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    17 comments 17

Smithee Debt Update, January 2010

by Smithee on January 26, 2010. Filed under Credit.

The last time I talked about my credit card debt here, one of our community said that he didn’t know the specific numbers of my problem, and it got me thinking that I’ve probably lost sight of one of the main reasons I wanted to be writing here in the first place: to keep myself honest. I feel worse about my behavior when other people know about it.

So, here is exactly where I am:

I have one credit card that lives in my wallet (and it does seem like it’s alive sometimes), the Charles Schwab Signature Visa. I’ve been using it instead of my bank debit card for daily purchases because I get 2% back from the money I spend, and I thought I could handle the temptation. The current balance is $5,724, obviously more than I should have spent since I last paid it off, which I should be doing every cycle. The interest rate is 13.24% and the last finance charge was $74.49.

I have one other credit card currently owned by Chase that was cut up a long time ago, and represents the remaining debt I started building up in 1997. The remaining balance on it is $1,104. The interest rate is 12.24% and the last finance charge was $11.92.

In my bank account is $10.17, because the last time I got paid, after making the necessary transfers to cover monthly expenses, I had $1,000 leftover, which I sent immediately to the nice people at Charles Schwab. The only money that gets used to pay off the Chase card is what I earn from my side jobs.

And now I’m thinking that I should probably forgo the 2% cash back on the Schwab card and go back to using my debit card for daily purchases. I thought I could rely on my self-discipline not to spend more than I could pay back, but it looks like that wasn’t true. Bummer.

Now, I guess I just need to figure out what is a reasonable amount to let myself spend during an average week. I can’t really go on historical data, because I’ve been doing it badly for quite a while. So, ignoring the credit cards for a second, after contributing my share of the family expenses, I have $1,723 leftover every month. I’m going to try restricting myself to $100 a week, which will enable credit card payments of about $1,300 instead of $1,000.

I don’t know if I can afford breakfast, lunch, gasoline, and doing something occasionally nice with my wife on $100 a week. But if I’m going to get serious, I have to get serious now. Summer weather is going to start in about a month, here in Texas, and when it’s hot outside, I get depressed, which turns to self-destructive behavior like spending too much and eating Chocolate Zingers. I need to make this a habit so I can avoid that.

Thanks for listening, you’ve been a good ear. You don’t mind if I come to you with my problem again in the future, do you? I hope it’ll seem rosier, then.

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    5 comments 5

19.99% APR On My Citi Credit Card, True Cost of Credit

by Flexo on January 19, 2010. Filed under Credit.

Because I check my credit card activity online almost every day to ensure nothing unexpected has been charged to me, it’s rare that I examine my paper statements. I usually look through the envelopes to make sure there aren’t any notices identifying any significant changes in the user agreement, such as a requirement to sign my first-born child over to the credit card company if I accidentally pay my bill late some day. In reality, however, I more often stick the unopened envelopes into a folder.

I was in for a surprise. This past weekend, I opened the latest statement from Citibank. They’ve redesigned the statement, probably to comply with the Credit CARD Act of 2009, and 29.99% caught my eye immediately. This usurious rate is what I would need to begin paying if Citi were not to receive my payment by the due date. I looked further into the statement to find the interest rate for standard purchases, and I was surprised to see it was 19.99% APR.

Concerned, I retrieved my other statements. The annual percentage rate on my Bank of America Visa Signature card is a more respectable but still expensive 11.24% while the rate on my American Express Blue Cash for Business card clocks in at 9.24%.

I don’t pay any interest because at this stage, and for as long as I can, I pay my credit card balance in full every month. So the interest rate doesn’t affect me. I won’t be calling Citi in anger, at least not for this reason. But that doesn’t mean I’m not contributing to the growth of the credit card industry. Even if I’m not paying any fees to use my credit card — in fact, I’m earning cash-back rewards — every time I purchase something I contribute to an overall increase in prices.

Merchants pay an interchange fee to process credit card and debit card transactions, and that fee varies depending on the type of card. To put this idea into real numbers, I entered my credit card information (just the first six digits of each card, nothing personally identifiable) into the True Cost of Credit calculator.

Here were my results. The table below contains several different types of purchases, and for each purchase, the fee the merchant would owe for credit card processing. The numbers aren’t very surprising.

