Credit Card Update Jan. 13
DEBIT CAPS MAY LURE BUSINESS FROM CREDIT CARDS
A plan to slash debit card transaction fees also may wipe out some of the $38 billion that lenders collect on credit cards as merchants steer customers toward less costly forms of payment. The threat stems from the Federal Reserve’s proposal to cap “swipe” fees, or interchange, at a flat 12 cents for each debit transaction, replacing a formula that averages 1 percent of the purchase. The cap must be in place by July 21 to comply with the Dodd-Frank legislation that overhauled the financial industry last year. Credit card interchange fees, which average about 2 percent, remain untouched. That means a $1,000 television set bought with a credit card would cost a retailer a $20 fee, compared with 12 cents for a debit card. The disparity may tempt merchants to offer discounts for debit, diverting business from credit cards.
Story by Peter Eichenbaum for Bloomberg
AMERICANS CUT CREDIT CARD BORROWING
Americans kept their credit cards at bay in November, subdued by high joblessness and fallen home values. The 27th straight drop in revolving credit restrained overall consumer borrowing, according to the Federal Reserve’s monthly consumer credit data. The report also said consumer credit outstanding increased $1.3 billion, or 0.7%, to $2.40 trillion. Climbing student loans drove the unexpected increase. The report on November borrowing showed revolving credit, or credit-card use, decreased $4.2 billion, or 6.3%, to $796.5 billion. The last time credit-card debt rose was August 2008.
Story by Jeff Bater for the Wall Street Journal
SOME BANKS ASSESS CHECKING ACCOUNT FEES TO RECOVER LOST REVENUE
Here is an easy New Year’s resolution that may save you over $100 in 2011: pay attention to the notices and fine print from your bank. Fees are rising with many major banks, and there may be more you have to do to get or keep a free checking account.When Congress passed regulations on the financial industry, banks warned the restrictions would cause them to raise rates and fees to recover the lost revenue. Banks have proved many times they weren’t bluffing. Banks have added a number of new fees in the past two years, and now they are testing fees on checking accounts, something that could affect millions of consumers by the end of 2011.
STUDENTS STILL TARGET OF CREDIT CARD OFFERS
The CARD Act may be having little effect on students, according to new research. The University of Houston Law Center surveyed over 300 undergraduates in November and found that “there are some things that haven’t changed.” Some 76% of those surveyed under the age of 21 said they had received a credit card offer since the beginning of 2010. And some 73% of freshmen surveyed reported seeing card issuers marketed to students off campus. What’s more, roughly a third of freshmen already had a credit card when they landed on campus. A full 29% of students under 21 who obtained a credit card since starting school this academic year used student loan proceeds as part of the income they reported to card issuers in their credit card applications.
Story by Mary Pilon for the Wall Street Journal
BEST WAYS TO USE FREQUENT FLIER MILES
The bottom line is that the airlines are in the biggest money-making
opportunity of their entire lives with their frequent flyer programs. The major airlines actually make more money with the frequent flyer programs than they do as airlines. The market value of American Airlines frequent flyer program is more than $6 billion–the market itself is $2.4 billion. What does it tell you? Airlines make a lot of money by selling miles to their miles partners–credit card companies, banks, etc.–so you get a dollar for every dollar you spend–but guess what? The airlines don’t just print the currency, they’re in charge of the redemption. If they keep the
redemption levels under 10%, that’s 90% return on investment. So we’re all mileage addicts–we love knowing how many miles we have. When you call the airline, the first thing they say to you is we don’t have seats at 25,000 miles, we have seats at 50,000–that’s extortion. The actual math conversion is a little scary because 54% of all mileage earned is earned on the ground with those credit cards. Suppose they want to give you that 25,000 rewards, that means you spent $13,000 for that ticket. There are some credit cards out there, Chase and Capital One Venture Card, that have really good deals because you’re getting 1 mile per dollar you’re spending. It’s not about the miles or the points you have to redeem–you’re earning dollars in your account. Continental and Southwest airlines are very good because they let you know right away when you get to that mileage level, and you can get a reward and go.
Interview with CBS travel editor Peter Greenberg
KARDASHIAN SISTERS SUED OVER DEBIT CARD
A company that created a prepaid debit card endorsed by the reality TV stars has sued the trio for breach of contract. Revenue Resource Group LLC claims it lost millions of dollars after the sisters pulled out of the deal in November after facing criticism over the card’s fees. The company’s lawsuit claims they broke their contract and cost company at least $75 million in losses. The sisters’ mother, Kris Kardashian Jenner, and their company, Dash Dolls LLC, are also named in the suit. The suit alleges the sisters improperly terminated a two-year contract to promote the Kardashian Kard, a prepaid debit card aimed at young adults. The deal had called for the sisters to advertise the card on their websites and through social media, according to the report. They also were supposed to appear at events on behalf of the company.
Story by Jessica Derschowitz for CBS News
POST OFFICE TO SELL GIFT CARDS
The post office will soon sell gift cards issued by Visa, MasterCard, Discover and American Express, usable anywhere credit cards are accepted. They sound great, don’t they? What an easy gift. But those easy gifts come with hefty fees. The post office plans to charge $4.95 for gift cards with a set rate of $25 and $50 and $5.95 for cards in variable amounts ranging from $26 to $100. There is no word yet on whether the cards will have an expiration date or carry any additional fees.
Story by Teresa Mears for MSN