LowCards Weekly Credit Card Update January 27
A SET-BACK FOR CREDIT CARD USERS?
For years, consumer advocates have fought for and won better protections for credit card users. But a recent Supreme Court ruling raises concerns those rights may be more limited than many had thought. Based on the ruling made last week, experts say consumers who sign up for a credit card with a so-called binding arbitration clause can’t dispute charges or fees in the courtroom. Supporters of arbitration say it’s more efficient than court proceedings and can result in quicker resolutions for consumers. But when it comes to credit cards, many experts are concerned that “big banks have disproportionate power or influence in comparison to the little guy” in arbitration. The final word on the matter will likely come down to the Consumer Financial Protection Bureau, which is tasked with providing disclosure rules for credit cards. Depending on what the CFPB’s study on arbitration finds, the bureau could decide to ban or at least regulate forced arbitration.
Story by AnnaMaria Androitis for SmartMoney
CITIBANK DEEMS FREQUENT-FLIER MILES TAXABLE, BUT DOES THE IRS?
Frequent-flier miles clearly have value–why else would people want them? But do they also represent taxable income? Citibank seems to think so. It’s sending tax forms to people who received thousands of miles as a reward for opening a checking or savings account. Those forms value each mile at about 2.5 cents and list the total dollar amount as miscellaneous income. As tax time rolls around, the question of whether airline miles are a form of income is something that potentially affects millions of people. At the very least, the tax agency needs to clarify what happens when, as in this case, a business declares your miles as income paid to you. What happens if you don’t do likewise?
Story by David Lazarus for the Los Angeles Times
ON SMALL PURCHASES, CASH IS STILL KING
Even though credit card issuers have been providing significant incentives for consumers to use their cards over the past year, consumers are once again turning to cash to pay for small purchases. According to a new Javelin study released on Tuesday, 79% of consumers used cash to make a purchase over the past seven days compared to 65% who used a credit or debit card. The increased use of cash may be a side effect of
the interchange fee regulations that capped these swipe fees for debit card purchases. While a smaller fee was good news for most retailers, it provided a cruel twist for the smaller merchants. Business owners specializing in lower-priced items like coffee, candy and ice cream now have to pay a higher fee when their customers use debit cards for transactions because many card companies discontinued the discounts that were often given merchants for small transactions. Issuers say the higher swipe fee previously paid by retailers subsidized the discount for smaller transactions.
WE LOVE OUR DEBIT CARDS, BUT NOT OUR BANKS
The recession served as a wake-up call for many of us to get a better handle on our finances, and for a lot of folks, that meant replacing one piece of plastic, the credit card, with another, the debit card. But now, regulatory changes have made those debit cards less of a cash cow for financial institutions. That’s left many banks scrambling to introduce new fees to make up for that lost money. The problem: consumers are dead set against the fees, and they don’t necessarily want to start using their credit cards again, either. A new report finds that few have sympathy for the banks. In fact, 70 percent of the people surveyed for the report said they think banks are the ones benefiting from the new regulations. Experts say that while consumer may have won the monthly debit fee battle, they should be prepared for other, more subtle fees to start sneaking up on them.
Story by Allison Linn for MSNBC
FEDERAL RESERVE SIGNALS THAT RECOVERY IS YEARS AWAY
The Federal Reserve, declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to spur growth. The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.
Story by Binyamin Appelbaum for the New York Times
U.S. CONSUMERS MAKING PROGRESS IN PARING DOWN DEBT
With the U.S. economy showing signs of life, here is another reason to think the recovery may be for real: Americans are making rapid progress shedding debt, according to McKinsey. Since 2008, all types of U.S. private-sector debt–such as mortgage, credit card and corporate loans–have fallen as a percentage of the broader economy, the management consulting firm says in a new report. Household debt in the U.S. has fallen a total of $584 billion over the last four years, a 15 percent decline relative to people’s overall disposable income. Debt carried by businesses has also declined. Consumers are likely to remain cautious about taking on debt for years to come. But that could slow economic growth.
Story by Alain Sherter for MarketWatch
NEW GUIDE GEARED TO CONSUMERS
A new guidebook from the federal government offers consumers information on subjects ranging from fuel economy to money management. The Federal Citizen Information Center, a part of the federal General Services Administration, recently published its 2011 edition of the Consumer Action Handbook and launched a new website (publications.usa.gov) offering free versions of this and other guidebooks. The consumer handbook contains an overview of the Credit Card Protection Act, which went into effect over the course of last year, including rules on changes in fees and interest rates and late payments. For example, credit card issuers must notify consumers 45 days in advance of any changes to fees and rates.
Story by Emily Glazer 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 14.17 percent, slightly higher than the 14.05% last week. Six months ago, the average was 14.16 percent. One year ago, the average was 14.08 percent.