Citi Dividend
World MasterCard		BoA Visa
Signature		AmEx Blue Cash
for Business
Convenience Store
Pack of Gum ($1.50)		$0.28$0.37$0.30
Sandwhich Shop
Sandwich ($7.00)		$0.36$0.36$0.45
Pizza Restaurant
Pizza Delivery ($25.00)		$0.85$0.84$1.13
Gas Station
Full Tank ($30.00)		$0.71$0.64$1.15
Online Retailer
Books ($50.00)		$1.17$1.14$1.80
Grocery Store
Groceries ($100.00)		$1.56$1.52$3.55
Electric Company
Bill Paid Over Phone ($150.00)		$1.02$1.11$5.26
Online Travel
Flight to California ($300.00)		$6.92$6.76$10.51
Electronics Store
Flat Screen TV ($800.00)		$19.59$19.05$28.01

The credit card industry is receiving anywhere from just underneath 1% to 25% of every transaction that occurs, though that amount may be split between a merchant servicing company, a bank, and the issuer (Visa, MasterCard, or American Express). Yet even with this practically guaranteed income, some credit card companies now want to start charging additional fees to those of us who pay our balances in full every month.

Take your cards for a spin to see how much the credit card industry is earning from you, not including increased spending due to the convenience and psychological appeal of credit cards, even if you don’t pay interest or late fees. It would be interesting to see how a store-branded credit card compares.

Photo credit: rahego

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American Express Membership Rewards Points Can Be Used to Pay Taxes

by Flexo on January 12, 2010. Filed under Credit, Taxes.

American Express offers a point-based rewards system called “Membership Rewards” to those qualify for and use their credit or charge cards. Points generally benefit only cardholders who pay their bill in full every month, so any accumulation of benefits does not first need to offset interest or late fee charges. With American Express, these points typically accrue at a rate of about one point for every dollar spent using a credit or charge card that participates in the program, but depending on the card and the merchandise, they sometimes accrue at a rate as low as one point for every two dollars.

The company is now offering a new redemption choice for those who have accumulated points through significant spending. You can use these points to pay all or part of your tax bill. The idea is grounded in some sense. Rather than using rewards to buy something else, contributing to unnecessary additional spending, American Express is suggesting using the points for something perhaps more responsible.

In order to use Membership Rewards points for paying taxes, you must use the services at either Pay1040.com or OfficialPayments.com. These websites do not offer tax filing services; they exist just to help taxpayers pay their due or overdue taxes after they have already filed the appropriate forms. While paying a tax bill by check or direct debit (ACH) is free, these services charge a fee determined as a percentage of your payment in return for the convenience of paying with a credit card or a debit card.

Since payment processors are not allowed by law to absorb the cost of accepting credit and debit cards, the convenience fee allows these companies to pass merchant card expenses to the taxpayer. Both companies charge 2.35% of the payment and the amount is subject to a minimum. Debit cards are processed with a flat $3.95 fee.

Through the above websites, paying $1 to the IRS or to your state or local governments costs 200 Membership Rewards points. This isn’t exactly a favorable exchange rate considering you’ll need to spend a minimum of about $400,000 on your card in order to use those points to pay off a $2,000 tax bill including the processing fee. Financially, you might be better off just converting your points to cash.

This reminds me of Taco Bell’s new Drive-Thru Diet. It’s good that American Express is offering some new options for using Membership Rewards points, but you should look at the cost and whether this is the most efficient use of your points. There are better options out there. After all negotiation and payment plan options with the IRS have been explored and exhausted, those who need to pay a tax bill via a credit card, like those who need to eat at Taco Bell, — this might be a worthwhile use of points.

What do you think?

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Two Down, $2,000 to Go

by Smithee on November 17, 2009. Filed under Credit.

When I was a new college graduate in 1997, I got my father to co-sign on a credit account so I could buy a computer. It was a shining white beautiful Gateway 2000, it probably cost around $2,000 (you kids and your $300 computer deals!), and it came with an interest rate of 26.9%.

Around the same time, I was approved for my first credit card, and then my second, and things went pretty badly after that.

Some of the details of that time in my life are fuzzy, but I know that I paid off the computer loan. I had to move back in with my parents in order to afford that, but it was paid off. And until today, that was the only installment or credit account I have ever fully paid off. I’ve gone for eleven-ish years with nothing but revolving credit and unpaid loans to my name.

But I’m proud to announce something totally mundane: we paid off our Rooms-to-Go credit account. That nice big bed in our master bedroom? We actually own that. Like I said, it’s mundane, and there’s probably no reason for you to be impressed by that, but it means the end of a nasty stretch of feeling entirely guilty.

