Credit Card Update March 25
NEW RULES PROMOTE SMARTER USE OF CREDIT CARDS
The government’s new watchdog wants consumers to have a complete picture of a card’s costs before they apply–including its exact interest rate and credit line. Currently those terms aren’t determined until after an application is processed. In addition to the early disclosure of specific interest rates and credit lines, the agency is considering tweaking the summary of rates and fees that appears on marketing materials. The CFPB also is developing easier-to-understand legal disclosures for new card customers.
Story by Daniel Wagner for the Associated Press
BANKS TACK ON $5 ATM FEES
The convenience of using an ATM now costs $5 a pop for some bank customers. Why so much? According to CBS News Business and Economics Correspondent Rebecca Jarvis, many banks are increasing fees and penalties to make more money in response to new federal regulation. “They’re all over the place,” she said. “JPMorgan Chase, for example, has just rolled out this new program where they’re going to charge non-customers in Texas and Illinois (that charges) as much as $4 to $5 per transaction (to) non-customers. TD Bank at the other side of things, they used to let customers use other bank ATMs for free. Now they’re charging them $2 for every transaction. And PNC used to actually reimburse customers when they used another bank’s ATM. Now they’re going to take that away. They’re stopping with those reimbursements.” She advised, “One of the best things to do, and it will cut back on time and make life more efficient, is get the cash back with purchase. Every time you swipe your debit card you’re entitled, in many cases, to get a cash back. You can do that.”
THE BEGINNING OF THE END FOR DEBIT REWARDS?
JPMorgan Chase has mailed letters to their customers saying they will stop offering rewards on debit card purchases as of July 19. The letter says this is in response to the Durbin Amendment in the financial overhaul bill which caps the interchange fees banks can collect from merchants to 12 cents per transaction. Currently, the debit card swipe fees average a little over 1% of a transaction. Banks claim they will lose billions of dollars if this change takes place. A ruling from the Federal Reserve is expected by April 21 and the law is projected to take effect on July 21. On February 8, Chase cut off enrollment of new customers in their debit card reward program. Chase debit card customers will be allowed to keep the points accumulated by the July 19 cutoff–they will not expire.
DISCOVER CEO: EXPECT POSITIVE CREDIT CARD GROWTH IN SECOND HALF OF 2011
Discover expects credit card loan balances, which have been dwindling for several quarters now, to grow in the second half of this year. Lower loan balances are plaguing issuers of plastic because they erode revenue. Investors have been concerned for some time now that the bump in quarterly profits being reported by card issuers stems from lenders releasing loss reserves as credit trends improve rather than an actual increase in revenue, which is a sign of growth. Its first-quarter profit for shareholders of $459 million got a boost from a $271 million reserve release. Average credit card loans dropped 5% to $45.4 billion during the same period. Discover customers spent nearly $24 billion on their cards, a 7% jump from a year ago. Discover expects “growth in core credit cards to turn positive in the second half of this year,” David Nelms, chairman and chief executive officer of Discover, said in an interview. “We’re expecting low single-digit growth by the end of this year in credit cards.” The growth in card loan balances will likely stem from fewer defaulting loans and higher spending by cardholders, said Nelms.
Story by Aparajita Saha-Bubna for the Wall Street Journal
FED’S CLASH WITH BANK OF AMERICA RAISES QUESTIONS
Bank of America said the Fed had vetoed its plans for a modest dividend increase in the second half of 2011. It is a serious setback for a company that has been struggling to win back the confidence of shareholders. A handful of other large banks have also encountered resistance from regulators about their plans to increase payouts to investors or buy back stock, according to industry insiders who insisted on anonymity because they were not authorized to speak publicly. Capital One Financial, MetLife and Morgan Stanley, along with Bank of America, have been notably absent from the list of peers that have announced dividend increases or share repurchases since last Friday, when the Fed informed the country’s 19 largest banks of the results of a second round of stress tests they underwent earlier this year.
Story by Ben Protess and Eric Dash for the New York Times
SWIPING IS THE EASY PART
While the technology is already being installed in millions of phones–and is used overseas–wide adoption of the so-called mobile wallets is being slowed by a major behind-the-scenes battle among corporate giants. Mobile phone carriers, banks, credit card issuers, payment networks and technology companies are all vying to control these wallets. But first, they need to sort out what role each will play and how each will get paid. The stakes are enormous because small, hidden fees that are generated every time consumers swipe their cards add up to tens of billions of dollars annually in the United States alone.
Story by Tara Siegel Bernard and Claire Cain Miller for the New York Times
LOWCARDS.COM WEEKLY CREDIT CARD RATE REPORT
Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards is 14.18%, slightly below last week’s average of 14.25%. Six months ago, the average was 13.64%. One year ago, the average was 13.72%.