Credit Card Update March 11
CREDIT CARDS ISSUERS INCREASINGLY USE REWARD OFFERS
Credit card offers are proliferating, with companies offering a wide array of enticements to consumers. U.S. credit card offers have more than doubled to 1.4 billion at the end of last year from 551 million at the end of 2009, according to Mintel. Mintel also found that the majority of the offers–8 out of every 10–are for rewards cards. Mintel says three major credit card issuers–JPMorgan Chase, Citibank, and American Express–are issuing the most offers, but if the economy improves, more banks can be expected to follow suit. Many of the cards being marketed offer a zero percent teaser rate, or introductory rate, to applicants with good credit.
Story by Megan Woolhouse for the Boston Globe
BANKS LOOK TO REPLACE LOST DEBIT CARD FEES
Some large U.S. banks are considering allowing debit cards to bounce just like checks. Normally, if a debit transaction is approved, payment is guaranteed, since debit cards don’t bounce. But now banks are faced with new rules that will restrict how much they can charge merchants for debit transactions, erasing billions of dollars in revenue. To make back some of that money, banks are weighing whether to divide debit card services into components and charging for them separately–known as “unbundling.” For example, if merchants want a guarantee of payment, as approved debit transactions currently offer, that would cost extra. Unbundling would deal a blow to retailers who won a significant victory with the enactment of debit transaction fee limits. Merchants pay debit transaction fees. It isn’t clear if consumers will pay a penalty fee–similar to that on a returned check–for a debit transaction that bounces.
Story by Aparajita Saha-Bubna for the Wall Street Journal
CUSTOMERS QUESTION THE NEED TO PAY FOR IDENTITY THEFT, FRAUD PROTECTION
The basic pitch from banks and credit card companies has been around awhile: We’ll monitor your credit, alert you if we see fraud, and help you recover if your identity is stolen–all for a low monthly fee. But fewer consumers are signing up, likely because they are less scared and a bit smarter about protecting themselves. Identity theft and fraud incidents dropped in 2010, and more consumers are shredding documents, watching for strange charges on their accounts and checking credit reports regularly. Many consumers are skeptical about offers for extra protection. Nevertheless, industry analysts say big banks will consider making fee-based protection services a bigger part of their business model, as other sources of revenue decline under new federal regulations.
Story by Elizabeth Dunbar for Minnesota Public Radio
FORGIVEN CREDIT CARD DEBT MAY BE TAXABLE
If you negotiated a debt settlement in 2010 on the balance of your credit card account, you may owe taxes on the forgiven debt. The IRS views forgiven debt greater than $600 as taxable income and expects you to pay taxes on that amount. If you have forgiven debt, your lender will send you a 1099-C form that shows the amount of the settled debt. This form is typically mailed in January. Be sure to contact your lender if you have not received this form. Your creditor files a 1099-C forms with the IRS, so the government already knows the amount of your settlement. If you aren’t looking for a tax form, it can be easy to miss or toss out. It is a common mistake, but the consequences can be IRS fines, audits and penalties. A missing form or “I didn’t know” will not exempt you from the tax.
AMEX TEAMS UP WITH FOURSQUARE
American Express has struck a deal to offer discounts to shoppers via Foursquare Labs Inc., the two-year-old start-up that lets users win prizes and meet people by using their mobile phones to “check in” at their favorite bars, restaurants and stores. The move reflects the credit card company’s drive to win over younger consumers and gives Foursquare a heavyweight partner as Google Inc., AT&T Inc. and others jump into the mobile-commerce game. Under the arrangement, AmEx customers can register their cards in the Foursquare system to get access to special offers from merchants who are also Foursquare participants. Customers who shop at those merchants with an AmEx card will receive credits and electronic notification that they have redeemed the offer. Merchants who participate in the program would potentially see more sales.
Story by Robin Sidel for The Wall Street Journal
AMEX’S CEO GOT $16.8 MILLION IN PAY LAST YEAR
American Express Chief Executive Kenneth I. Chenault received total compensation valued at $16.8 million in 2010 as the company posted healthy gains in profit fueled by higher consumer spending and lower loss reserves. This amount includes a base salary of $1.9 million and a cash bonus of $2 million, the company said in a preliminary proxy filing late Friday with the Securities and Exchange Commission. Mr. Chenault made $17.4 million in 2009 and $28.8 million in 2008, the filing noted. As part of his compensation in 2010, Mr. Chenault received $2 million in stock
awards and $9.2 million in options.
Story by Aparajita Saha-Bubna for the Wall Street Journal
THE DEATH OF THE MAGNETIC STRIPE CREDIT CARD
It’s time to prepare a eulogy to a gadget that’s been an even bigger part of the American landscape for a much longer time–the magnetic stripe credit card. In 2005, Eurozone banks converted their cards to the so-called “chip and pin” system, in which a more secure microchip embedded in the card performs most of the security functions. Because U.S. banks are still using the old system, most European banks and merchants still have to accept the old-fashioned cards and the fraud that comes with them–and they are sick of it. The European Payments Council recently passed a resolution mandating that use of “use of magnetic stripe fallback (be restricted) to exceptional cases” and allowing banks to “to refuse magnetic stripe transactions if they so wish.” As a recent banking blog put it, the European council wants to “kill the old magnetic stripe.” U.S. travelers could soon find additional trouble when making mag stripe purchases during travel in Europe. Already, some European vending machines, such as train ticket kiosks, require smart cards for purchases.