Credit Card Update April 29
AMEX PROFIT RISES, BUT COSTS SOAR
American Express first-quarter profit rose 33 percent from a year ago, beating expectations, but its expenses soared, and its shares fell. The company’s wealthy customers spent more on their credit cards than a year earlier, but expenses outpaced American Express’s revenue growth as it spent more on rewards programs for its customers. American Express has refocused its business on processing the transactions of high-spending customers who mostly pay their bills in full every month. But those customers expect to earn pricey rewards, such as free flight upgrades or hotel stays, from the points they earn every time they swipe their American Express cards. Chief Financial Officer Dan Henry told analysts on a conference call that more customers are redeeming their points for awards. The company may not be able to afford to reduce its spending on rewards or marketing very much in the face of the increased competition it is facing for its affluent customers.
Story by Maria Aspan for Reuters
SENATE SET TO DEBATE DEBIT CARD FEES
A fee that most consumers never knew existed is expected to cause Congress to fracture along nonparty lines when the nation’s lawmakers return from recess May 2. The Senate is expected to debate and vote on a measure to delay the federal cap on fees that banks and credit unions charge merchants for purchases made with debit cards.
Story by John G. Edwards for the Las Vegas Review Journal
U.S. CREDIT RATING AFFECTS YOUR INTEREST PAYMENTS
Last week, Standard & Poor’s lowered its outlook on the United States long-term credit rating from stable to negative. This was seen as a warning to lawmakers who have been unable to agree on a long-term plan for cutting the deficit. Credit ratings are as important to a country as credit scores are to individuals. It is a measure lenders use to judge the borrower’s ability to pay off a loan. Just like credit scores, the countries with the highest ratings get the lowest interest rates. If the scores drops, the rates increase. The S&P warning indicates that the U.S. is in danger of losing its AAA rating (the highest possible credit rating). A downgrade would mean that lending to the United States is no longer considered as safe and the U.S. would pay higher interest payments. Since the government would now have to pay a higher interest rate, it would charge banks a higher interest rate for the money it loans them. The banks would pass that on to consumers in the form of a higher rate on loans like mortgages and credit cards. This will be a shock for consumers who have become accustomed to years of record low rates for loans.
CHECKING ACCOUNTS MAY HAVE FEWER
CONSUMER SAFEGUARDS THAN CREDIT CARDS
Many consumers assume the terms of their checking accounts, the most widely used financial services product in the U.S., are simple, at least compared to such other payment methods as credit cards. But a study from the Pew Health Group shows that consumers are lost about their checking accounts, resulting in unnecessary overdraft fees and penalties. Pew analyzed 265 checking accounts at 10 of the largest banks and found that the average checking account has a disclosure of 111 pages, an $8.95 monthly fee, an overdraft penalty fee of $35, an overdraft transfer fee of $10, and an extended overdraft penalty fee of $25 every seventh day the account is overdrawn, among other findings.
Story by Susanna Kim for ABC News
SECURED CREDIT CARDS: NOT EVERYONE QUALIFIES
If your credit was ruined during the Great Recession, using a secured credit card may be a good way to help improve your standing. That is, if you can get a secured card. Not everyone may be immediately eligible, especially if you have a recent bankruptcy on your record. Several large banks require that applicants must be out of bankruptcy for a year, and must have another relationship with the bank, like a checking account. Delinquencies on other accounts are also likely to result in a denial.
Story by Tara Siegel Bernard for The New York Times
BEWARE OF FINANCIAL FEAR MONGERS
Worried about your financial status? Someone wants to sell you protection. More and more websites are offering credit and identity-theft monitoring services, and the chance to buy what look like real credit scores. Credit card issuers, meanwhile, have revved up their marketing of debt-protection products. What are you really getting for your money? Debt-protection services, which cover your credit-card bill when you can’t, can help out if you become ill or lose your job, protecting your credit score, the Government Accountability Office said in a report last month. But the services come at a big cost: annual fees may be
more than 10% of your average monthly balance, and consumers receive only about 21 cents of actual benefits for every $1 spent. The services are heavily marketed to cardholders, particularly when you call a toll-free number to activate a card or ask a question, or
when a customer-service rep calls to answer an inquiry. About 24 million cards are covered by the services.
Story by Karen Blumenthal for the Wall Street Journal
BANK OF AMERICA INTRODUCING PENALTY RATES
Bank of America, one of the largest U.S. credit card issuers, plans to start charging penalty interest rates for credit card customers who miss payments. Beginning on June 25, the bank will begin charging a penalty rate of as much as 29.99 percent to customers who make late payments on their credit card balances, a company spokeswoman confirmed Tuesday. Unlike a wholesale interest rate increase, borrowers would be charged the penalty rate only on new purchases after the rate is changed, and a customer will receive 45 days advance notice of any penalty rate being placed on their account. The bank has not had a penalty interest rate on its credit cards since the industry was overhauled by Congressional legislation in 2009. The penalty rate is the
second change for BofA credit card customers this year. Earlier this year,
BofA introduced an annual fee of $59 for less than 5 percent of its credit
card accounts. That fee will begin appearing on customers’ May statements.