LowCards Weekly Credit Card Update January 19
BANK OF AMERICA, BIG BANKS FACE MASSIVE CREDIT CARD CASE
Private antitrust litigation pitting some five million retailers against Visa, MasterCard, and 13 large banks has slipped under the radar of many analysts and investors who follow those companies, but the case may deliver a multi-billion dollar shock to bank bulls in the coming months. Estimates of the potential cost of a settlement of the antitrust case vary dramatically, from a few billion dollars into the hundreds of billions. At least as worrisome to the financial companies, according to Deutsche Bank research, is the risk that a settlement or judge’s ruling could take the 2 percent “interchange” fees banks and card companies charge retailers on credit card transactions to as low as 0.5 percent. That would equal the rate in Australia, but still be higher than the 0.3 percent charged in the European Union. The
impact of such a change would be several times as costly as the Durbin Amendment, which caps fees banks can charge on debit cards and is one of the new rules most hated by the big banks.
Story by Dan Freed for CNBC
BANKS MOVE AHEAD TO INCREASE OVERDRAFT PROTECTION FEES
The cost of not having enough money just got steeper. The median overdraft fee banks charge customers surged to $30 from $27.50 last year, according to a study released by Moebs Services. The survey looked at overdraft fees from more than 2,500 banks and credit unions of all sizes across the country. Moebs said the jump was the largest one in 30 years of collecting data, and that banks are trying to make up for money lost due to regulatory changes.
Story by Catherine New for Huffington Post
A HEALTHY OUTLOOK FOR CREDIT CARD ISSUERS
Banks released fourth quarter earnings this week and the reports show that credit cards issuers are in a much healthier position than the last few years. Consumer use of credit cards is growing, while the default and delinquency rates continue to drop. Credit card lending is entering a sweet spot where cardholders are charging more purchases to accounts once again while staying current on their payments.
PUSHING MOBILE PAYMENTS
Sprint Nextel Corp. this week tripled the number of smartphones it offers with a seldom-used technology for tap-and-go payments, as the carrier and its rivals try to convince a reluctant public to make mobile payments mainstream. So far customers and retailers have remained tepid toward the technology, called near-field communication, or NFC, prompting Sprint and others to try a different tack: touting NFC’s “side benefits,” which include mobile coupons and digital-key replacement. A chief technology officer for Verizon Wireless said he expected it to be at least three years before NFC use for payment is anything more than a niche. He said retailers are concerned their transaction fees may rise, though he said they ultimately would benefit through targeted couponing and speedier checkout. Under one scenario, a venture like Isis could absorb those fees in exchange for profit-sharing through the coupons.
Story by Greg Bensinger for the Wall Street Journal
TAXI-CAB DRIVERS RILED UP OVER CREDIT CARD PROCESSING FEE
San Francisco taxicab drivers are up in arms about being forced to absorb a 5% service charge to process credit card payments. Rules that went into effect last April shifted the fees from five of the largest cab companies in the city to drivers. Since then, several hundred drivers have protested at City Hall and some say they have been telling passengers they only take cash or claim their card equipment is broken. Dozens of drivers have begun using technology from San Francisco start-up Square, which makes a small white card reader that attaches to smartphones. Square charges merchants 2.75% to process payments on the go, but drivers must pay for their phones and data charges themselves.
Story by Geoffrey Fowler for the Wall Street Journal
ZAPPOS ATTACKED: 25 MILLIONS ACCOUNTS AT RISK
Online retailer Zappos announced that criminal hackers broke into its systems and had access to personal information on potentially more than 24 million customer accounts. That would make this the largest data breach since hackers got into Sony’s PlayStation Network last year. Zappos is emailing customers to tell them that information such as names, email addresses, billing and shipping addresses, phone numbers, the last four digits of credit card numbers, as well as encrypted versions of account passwords might have been compromised in the breach. Zappos reset all passwords to prevent further unauthorized access. It also claimed that full credit card numbers and other payment information (which is stored in a separate database), was unaffected and not accessed. Even if no full credit card numbers were stolen, the amount of information that may have been stolen is significant. Knowing such information as a name, address, phone, and just the last four numbers of credit cards (often used by companies to verify identity over the phone) could be enough for criminals to steal identities.
Story by Erik Sherman for CBS
AVOID APPLYING FOR STORE CREDIT CARDS
We’ve all been tempted by the immediate benefit–save 10% or maybe even 15% on your current purchase when you apply for the store’s credit card. But this is not a wise financial move for most consumers. Most retail stores offer credit cards with interest rates between 23% and 30%, much higher than bank-branded credit cards. According to the LowCards.com Weekly Credit Card Rate Report, the average advertised APR last week among the nation’s 1000+ credit cards was 14.04%. These cards, also known as private label credit cards, carry higher interest rates than bank-branded cards because they tend to be held by riskier borrowers with fewer credit options. But in the past year, overall credit card default rates have dropped significantly and private label cards with high rates are more appealing to issuers that need the revenue.
TARGET TO AGAIN SUSPEND EFFORTS TO SELL CREDIT CARD RECEIVABLES
Target Corp. said it will again suspend its efforts to sell its credit card receivables until later this year and outlined plans to pay J.P. Morgan Chase & Co. about $2.8 billion, along with a make-whole premium, to retire financing it received in 2008. The move comes as large banks have expanded their own private-label card operations through portfolio acquisitions or restructuring, spurred by improving loan performance and consumers’ increased willingness to use credit cards again. Target, which operates its own banks, issues a private-label credit card that customers can use to make purchases in its stores and on its website, receiving a 5% discount in return. Most other retailers that offer a store card do so through an outside bank that issues the card and performs the underwriting. The company had unveiled plans to pursue a sale of the credit card receivables last January, and had expected a sale last year or early this year. The company now sees the sale coming late this year or early next year.
Story by Andrew Johnson and Tess Stynes for the Wall Street Journal
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 14.05 percent, slightly higher than the 14.04% last week. Six months ago, the average was 14.08 percent. One year ago, the average was 14.17 percent.