Penalty APR is 27.24%)

Citi–If your APR is increased for either of these reasons (late payment,
returned payment), the Penalty APR will no longer apply to existing balances on your account if you make the next six consecutive minimum payments when due. However, the Penalty APR may apply to new transactions indefinitely. (Penalty APR is up to 29.99%)

Discover– If your APRs for new transactions are increased for a late payment, the Penalty APRs may apply indefinitely.

Read the rest of this entry »

According to a recent FICO study, over one-fourth (25.5%) of Americans have poor credit. Nearly 43.4 million people now have a credit score of 599 or below. When you go to the grocery store or a ballgame, look around–one in four people around you have serious financial problems.

Expect that number to grow as households continue to struggle through unemployment, credit card debt and foreclosures.

How Did We Get Here?

People don’t get into financial problems overnight. It took years of overspending, overlending, and poor regulating to create these problems. Lenders, and even the government, share some of the blame.

The government helped open the door for higher rates and fees in 1978. At that time, a majority of states had usury laws that capped interest rates on credit cards, usually at about 18%. That year, a ruling in Marquette National Bank vs. First of Omaha Service Corp held that national banks could charge credit card customers the highest interest rate allowed in the bank’s home state, instead of the customer’s home state. Taking advantage of this new ruling, many major banks moved to states such as South Dakota and Delaware since those states had no usury limits on interest rates and they could even export these rates to the other states.

In the early 1990’s, credit card issuers advanced beyond one-rate-fits-all offers and used credit scores and financial data to develop pricing and credit strategies. They set rates and limits based on computer assessments of an individual’s risk of default–the higher the risk, the higher the interest rate. This new data led to innovations such as increased credit limits and decreased minimum payments. (Here is a history of credit cards and credit card laws and rulings)

“These new, advanced risk assessments created new opportunities to lend to people who were a higher risk including people who should not have had credit. The new loans and higher credit limits were profitable for banks, but made the problem worse for the borrowers,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

In 1996, a Supreme Court ruling (Smiley vs. Citibank) ruled that fees should be included with the balance, and could determined by what the bank’s home state would allow. This ruling allowed issuers to charge more for fees as well as create new fees, such as over-the-limit fees. This ruling also opened the door for punitive practices like the Universal Default clause.

The days of loose lending for mortgages and credit cards, high rates and fees, second mortgages and borrowing beyond more than you could repay couldn’t last forever. The crash occurred in 2008 and caused tremendous losses for borrowers and lenders.

Banks and credit card issuers responded by slamming the brakes on lending. They cut credit lines and increased interest rates. Reduced credit limits hurt borrowers’ credit scores, and higher interest rates made it harder for them to pay down their balance.

Credit card issuers reacted strongly and quickly to protect themselves, but 25% of Americans are practically banned from inexpensive credit at the time they need it. The tightened lending policies shuts off these consumers from many financial options.

Actions Causing Lower Credit Scores

* Debt-to-payment ratio increases. This happens when you add to your outstanding balance, moving you closer to the credit limit; or when the issuer reduces your credit limit. A higher debt-to-credit ratio is considered a higher risk and can result in a drop of about 20 points

* Late payment. Some credit experts believe a few late payments on a credit card or other loans can lower your score by as much as 100 points if you have a great score, or 80 points for someone with an average score. Making payments on time is a big step toward improving your credit score.

* Defaulting on a loan or a foreclosure may lower a score by as much as 200 points.

Here’s the basic breakdown of how long different types of negative information will remain on your credit report:

Read the rest of this entry »

2009 was a difficult year for many credit card customers. Interest rates increased significantly, credit limits were slashed for millions of cardholders, issuers closed risky accounts and rewards were decreased. Many consumers wondered what would happen after the CARD Act and other regulations went into effect in 2010. Would these regulations really help consumers?

“Despite regulations, credit card issuers are still increasing rates and fees in 2010, but less dramatically than last year,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Here are some of the changes that banks and credit card issuers have made during the first half of 2010.

1) Rate Increases

Compared to 2009, this has been a slow year for rate increases. Issuers increased rates dramatically in 2009 while it was still easy to raise rates, and most issuers have not made wide-ranging rate increases since then. But rates have continued to increase during 2010. Here are some recent changes:

* Capital One increased the rate on its Classic Platinum credit card from 16.9% to 19.8% and on the No Hassle Cash Rewards card from 17.9% to 19.8%.

