Weekly Credit Card Update August 12th, 2011
YOUR PHONE BILL CAN BE A CREDIT CARD, WITH SOME RISKS
Could your phone bill act like your credit card–and should it? Wireless carriers have begun offering that very option, expanding beyond already existing donations-via-text-message programs. But the consumer advocacy group Consumers Union is voicing serious concerns about the practice. This month T-Mobile is rolling out its plan to let its customers buy
digital content and services (such as games, magazines and more) through their mobile Web browser and charging them on their phone bill. T-Mobile has not yet specified how much customers will be allowed to charge to their phone bill, whether they will require a credit check or what interest rates may apply. (It’s highly unlikely that T-Mobile is offering free credit.)
Nor has the carrier clarified how it will handle disputed charges or cases where customers are unable to pay the full amount of their bill due to the amount of charges racked up. Why might consumers want to use carrier billing? To avoid giving out their credit card information to too many vendors. This is not just more risky, but typing in your credit card number and details is
fairly cumbersome–especially on mobile devices.
Story by Amy Gahran for CNN
WHAT THE FED’S ACTIONS MEAN FOR YOUR CREDIT CARD
The Federal Reserve announced this week that it is keeping interest rates at a record low for the next two years. It hopes that extending low rates for a predictable period will stimulate both borrowing and spending, thus providing a spark to the economy. However, the Fed’s actions will have very little effect on lowering your credit card’s APR. In fact, the interest rate on credit cards could continue to rise.
VISA WANTS U.S. TO CATCH UP WITH THE WORLD
Visa’s plan offers financial incentives for retailers to upgrade their payment systems voluntarily while card issuers make the transition to the chip cards. The new systems will be able to process payments from multiple methods during the transition period, including cards with magnetic stripes and E.M.V. chips, as well as mobile systems using smartphones. The overall changeover is likely to take five to six years. Visa’s announcement comes as some banks are starting to offer E.M.V.-enabled credit cards, mainly for affluent customers who travel internationally. A few credit unions have been offering the cards too. Further, some large merchants are backing the new technology: the McDonald’s Corporation has deployed chip-capable terminals in the United States, and Nordstrom has voiced support as well. Randy Vanderhoof, executive director of the SmartCard Alliance, said in an e-mail that Visa’s move was the “ignition point” that was needed to spark a migration to the technology in the United States, because merchants have been waiting for a road map from card companies as to what technologies to invest in. “Now that Visa has signaled that the future will include contact chips and mobile contactless payments,” he wrote, “they know what the next generation of payments will look like.
Story by Ann Carrns for the New York Times
CAPITAL ONE TO BUY HSBC’S CREDIT CARD UNIT
Capital One Financial Corp. continues to shop for growth and expansion. The credit card issuer-turned-large-bank is paying $32.7 billion for the U.S. credit card division of the British HSBC to purchase $30 billion of credit card loans and store- branded credit cards. The deal will be completed in the second quarter of 2012. The deal includes HSBC’s private label or store-branded cards and will make Capital One the third-largest issuer of private-label cards, according to the Wall Street Journal. The private label cards include Best Buy, Saks, and Neiman Marcus Inc. HSBC will keep its corporate card business. Capital One announced in June that it is paying $9 billion for ING’s American online banking operations.
FEDERAL RESERVE VOWS TO KEEP INTEREST RATES NEAR ZERO
The Federal Reserve made a rare promise on Tuesday to hold short-term interest rates near zero through at least the middle of 2013, in a sign that it has all but written off the chances of an expansion strong enough to drive up wages and prices. By its action, the Fed is declaring that it, too, sees little prospect of rapid growth and little risk of inflation. Its hope is that the showman’s gesture will spur investment and risk-taking by convincing markets that the cost of borrowing will not rise for at least two years
Story by Binyamin Appelbaum for The New York Times
MAJORITY OF AMERICANS DON’T HAVE MONEY SET ASIDE FOR EMERGENCIES
A fully funded emergency fund is the first step to financial stability. It is
a good idea, but many people don’t have the money to establish an
emergency fund. A new poll from the National Foundation for Credit
Counseling showed that a majority of Americans would not use an
emergency fund to pay for unplanned expenses. Only 36 percent of
respondents would take money from a savings account if they needed
$1,000 for an unplanned expense. The other 64 percent of respondents
would have to turn to other sources. Unfortunately, the other sources
aren’t good options and can lead to deeper financial problems.
US CONSUMER CREDIT JUMPED IN JUNE THE MOST IN FOUR YEARS
U.S. consumer borrowing jumped in June by the most in four years, led by a gain in non-revolving debt, including student loans. Credit increased by $15.5 billion, three times as much as projected and the biggest gain since August 2007, after a $5.08 billion advance in May that was little changed from the previous estimate. Economists forecast a $5 billion rise, according to the median estimate in a Bloomberg News survey. Revolving debt, which includes credit cards, increased by $5.21 billion in June, the most since March 2008, according to the central bank.
Story by Vincent Del Giudice for Bloomberg