Weekly Credit Card Update July 30
NEW RULES CRACK DOWN ON DEBT SETTLEMENT INDUSTRY
Companies that promise to reduce or eliminate credit card balances and other debt for customers will no longer be allowed to charge an upfront fee. The Federal Trade Commission said yesterday that the new rule is intended to crack down on the debt settlement industry, which has flourished in the downturn as borrowers struggle to pay their bills. The rule goes into effect Oct. 27. Debt settlement companies that violate the new regulations will be subject to a $16,000 fine per violation. The Federal Trade Commission’s rules only apply to for-profit companies. But the agency warned that it would go after companies that pose as nonprofits as well. Regulators cautioned customers to be wary of any organization that charges a steep upfront fee and makes promises that sound too good to be true.
Story by Candice Choi for the AP
PROFIT NEARLY TRIPLES FOR AMEX, CAPITAL ONE
Higher spending on plastic and fewer bad loans at American Express Co. and Capital One Financial Corp. boosted the companies’ second-quarter profits. Both companies’ second-quarter profit nearly tripled. American Express profit rose to more than $1 billion from $337 million, and Capital One’s increased to $608 million, from $223 million. Like many banks that reported earnings this week and last, American Express and Capital One are benefiting from fewer losses on bad loans, but struggling with weak demand for new loans that would lift revenue. The results may remove any lingering doubt on the improving quality of card loans, even as unemployment remains stubbornly high. Another bright spot: Delinquency rates, a key gauge of future losses, are at their lowest this year. While investors may be cheered by card issuers’ profits, the boost to earnings from releasing funds from credit losses isn’t sustainable. Ultimately, the companies will need growth in new accounts.
Story by Aparajita Saha-Bubna and Matthias Rieker for the Wall Street Journal
MANY CREDIT CARD ISSUERS NOT PROVIDING FULL DISCLOSURE ON PENALTY RATES
Despite legislation to make credit card terms fair and easy-to-understand for consumers, the new regulations have opened the door to changes that can make cardholders “vulnerable and uninformed.” A Pew Health Group study shows that issuers have taken two steps forward in most areas, but also taken a step back with penalty rates. Some issuers no longer provide full disclosure of the terms of the penalty rate, or fail to correctly follow disclosure requirements required by the new Federal Reserve rules.
HOW MUCH CREDIT CARD REWARDS COST THE POOR
According to the report, “Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations,” released Monday, the reward programs create “an implicit money transfer” to credit card users from noncard users (i.e. cash payers) because of the across-the-board price increases merchants put in place to cover the costs of accepting the cards. “This retail price markup for all consumers results in credit card-paying consumers being subsidized by consumers who do not pay with credit cards,” the researchers wrote in the report. The use of credit cards and rewards, according to the report, is positively correlated with income, meaning that lower-income consumers tend to be the ones not using credit cards and instead paying cash. After accounting for rewards paid to households by banks, the researchers concluded that the lowest income household (those making less than $20,000 a year) pays $23 a year, while the highest income household (those making $150,000 or more annually) receives a subsidy of $756 every year.
Story by Jennifer Saranow Schultz for the New York Times
VISA SAYS JUSTICE DEPARTMENT IS CONSIDERING ANTITRUST LAWSUIT
Visa Inc., the world’s biggest payments network, said the U.S. Department of Justice may sue the company over a policy that bars merchants from charging extra to customers who pay with credit cards. Visa, American Express, and MasterCard disclosed in 2008 that the Justice Department was investigating the companies over so-called anti-surcharging policies and rules prohibiting merchants from “steering” customers to other forms of payment. The Justice Department’s antitrust division is “investigating whether certain credit-card network rules regarding merchants’ treatment of various payment forms, including credit cards, are anticompetitive,” said a Visa spokeswoman.
Story by Peter Eichenbaum for Bloomberg Businessweek.
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 was 13,67%, down slightly from 13.68% last week. Six months ago, the average was 13.43%. One year ago, the average was 12.11%.
CITY REAPING REWARDS OF CREDIT CARD PROGRAM
For the city of Colorado Springs, the words “Charge it!” are a good thing. Last year, the city earned more than $154,000 under a rebate program that allows nearly one in three city employees to use government-issued VISA credit cards to make authorized purchases. The city of Colorado Springs has earned about $605,000 through its so-called P-card purchases since 2001, money that went into the general fund, which pays for day-to day operations.
Story by Daniel Chacon for the Gazette