Weekly Credit Card Update March 26, 2010
CARD ISSUERS RETREAT FROM NICHE PLASTIC
Credit-card companies are pulling the plug on some of the specialized, rewards-loaded plastic they pitched to consumers when credit was easy and wallets were wide open.
Next week, J.P. Morgan Chase & Co. will drop the Starbucks Duetto Visa card after it failed to attract enough customers to make the credit card financially viable for the New York bank. J.P. Morgan recently terminated credit-card deals with beauty retailer Avon Products Inc., the University of Maryland, the New Jersey Devils of the National Hockey League, and the Detroit Pistons and Orlando Magic of the National Basketball Association.
Citigroup Inc. and Bank of America Corp., also among the giants of the U.S. credit-card industry, are reducing the number of niche-appeal cards. Bank of America, of Charlotte, N.C., now has about 4,400 affinity cards, typically pitched through college alumni associations, social groups and charities, down from 5,000.
Co-branded and affinity cards have become too expensive as credit-card companies try to reduce expenses amid the surge in late payments and delinquencies by card users. Issuers usually pay partner firms or groups an upfront fee and percentage of profits throughout the term of the contract.
The retreat by J.P. Morgan Chase’s unit is part of an effort to stem card-related losses that are expected to haunt the company for the rest of this year. Chase now has about 110 co-branded credit cards, down from more than 200, and expects to eliminate more cards this year.
Story by Robin Sidel for the Wall Street Journal.
ADVANTA BANK CLOSED BY UTAH REGULATORS
Utah banking regulators seized Advanta Bank Corp last Friday. Advanta is small business credit card lender that last year settled “unfair and deceptive practices” charges with regulators over rate hikes imposed on small business customers. Advanta terminated credit card agreements with many customers last year.
After regulators seized Advanta, the FDIC was named receiver and could not find a buyer for Advanta’s operations. Currently the FDIC is owner of outstanding loans. The seizure should not affect debts previously sold to third-party debt collectors.
Story by John Tozzi for Businessweek
THE FEDERAL RESERVE ANNOUNCES FINAL RULES FOR GIFT CARDS
The final rules prohibit dormancy, inactivity, and service fees on gift cards unless: (1) the consumer has not used the certificate or card for at least one year; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees. Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.
The rules cover retail gift cards and network-branded gift cards and are effective August 22, 2010.
AVOID PAYING TAXES WITH A CREDIT CARD
The tax deadline is less than a month away and consumers will soon be bombarded with messages encouraging them to pay their taxes with a credit card. While this may sound appealing to consumers who may be struggling to find ways to pay their taxes in this turbulent economy, it should be avoided at all costs.
The IRS and some credit card issuers both promote the benefits of paying taxes with a credit card. Payment with a credit card is easy and it can be made of the phone or online. It delays the pain of payment for another month. Consumers can even earn reward points on some cards with your tax payment.
But credit card payments of taxes are actually made to third-party providers which are contracted by the Internal Revenue Service. Processors charge anywhere from 1.95%(payUSAtax.com) to 3.93% (FileYourTaxes.com). Most third-party providers charge 2.35%fee for processing your credit card payment, making this a very costly convenience.
CARD ISSUERS SPLIT ON BEST REWARD PATH
Card issuers are using two strategies to compete for desirable cardholders.
On one strategy is the transparency approach: Make it easy for customers to build up and redeem rewards. The other strategy is more careful and restrictive but gives the biggest rewards to customers who not only spend big but also want the perks badly enough to jump through hoops to get them.
In the current risk-averse, loss-weary credit environment, both strategies aim to attract the “mass affluent”: safe-bet consumers who pay their bills on time, make good money and spend big.