Credit Card Update February 11
STUDY SAYS REGULATIONS WILL COST ISSUERS $25 BILLION A YEAR
New card regulations could cost U.S. credit and debit card issuers up to $25 billion a year in lost revenue, according to a study from the Boston Consulting Group that is one of the first to add up the total cost of various regulatory changes. The consulting group says various changes from the so-called CARD Act, Durbin Amendment and Regulation E will, when combined, take away 29% of the revenues that U.S. issuers, mostly retail banks, collect from retail card transactions. Furthermore, the new rules may open the door for more regulations, including possible changes to credit cards.
The consultants say that, in response, issuers will transform the card industry, sell more products to each consumer and move further into mobile banking. The consultants say issuers will lower rewards and charge higher annual fees. The study specifically expects co-branded reward cards, like those offered by retailers, to go away, with only the major airlines and hotels continuing offers. The study also predicts banks will sign up customers for more offerings, such as linked bank accounts and credit cards. Banks have already said they will increase cross-selling.
Story by David Benoit for the Wall Street Journal
CREDIT CARD DEBT INCREASES FOR THE FIRST TIME IN 27 MONTHS
Credit card balances grew in December for the first time since August 2008, an indication that consumers may be feeling better about their personal finances and the economy in general. The latest Federal Reserve Consumer Credit Report released Monday showed that revolving credit, which is primarily credit card debt, increased in December at an annual rate of 3.5%, the first increase in 27 months. The total credit card debt outstanding on December 31 was a seasonally adjusted $800.5 billion, an increase of $2.3 billion from November. Credit card debt has declined 18% since August 2008 when it was $974 billion.
HIGHER CARD USE LIFTS MASTERCARD 4Q PROFIT 41%
MasterCard says its profit soared 41 percent as consumers pulled out their credit and debit cards more often in the fourth quarter. Purchase volume jumped 11 percent from the prior year to $567 billion. The number of transactions the company handled rose 6.3 percent to 6.2 billion. The company says consumers returned to using credit cards after a drop-off during the recession. MasterCard also reports a big jump in debit card use, an area where it lags its larger rival Visa.
Story in Bloomberg Businessweek
SURVEY SAYS ID THEFT DOWN IN THE U.S. IN 2010
The number of victims of identity theft dropped by more than a quarter in the U.S. last year, the largest annual fall on record, but individual victims lost more money on average than ever before. The annual survey of consumer fraud from Javelin Strategy & Research released on Tuesday showed total annual reported fraud was down to $37 billion in 2010 from $56 billion in 2009, but the average out-of-pocket loss soared to $631 from $387–an increase of more than 60 percent. Some 8.1 million people–3.5 percent of the U.S.population–were victims of identity theft last year. That was down 28 percent from 11 million people in 2009. The number of victims was the lowest since 2007, before the financial crisis hit.
Story by David Sheppard for Reuters
MIXING FINANCE WITH ROMANCE
Valentine’s Day is just around the corner, and thousands of couples will get engaged on this romantic day. But life is not a bed of roses, and the sooner couples deal with the financial challenges, the better their marriage will be. Financial problems are the leading cause of stress and tension in a marriage. Making financial decisions together can be extremely difficult since many couples can’t even agree on the temperature for the thermostat. However, couples that create a workable and efficient financial plan significantly lower their anxiety levels and have more time and money for romance. Financial planning shouldn’t begin when pressure from bills and credit card debt creates anxiety or starts to damage a marriage. Financial planning should be one of the first steps to take when merging your life together. Talking about money may be initially awkward, but don’t avoid it. Building a solid financial foundation is much easier than bitterly trying to re-build after a financial collapse. Here are 10 tips to help reduce financial stress…
CREDIT CARD COMPANIES SPIN STRAW INTO GOLD
Credit card companies are amazing. Not only do they now offer cards with no annual fees and low teaser rates, they even give you a rebate for 1 percent of everything you buy. According to a wide range of government and private economists, ultimately it’s you, the consumer, who is paying for those rebates, as merchants raise their prices to cover those additional costs. When all is said and done, all that’s really happening is that the credit card companies are taking money out of your left pocket, setting aside a hefty fee for themselves and putting what remains back in your right pocket. Card companies now face a competitive landscape where the price sensitivity of their merchant customers is so low, and the price sensitivity of their cardholders is so high, that the winning strategy is to push merchant fees ever higher and use the money to offer ever more lavish rewards and cash rebates to win new cardholders and get them to use their cards to make more of their purchases. What makes this strategy so effective is that the costs are largely hidden. Although the merchant fees eventually translate into higher retail prices, consumers can’t really see that. What they can see, on the other hand, is that those wonderful card companies are giving them a 5 percent kickback every time they go to the supermarket.
Story by Steven Pearlstein for the Washington Post
BANK OF AMERICA TO PROVIDE $410 MILLION IN OVERDRAFT CASE
Bank of America Corp., the largest U.S. lender by assets, agreed to pay $410 million to settle lawsuits alleging deceptive practices in the management of customer accounts that led to excessive fees for overdrafts. In his complaint, Ralph Torres said the bank mixed up the order and delayed the timing of debits and transactions to maximize the possibility customers will overdraft accounts. Anne Pace, a spokeswoman for Bank of America, said the bank has already made changes to its overdraft policies, including the elimination of overdraft fees for debit card transactions and reduced fees for customers who overdraw their accounts.
Story by David Rovella for Bloomberg