* Citi increased its Cash Advance APR from 21.99% to 25.24%. (February 2010)

Overall, rates are still rising. Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards this week is 13.64%, Six months ago, the average was 13.25%. One year ago, the average was 12.10%.

2) Higher Fees

* Discover increased the cash advance fee from 3% with a $5 minimum to 5% with a $10 minimum. (January 2010)

* Bank of America added an annual fee for a limited group of cardholders that started in February. The fee ranges from $29 to $99 and is applied to the selected accounts based on risk and profitability.

* Citi increased its balance transfer fee from 3% to 4%. (June 2010) It also increased the cash advance fee increased from 3% to 5% with a minimum fee of $10.

* Citi added a $60 annual fee to some credit card accounts, effective April 1, 2010. Make $2,400 in purchases each year and the annual fee will be credited back to your account.

* Banks are already preparing new fees on basic banking services as they try to replace revenue lost to recent regulatory rules. HSBC and Wells Fargo ended their free checking accounts. Bank of America is testing account fees and options that will be added later this year. Other banks could join in.

3) Some Niche Cards and Popular Offers are Discontinued

* Credit card issuers have discontinued some of the specialized cards that were targeted to consumers during a time of free-flowing credit. Chase closed the Starbucks Duetto Visa and credit card deals with Avon Products, Inc., The Detroit Pistons, the Orlando Magic, and the New Jersey Devils.

* Bank of America also reduced the number of niche cards. The Wall Street Journal reported that Bank of America currently has about 4,400 affinity cards, down from 5,000. These are typically offered through college alumni associations and charities.

* The Wall Street Journal also reported that Chase now has about 110 co-branded credit cards, down from more than 200. Issuers seem to be eliminating these cards to cut costs and reduce their risk of delinquencies by card holders.

* Charles Schwab no longer accepts new applications for its acclaimed cash rebate credit card that was recommended by many consumer advocates and financial writers. The rebate was 2%, one of the most generous cash rebates available, and it was deposited into a brokerage account.

* The National Football League is moving its branded credit card business from Bank of America to British banker Barclays. This is forcing customers to scramble to spend reward points before they expire next month. They will have to apply for the new card to continue earning NFL rewards.

4) Expanding Introductory Offers

Read the rest of this entry »

Late payments for credit cards fell in the first quarter of 2010 to the lowest level in eight years, the American Bankers Association reported Tuesday. Card payments that are at least 30 days overdue fell to 3.88% of all accounts in the first quarter compared with 4.39% in the fourth quarter of 2009. This was the lowest level since the first quarter of 2002. Nearly every major credit card issuer has posted five straight months of improvement in their late payment figures.

In addition, the latest Consumer Credit report released today from the Federal Reserve showed that revolving credit, which is primarily credit card debt, fell in May for the 20th consecutive month. It declined at an annual rate of 10.5%, and has decreased an impressive $145 billion since October of 2008, from $976.1 billion to $830.8 billion

A drop in credit card delinquencies should be a good sign of a healthy recovery, indicating that more people are employed and have money to pay down their debt. Employment numbers have historically been a gauge for credit card delinquencies. But that doesn’t seem to be the case now. The economy lost jobs in June for the first time this year. Unemployment remains high at 9.5%.

What could be causing this drop in delinquencies and overall credit card debt? It appears that both issuers and consumers have taken steps to help decrease both these figures.

Issuer Changes
Credit card issuers have taken a number of steps to decrease their financial risk:

* lowered the credit limits on millions of credit card accounts, cutting the amount consumers can charge on their accounts.

* closed credit card accounts due to inactivity.

* written off a number of their uncollectible accounts.

* approved fewer credit card applications. If consumers have fair or poor credit scores, it is now very tough for them to get approved on a new credit card account.

“Banks reacted strongly to the credit crisis and slammed the door on on subprime loans. Wells Fargo just announced that it is shutting its subprime lending unit including mortgages, credit cards and auto loans,” says Bill Hardekopf, CEO of Lowcards.com and author of The Credit Card Guidebook. “This is bad news for households that are struggling to pay the bills. Subprime loan options are shrinking and an average or low credit score now receives interest rates and fees that no one can afford.”

