LowCards Weekly Credit Card Update July 20
U.S. Consumer Agency to Supervise Credit Reporting Companies
The U.S. consumer watchdog agency said it will start closely supervising credit reporting companies in September, bringing the industry under strict federal supervision for the first time. The Consumer Financial Protection Bureau, in adopting a rule to oversee the companies, said the industry has a tremendous influence over Americans’ financial well-being. About 30 such companies that take in more than $7 million each year will be subject to federal supervision under the CFPB’s new rule. The CFPB said there are about 400 consumer reporting agencies in the United States, but the 30 companies it plans to oversee take in about 94 percent of the sector’s annual revenue. The largest companies in the industry are Equifax, Experian and TransUnion. Story by Emily Stephenson for Reuters.
Consumer Watchdog Agency Takes Bite Out of Cap One
The watchdog is finally showing its teeth. The Consumer Financial Protection Bureau has ordered Capital One Bank to refund $150 million to about 2 million customers for deceptive marketing of payment protection and other add-on products sold with its credit cards. The federal Office of the Comptroller of the Currency, which oversees big banks but doesn’t do much in the way of making them squirm, joined in the enforcement action. Cap One also has to pay $60 million in civil penalties for the practices. This is the first such crackdown by the agency and, as such, represents a new level of commitment to watching the backs of consumers. And hopefully the agency’s conservative critics will at last accept that, yes, there is a need for someone to make sure consumers are treated fairly. Story by David Lazarus for the Los Angeles Times.
Credit Card Users Could Lose in Swipe-Fee Settlement
Retailers reached an antitrust settlement on interchange fees with Visa, MasterCard and several large banks that will be good for merchants but might penalize cardholders with higher prices or decreased credit card rewards. The $7.25 billion dollar settlement allows retailers to charge higher prices to their customers for paying with credit cards. Until now, the card companies prohibited retailers from adding this type of surcharge. As with past regulations and rulings that affect bank revenue, this settlement could cost consumers. If the merchant passes along the fee, cardholders could pay as much as 3% more when they pay with a credit card. If a cardholder carries a balance from month to month, the cardholder will also pay interest on the surcharge. Cardholders who take advantage of credit card rewards could see dramatic cuts and changes in their reward programs. Historically, swipe fees helped pay for credit card reward programs and a reduction in swipe fee
revenue could eventually lead to changes in credit card rewards. Story by Lynn Oldshue for LowCards.com.
China Discriminates Against U.S. Credit Cards
A World Trade Organization panel has determined that China’s tight control over credit and debit card transactions discriminates against U.S. card companies, a decision the card issuers hope will lead to new business opportunities in China’s fast-growing payments market. The WTO dispute panel found China’s rules governing access to its domestic electronic-payments market don’t provide equal treatment to foreign credit card and debit card issuers. While the global trade body didn’t fully side with the United States–dismissing U.S. claims that state-controlled China UnionPay Co. operates a monopoly–it called for China to end restrictions against foreign credit card issuers and banks that limit the issuing of cards and processing of payments. Story by Tom Barkley, Dinny McMahon, and Andrew R. Johnson for the Wall Street Journal.
The ‘Swipe Fee’ Conundrum
Last week’s proposed settlement of a lawsuit against Visa, MasterCard and bank credit card issuers opens the way for millions of businesses to add checkout fees when customers pay with plastic. Now, many business owners are wrestling with whether to do so. But while most merchants say they generally would welcome the opportunity to expose the cost of swipe fees to the public, many don’t want to run the risk of alienating credit card users. In interviews this week with about two dozen small-business owners from various industries and regions, the prevailing opinion was that surcharges could do more harm than good, and might drive customers to competitors. The top benefit of the settlement, small-business owners say, isn’t that the ability to charge customers more, but to negotiate fees with the credit card networks and banks. The mere power to impose surcharges gives them new leverage, potentially making it easier to negotiate lower fees for themselves. Story by Emily Maltby for the Wall Street Journal.
Recession’s Surprise Impact on Credit Scores
What did the housing bust, financial crisis and ensuing wave of foreclosures and layoffs mean for the country’s credit scores? Almost nothing, it seems. The average FICO score–the number most lenders use to gauge a potential borrower’s credit-worthiness–stood at 690 in April, according to data released last week. That is roughly in line with both last year’s average score and the average in 2007, before the market meltdown and recession wiped out many Americans’ wealth. Credit experts offer two possible explanations for how the nation’s most crucial measure of credit-worthiness can withstand all manner of financial cataclysms: Either something is off with FICO’s formula or the numbers have lost much of their meaning. But many credit pros say that data still don’t add up. Since 2007, nearly nine million homes have gone into foreclosure and over six million people have filed for personal bankruptcy–events that typically send FICO scores tumbling. Story by AnnaMaria Andriotis for SmartMoney.
Capital One Profit Plummets on One-Time Reserve Build
Capital One Financial Corp, the lender that gets more than half of revenue from credit cards, said second-quarter profit fell 90 percent as an acquisition forced it to set aside loan-loss reserves. Net income fell to $92 million, or 16 cents a share, from $911 million, or $1.97, a year earlier. Revenue at Capital One, which primarily lends to U.S. consumers through its credit card unit and an auto loan business, is threatened by new regulatory regimes intended to protect shoppers. The company also has a commercial-banking business, and offers home loans. The lender said second-quarter revenue climbed to $5.06 billion, a 27 percent increase from a year earlier. Net interest margin, the difference between what the company makes on loans and securities and what it pays for funds, declined 0.16 percentage points to 6.04 percent. Story by Dakin Campbell for Bloomberg.
American Express Revenue Misses as Consumer Spending Moderates
American Express’ second-quarter revenue marginally missed Wall Street estimates as cardmember spending growth moderated amid low consumer confidence. “Overall cardmember spending rose 7 percent, or 9 percent adjusted for foreign currency translations. That’s slower than the increases we’ve seen in the recent quarters,” CEO Kenneth Chenault said. Cardmember spending at the company, which focuses on the affluent customer, grew in the double-digit range for the last nine quarters. American Express said spending growth rates slowed across all business lines and all segments. The company’s card data is widely held as an indicator of the spending sentiment of the more affluent consumer, signaling that the weak recovery is taking its toll across all economic segments. Story by Jochelle Mendonca for Reuters.
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 14.34 percent, slightly higher than the 14.33 percent last week. Six months ago, the average was 14.05 percent. One year ago, the average was 14.08 percent.