Credit Card Update October 21
GOING ON A DIET? START PAYING WITH CASH
Paying with credit or debit cards makes people more likely to make impulsive, unhealthy food purchases, according to a new study in The Journal of Consumer Research. It turns out paying with a card can also make consumers likely to spend more money on “bad” things in particular, like junk food. In this analysis, consumers were significantly more likely to purchase unhealthy foods like cakes and cookies when using a credit or debit card. Interestingly, consumers who shopped with larger baskets were also “more susceptible to impulsive purchase of unhealthy products,” the authors found.
Story by Catherine Rampell for The New York Times
MAYBE YOUR OLD CARD IS SMART ENOUGH
Cards containing chips, called smart cards, simply cannot match something that’s supposedly dumb and has been around since the 1970s: ordinary credit cards with magnetic stripes running across their backs. The dumb cards don’t need a brain of their own: the network supplies the necessary smarts. About 13 million magnetic-stripe readers are found in the United States, and some no longer need a counter to sit on. Square Inc., a start-up, now offers a tiny gadget that, when attached to an iPhone, iPad, iPod Touch or Android phone, turns it into a stripe reader, too. Magnetic-stripe cards could connect to very smart mainframes at the time of a purchase. These machines conduct fraud analysis in real time. By keeping cards dumb and security centralized, the company can easily upgrade its central system at any time; changes take effect throughout the network instantaneously. Visa has 686 million cards circulating in the United States; if all were smart cards, each would have to be replaced when it made some kinds of security upgrades. A smart card with a PIN requirement is more likely in our future than PIN-free express payment for purchases of any amount. The era of paying by simply waving may end almost as soon as it began.
Story by Randall Stross for the New York Times
USING CREDIT REPORTS TO MAKE EMPLOYMENT DECISIONS IS UNDER FIRE
According to the latest figures in September, the unemployment rate was 9.6%. A total of 14.8 million people were unemployed last month and 41.7% of those have been out of work for six months or more. Good jobs are hard to find, and may be nearly impossible if you have bad credit. Employers are increasingly turning to credit reports to help screen applicants who may be unreliable or a risk of theft. The Fair Credit Reporting Act authorizes employers to run a credit check on applicants, but employers must have the applicant’s consent. If the employer considers denying a job because of a credit check, they have to provide a copy of the report and a written description of the applicant’s rights before taking adverse action. The individual also has the right to dispute the accuracy or completeness of any information the agency furnished. The person has the right to an additional free consumer report from the agency upon request within 60 days. A new bill, H.R. 3149, was introduced this summer to amend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions. The bill is now in committee.
CREDIT CARD WRITEDOWNS MOSTLY IMPROVE IN SEPTEMBER
Default rates on credit cards are mostly down in September, but improvements in late payments slowed for most of the major card issuers. American Express, Discover, Chase, Bank of America and Citibank all said that September charge-offs fell to the lowest level this year. Citi and Bank of America showed the most improvement over the month. Among the top six issuing U.S. banks, only Capital One posted an increase in defaults. Card companies wrote off record amounts of credit card debt in the past two years as customers failed to make payments amid high unemployment. Five of the six issuers say payments late by 30 days or more also fell, with only Bank of America reporting an increase in delinquencies.
Story by Eileen AJ Connelly for the AP
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 13.80%, a slight increase from last week’s average of 13.76%. Six months ago, the average was 13.55%. One year ago, the average was 12.56%.
BANK OF AMERICA TAKES NEW APPROACH
Bank of America outlined a new strategy to generate more revenue from consumers after the nation’s largest bank reported a $7.3 billion loss for the third quarter due to the impact of new financial regulations on its debit card business. The company is considering offering customers a variety of checking accounts depending on how they want to bank: It’s already rolled out an eBanking account, which doesn’t charge customers if they do their banking online or through ATMs, and it plans to begin testing additional accounts in December. Others may resemble traditional accounts that carry new monthly fees or that require minimum balances. Also, the so-called Durbin Amendment of the legislation instructs the Federal Reserve Bank to limit the size of processing fees banks charge merchants for transactions paid by debit cards. Even though the Fed has yet to define the new limits, Bank of America said the Durbin Amendment would have such a huge impact that it took a $10.4 billion accounting charge to reflect the lower value of this line of business. Without the accounting charge, the bank would have reported a $3.1 billion profit for the quarter. Revenues increased 2.3 percent, to nearly $27 billion.
Story by Todd Wallack for the Boston Globe
BANK PROFITS ARE BEING SQUEEZED
U.S. banks are expanding into new areas to compensate for shrinking loan businesses, caps on credit-card charges and overdraft fees, and a ban on trades with their own money. Citigroup, for one, plans to hire 7,500 people in China over the next three years, double the number of private bankers in North America to almost 260, and recruit 100 commodities traders. At many banks, expenses are rising faster than revenue, eroding profit margins
Story by Bradley Keoun for Bloomberg Businessweek