Credit Card Update December 23
U.S. LENDERS TAKE ON GROWING SEGMENT OF FIRST-TIME DEFAULTERS
Faced with an erosion in profits stemming from shrinking loan books, and new expansive rules curbing income on credit and debit cards, lenders are exploring ways to lend to a growing breed of borrowers with blemished credit. Not only are the numbers for these first-time credit offenders too large for lenders to ignore, but a portion still wield the financial heft to take on credit. Finding ways to lend to those with blemished credit is also crucial to the U.S. economy, with the hope that a pick-up in consumer spending will spark job growth. Discover says it will soon start testing findings from its research on means to gauge the creditworthiness of these first-time defaulters. One element in its plan: it will double the number of employees evaluating credit-card loan applications to 400 by the end of 2011. In 2008, Discover had 10 such employees.
Story by Aparajita Saha-Bubna of the Wall Street Journal
AMEX FALLS AS CREDIT CARD FEES MAY BE NEXT TARGET
The Federal Reserve last week proposed cutting “swipe” fees, or interchange, that merchants pay to accept debit cards by up to 84 percent. That will give merchants more incentive to steer consumers away from New York-based AmEx’s higher-cost credit and charge cards, said Chris Brendler, a Stifel analyst, in a note to clients. He changed his recommendation for the stock to “hold” from “buy.” AmEx, which doesn’t issue debit cards, charges retailers who accept its credit cards an average of 2.56 percent of the purchase price, the lender said in its third-quarter financial supplement. “We are increasingly convinced that credit interchange will inevitably be the next target,” he wrote. “The now-significant disparity in payments’ costs greatly increase the risk.” The payments industry has so far escaped attempts in the U.S. to regulate interchange on credit cards, which average about 2 percent per transaction, saying the fees are needed to compensate banks for the risk of lending money. That argument isn’t relevant to debit cards, which deduct funds held in consumer checking accounts.
Story by Peter Eichenbaum for Bloomberg
MORE CARDS WAIVE FOREIGN EXCHANGE FEES
Chase has gotten rid of the fees on its co-branded cards with British Airways, Hyatt and Intercontinental Hotels. Two new Citi cards, Thank you Preferred and Prestige, will not have the fee. AmEx will soon get rid of the fees for Platinum and Centurion (aka Black) card cardholders, both on consumer cards and the ones for small business owners. Capital One has long avoided the currency conversion levy.
Story by Ron Lieber for The New York Times
CREDIT CARDS ARE ABOUT TO GET WORSE
Next time your credit card company raises interest rates, or imposes an annual fee, or cuts back on your rewards program, or suddenly charges you for your “free” debit card and checking account…blame Rep. Barney Frank and Sen. Chris Dodd. They were the key sponsors of laws passed this year that promised to “protect” you from unfair penalties, fees and interest rate hikes. Stopping credit card companies from imposing penalties or raising interest rates on customers who pay late doesn’t make those costs disappear. It means the rest of us now pay for them. Since the politicians “protected” us, credit card interest rates have risen nearly 2% … while rates on mortgages and treasury bills dropped.
Story by John Stossel for Fox News
SUPREME COURT DECISION COULD IMPACT CREDIT CARD RATE HIKES
The legislative and executive branches of our government have forced a number of changes onto credit card issuers over the past two years. The judicial branch could soon join in. On December 8, The United States Supreme Court heard oral arguments in Chase Bank USA v. McCoy, a case that could set a precedent for the notice credit card companies must give consumers about interest rate increases. An important issue is whether credit card companies have to provide cardholders with a notice of an interest rate increase for payment default if the risk of an increase was spelled out in the credit card agreement.
UTAH JOINS ANTI-TRUST SUIT AGAINST CREDIT CARD COMPANIES
Utah joined more than a dozen states in an antitrust lawsuit against the nation’s largest credit card companies. The states argue that Visa, MasterCard and American Express prevent merchants from encouraging customers to use credit cards with lower merchant fees, which could translate into lower prices. The suit aims to get the credit card companies to eliminate practices that allegedly restrain trade and allow merchants to offer discounts, rebates or other incentives to use a card with a lower fee. The Department of Justice and seven states initially filed a complaint in October and 18 states have now joined the lawsuit.
Story by Dennis Romboy for Deseret News
CITI DEALS A NEW DECK OF CREDIT CARDS
Citigroup is overhauling its credit card operations. The company will
discontinue a number of cards, including its PremierPass, Diamond Preferred Rewards, Simplicity Rewards, Home Rebate and Driver’s Edge Options cards. Starting early next year, Citi will replace these cards with one of four cards: ThankYou, ThankYou Preferred, Premier and Prestige. As part of the overhaul, Citi will take away some perks that many cardholders like and add others that weren’t there before. Many new customers will be paying strikingly higher annual fees than they may have paid for Citi’s discontinued cards (though at least for the moment, current customers won’t be affected). What’s unusual with Citi is that it’s doing so much at once. The fact that Citi is getting rid of the card formerly known as Simplicity Rewards is telling. The blizzard of all of Citi’s additions and subtractions defies tidy analysis, which is probably just the way the company likes it. It’s a pretty safe bet, however, that Citi wouldn’t be making these moves unless its spreadsheets predicted big gains in revenue and profit.
Story by Ron Lieber for The New York Times