Consumer Changes
Consumers are also reducing their credit card debt. Higher APRs and fees may have pushed some cardholders to switch to debit card and cash transactions.

Nearly 42% of consumers are using more cash than they were a year ago, according to a survey by the consulting firm Market Strategies International. A study by BIG Research in January showed that 30.5% of the respondents said they would pay with cash more often, up from 23.0% a year earlier.

Debit card usage is increasing. According to their annual reports, MasterCard’s debit card usage in this country increased 10.5% in the fourth quarter of 2009 versus year ago levels, while Visa reported a 17% increase.

Delinquencies Lower for All Issuers in 2010
The lower delinquencies in May represent the fifth straight month of improvement for nearly every major credit card issuer. Here is a look at the monthly delinquencies for the top credit card issuers:

Capital One delinquencies by month:
Jan 5.80%
Feb 5.51
Mar 5.30
Apr 5.07
May 4.80

Discover delinquencies by month:
Jan 5.55%
Feb 5.50
Mar 5.39
Apr 5.20
May 4.95

Chase delinquencies by month:
Jan 4.75%
Feb 4.67
Mar 4.51
Apr 4.40
May 4.22

Bank of America delinquencies by month:
Jan 7.35%
Feb 7.23
Mar 7.07
Apr 6.73
May 6.39

Read the rest of this entry »

If you have a checking account, you now have a choice to make about overdraft protection. New Federal Reserve rules require banks to receive permission from each checking account customer before the bank provides overdraft protection for ATM and debit card transactions.

The change started July 1 for new customers and takes effect on Aug. 13 for existing customers. The rules do not cover checks or automatic bill payments–banks can still authorize and pay overdrafts for these transactions at their discretion and charge a fee.

An overdraft occurs when one does not have enough money in a checking account to pay for a transaction, but it is paid by the bank anyway. This service is a loan from the bank and it isn’t free. Banks charge a non-sufficient funds paid item fee (NSF) that is typically $30-$40. A fee is charged for each transaction paid in this manner.

Before the new rules, most banks automatically added courtesy overdraft protection to checking accounts with details and fees in the fine print. Some customers didn’t realize the high price of the fee until they incurred the charge.

Now that the rules are in effect, banks are aggressively encouraging their customers to opt-in and marketing the benefits of overdraft protection. This is revenue banks do not want to lose. In 2009, banks collected almost $38.5 billion in insufficient funds and overdraft fees, Moebs Services estimates.

“Banks have made a lot of money by allowing customers to spend or withdraw money that was not in their account. An overdrawn account can happen quickly with multiple transactions, even if they are small amounts,” says Bill Hardekopf of LowCards.com and author of The Credit Card Guidebook. “Sometimes, overdrafts can be caused by a number of things that are not in the consumer’s control: the timing of cash flow or payments, the delayed posting of a deposit, or the banks paying the biggest withdrawals first. A $5 purchase can trigger a $30-40 fee. Since the cashier doesn’t tell you it’s an overdraft, you don’t know there is a problem until it is too late.”

In response to the new regulations, Bank of America and Citi no longer allow debit card overdrafts. Bank of America customers can still sign up for a formal program to cover debit card overdrafts.

How to Opt Out of Overdraft Protection (or Opt In)

Many banks are currently sending out informational letters to customers that explain overdraft protection and how to enroll in the service. A consumer can mail in the enrollment form (the letter may include a postage-paid envelope), or sign up by phone, in person at your local branch or online. If you do not choose an option by August 13, you will automatically be opted out.

Opting out means that you do not want your bank to authorize and pay for debit card and ATM transactions when it appears there is not enough money in your account to cover the transaction. This may create a situation where your purchase is declined.

Opting in means that you do want your bank to cover debit card and ATM transactions when there may not be enough money in your account to cover the transaction. As a result, you will be charged an NSF paid item fee.

Read the Fine Print
Carefully read the notice that you receive from your bank. It should
reveal the true costs and limits of overdraft protection.

* The cost of overdraft may not end with the NSF paid-item fee. If your account remains overdrawn, you can receive additional fees. For example, if your account is overdrawn and continues with a negative balance for ten consecutive days, BBVA Compass charges a $25 extended overdraft fee. If the ending daily balance remains negative for 20 calendar days, another $25 extended overdraft fee will be charged. The BBVA Compass limits NSF fees to six per calendar day. The total of the negative balances and all fees and charges is due immediately.

