Credit Card Update December 17
CONSUMER REPORTS POLL: SHOPPERS CAUTIOUS, AVOIDING CREDIT CARDS
While the economy continues to improve, consumers remain cautious in their spending this holiday season, according to a new Consumer Reports poll. Shoppers are spending less this year, averaging $679, down $20 from last year. The drop marks the fourth consecutive annual decline in holiday spending. Most shoppers expect to pay for their holiday purchases with cash, rather than taking on more credit-card debt. As of October, 13.6 million Americans were still paying off credit-card charges from last year’s holiday purchases.
WILL CONSUMERS ULTIMATELY PAY FOR REDUCTION IN DEBIT FEES?
The Federal Reserve announced its proposal that would limit debit card fees to a maximum of 12 cents per transaction. This is a stunning change from the existing interchange or “swipe” fees charged to retailers that average between 1% and 2% of a transaction. This is part of the Dodd-Frank financial reform bill signed in July that requires the Fed to limit these interchange fees to a level “reasonable and proportional” to what it costs the bank to process the transaction. The intent of the legislation is to lower the cost for merchants which, in turn, would hopefully result in lower prices on goods and services for consumers. The big question is how this will affect consumers. Will retailers pass on these savings to consumers in the form of lower prices? Or will merchants pocket these savings?
MORE CHASE CUSTOMERS COULD PAY FOR FREE CHECKING
Chase customers who don’t earn a lot or rely on paltry government benefits may soon have to pay a monthly fee on their checking accounts. The bank started notifying customers this month that direct deposits will have to be at least $500 to qualify for a waiver on the $6 monthly fee. The change, which goes into effect starting Feb. 8, applies to basic checking accounts. Chase said the $500 monthly requirement is for a single direct deposit; multiple direct deposits that add up to $500 will not qualify for the waiver. The monthly fee can still also be avoided if customers make five or more debit card purchases in a statement period.
10 CREDIT CARD PREDICTIONS FOR 2011
The past three years have been an extremely volatile time for both credit card issuers and users. In 2008, the lending market crashed and the recession began. In 2009, credit card issuers dramatically raised interest rates and fees, cut credit limits and closed accounts. This year, the majority of the CARD Act regulations went into effect. 2011 looks to be a year of smaller, more subdued changes as credit card issuers find ways to manage risks, add new accounts, and increase revenue, while cardholders continue to pay down their balance and possibly use alternative forms of payment. Here are some predictions for the credit card industry in 2011.
BRITISH AIRWAYS TO CHARGE FOR
CREDIT CARDS USED WITH TRAVEL AGENTS
British Airways said Monday it plans to levy a fee on tickets bought with credit cards through travel agencies, a revenue-raising move that will align charges on third-party and online bookings. The U.K. carrier said it will introduce a GBP 4.50 fee on all economy tickets from March 1, 2011. A spokesman for BA said Monday: “This charge is currently in place for tickets purchased on ba.com, so this will align the payment fee charges across both booking options.” He added: “There will continue to be no charge for debit cards.”
Story by Kaveri Niththyananthan for the Wall Street Journal
BANK COMPLAINTS SOAR EVEN AFTER THE LAW CHANGES
Complaints against banks are soaring, suggesting that new laws and regulations put in place since the financial crisis two years ago aren’t dampening Americans’ anger over overdraft fees and foreclosure practices they view as unfair. If the trend continues, experts say, it will set banks on a collision course with their customers and lead to tougher rules that will hurt their earnings. For years, most complaints were over credit cards. People said banks charged excessive fees or jacked up interest rates without warning. Last year, Congress passed sweeping legislation that prohibited card companies from arbitrarily changing rates and limited fees. The changes already are having an effect. While credit cards are still the second-highest complaint category, they now make up just 22 percent of all complaints, down from 37 percent in 2009.
Story by Pallavi Gogoi for Bloomberg Businessweek
GIFT CARDS WITH BELLS AND WHISTLES
This year, retailers’ gift cards record messages, light up or smell like
gingerbread. Some feature the work of noted photographers, others
incorporate personal photos. Some can be sent via text message or FaceBook posts, and others are tactile (like the one with little holes for a finger puppet). Meanwhile, retailers are devising new ways to make the cards more appealing, because gift cards increase shopping traffic and encourage higher spending once people visit to redeem them. The cards also essentially act as an interest-free loan, where the retailer takes money now and does not have to give anything in return for a while. Home Depot is selling a card that, when held up to a computer’s Web camera, suggests products. A Wal-Mart card, when scratched, smells like gingerbread, while Barneys New York has limited-edition cards featuring photographs by Nobuyoshi Araki. An American Eagle Outfitters gift card can be sent as a text message, Amazon.com’s can be sent as FaceBook posts, and a company called Wildcard lets people send a variety of gift cards to recipients’ phones through its app. As for that finger-puppet card, it is a bear, and your fingers poke out as its arms–courtesy of Target.
Story by Stephanie Clifford for The New York Times
RISKY BORROWERS FIND CREDIT AGAIN, AT A PRICE
Credit card offers are surging again after a three-year slowdown, as banks seek to revive a business that brought them huge profits before the financial crisis wrecked the credit scores of so many Americans. The rise is striking because it includes offers to riskier borrowers who were shunned as recently as six months ago. But this time, in contrast to the boom years, when banks “preapproved” seemingly everyone, lenders are choosing their prospects more carefully and setting stricter terms to guard against another wave of losses. For consumers, the resurgence of card offers, however cautious, provides an opportunity to repair damaged credit and regain the convenience of paying with plastic. But there is a catch: the new cards have higher interest rates and annual fees. This new approach to assessing default risk is emblematic of the challenge faced by the many banks that were hobbled by the financial crisis: They desperately want to grow again,
but the memory of a near-death experience makes them wary about taking outsize risks.