* Transactions aren’t processed in the order they occur. Banks can charge the items to your account in any order. They admit in the fine print that this can cause the available balance to be insufficient to pay one of more other items that otherwise could have been paid. This means the order the charges are paid can affect the total amount of overdraft and non-sufficient funds fees.

* Even if you choose to opt-in, the payment of an item is discretionary.
Banks will choose which transactions to cover. You can’t count on havingoverdraft protection when you need it.

If you opt in, you can cancel at any time. If you do not opt in, you can do so later.

Alternatives to a Standard Overdraft
Most banks offer cheaper alternatives to standard overdraft protection.
These include a link to your savings account, a credit card, or a line of
credit that will cover overdrawn transactions. There is still a fee each
time you overdraw your account and your bank performs a transfer but it is typically $5-$10, much less than the standard overdraft fee. You must contact your bank to set up this alternative service, since it is not part of the opt in selection.

Read the rest of this entry »

One of the major consumer provisions of the new financial regulations reduces the interchange fee for debit cards. This change could significantly benefit retailers, but it will hurt banks and possibly harm consumers.

Under the legislation, the interchange fee that retailers must pay issuers and banks for debit card transactions would be decreased. Currently, that fee is about 2% of every transaction. According to a recent study by the Nilson Report, interchange fees paid by merchants for MasterCard and Visa debit transactions totaled nearly $20 billion in 2009. The legislation would not effect the interchange fee levied on credit cards.

How will interchange regulations on debit cards affect consumers, retailers and banks?

* Less convenient payments for small purchases. Payment with credit cards make payments fast and easy, and we use them for the majority of our purchases regardless of the amount. Interchange regulations will allow retailers to set the minimum purchase price at $10 for card purchases. Shoppers must use cash for small purchases.

While minimum payments may be inconvenient for consumers, permission to set minimum payments is good news for small retailers. Currently, retailers are required to accept cards for all purchases no matter how small the price. The minimum fees are so high that retailers often lose money on the small purchases with small profit margins.

* Consumers may save money with cash discounts. Merchants will be able to offer discounts to people who pay with cash, checks or debit cards. However, the regulations do not require merchants to pass savings to consumers.

* Lower prices could lead to lower debt. Interchange fees add approximately 2% to the price of goods. Ideally, merchants will lower prices if the don’t have to pay the fee. But, again, retailers are not required to pass the savings on to consumers.

* New or higher fees for bank accounts. Banks will lose billions of dollars from this change in interchange fees and they will look for new ways to replace that revenue. It is possible the decrease in interchange fee revenue could mean higher fee payments for consumers with bank accounts. Wells Fargo ends free checking account on July 1, and Bank of America is testing new fees to be added by the end of the year. Other banks may follow.

In July 2010, Jaime Dimon, JPMorgan’s CEO, acknowledged that new rules passed last year curbing the banks’ ability to charge its banking and credit card customers certain fees and penalties. This would cut into its bottom line more than it had expected and would ultimately mean that clients would end up paying more for services.

“You know, if you’re a restaurant and you can’t charge for the soda,
you’re going to charge more for the burger,” Mr. Dimon said. “I just
my guess that over time it will all be repriced into the business.”

* A reduction or elimination of rewards for debit cards. Since some issuers have claimed that interchange fees fund the rewards programs, expect rewards from debit cards to shrink. Banks will likely not fund rewards out of their own pocket.

* A possible reduction in rewards for tax and college tuition payments. Governments and colleges can set maximums for credit card payments to reduce their own interchange fees. This will limit the points or cash rebates available for those who pay taxes or tuition with a credit card.

“The interchange regulation would be a huge win for retailers and a significant loss for the banking industry. Depending on what the retailers do, it could also result in an overall loss for some consumers,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Congress is attempting to regulate these billions of dollars, but there is uncertainty about how much lower the fee will be. The bill requires that it be “reasonable and proportional” to the cost of processing the transaction. The Fed has the fee-setting authority and has not announced what it will be. The Fed will not directly regulate the network transaction fees that Visa and MasterCard charge banks. (Debit card transactions currently have uncapped fees, which sometimes reach 2% or more of the amount purchased.)

The bill was signed by President Obama in July. It will be sent to the Fed. to draft regulations within nine months. The new rates will go into effect 12 months after the bill is signed.