Now I just feel mostly guilty. I’ve still got a balance on what I call my “legacy credit debt” – the debt that’s been in various states of huge for over a decade, and which gets consolidated and moved around but never fully wiped out. But there is good news there, too: that balance is below $2,000 for the first time since the 1990s. I haven’t charged anything to that card since I-don’t-know-when, and I can see the light in the clearing.

Unfortunately, there’s more bad news. My other credit card – the one that I didn’t intend to carry a balance on – has a big balance on it. It’s embarrassing… so much so that I’ve avoided even telling you guys about it. I bought a Mac Mini to use in the entertainment center, and we got tickets for a comedy convention next year, and a paranormal investigation, and we started a corporation. Needless to say, those aren’t the daily expenses I was expecting to put on that card.

Oh, but there’s more good news: my wife got a raise recently, which means she can contribute more to the joint expenses, which means I can make higher payments on my credit card debt.

I estimate that I’m about 8-10 (so, probably 14) months away from having no more credit card debt, assuming I can avoid any more vacation ideas or shiny electronics. I just have to keep reminding myself that all progress is good progress, and kicking myself accomplishes nothing.

Wish me luck.

(Normally, I’d say that luck isn’t even involved, here, but it’d be great if my employer got enough business in the next couple of months to restore our salaries to their original positions. The salary thing really hurts.)

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Reader Question: Can You Write “See ID” Rather Than Signing Your Credit Card?

by Flexo on November 11, 2009. Filed under Credit.

I can’t remember the last time I’ve signed the back of a credit card, and I use my credit cards (one for personal travel and big expenses, one for all other personal expenses, and one for business expenses) almost every day. It has never caused me any problems with cashiers; at the most, I might get a dirty look or I might have to show my license, but almost always the cards are accepted without much thought.

A lot of retailers have terminals where customers can swipe their own card, so many cashiers don’t even get the chance to check for a signature on the back. Even those who ask to see the card take no more than a quick look at the back. Most do nothing but punch in the last four digits into their point-of-sale computer and hand the card back.

It’s fairly common to write “See ID” or “Ask for ID” in the signature block on the back of credit cards but not every retailer reacts the same way when encountering this request. Here is a question I received from a Consumerism Commentary reader, Ryan:

I was recently told by a retailer that they would not accept my debit/credit card because I had not signed the back and wrote “SEE ID” instead. I was told the card was not valid and I was required to sign it in order to use it. I have done this same practice for over twelve years and have never been asked about it before now.

I was told they were cracking down… So the sale was denied and the charges reversed. First, is a signature truly required? If so, how can online and “swipe-less” transactions with my card be legal?

If you ask Visa or MasterCard, the policy is clear. For all in-person transactions, a signature on the card is necessary. If a signature is not on the card, retailers are instructed to require the customer to sign the card and provide identification.

Here is the related section of the Rules for Visa Merchants:

The final step in the card acceptance process is to ensure that the customer signs the sales receipt and to compare that signature with the signature on the back of the card… While checking card security features, you should also make sure that the card is signed. An unsigned card is considered invalid and should not be accepted. If a customer gives you an unsigned card, the following steps must be taken:

  • Check the cardholder’s ID. Ask the cardholder for some form of official government identification, such as a driver’s license or passport. Where permissible by law, the ID serial number and expiration date should be written on the sales receipt before you complete the transaction.
  • Ask the customer to sign the card. The card should be signed within your full view, and the signature checked against the customer’s signature on the ID. A refusal to sign means the card is still invalid and cannot be accepted.
  • Ask the customer for another signed Visa card.
  • Compare the signature on the card to the signature on the ID.

If the cardholder refuses to sign the card, and you accept it, you may end up with financial liability for the transaction should the cardholder later dispute the charge.

Some customers write “See ID” or “Ask for ID” in the signature panel, thinking that this is a deterrent against fraud or forgery; that is, if their signature is not on the card, a fraudster will not be able to forge it. In reality, criminals don’t take the time to practice signatures: they use cards as quickly as possible after a theft and prior to the accounts being blocked. They are actually counting on you not to look at the back of the card and compare signatures — they may even have access to counterfeit identification with a signature in their own handwriting.

“See ID” or “Ask for ID” is not a valid substitute for a signature. The customer must sign the card in your presence, as stated above.

MasterCard’s rules are similar, and most agreements between merchants and third-party payment processors reflect these rules.

You might think that would be the end of the story, but in reality these rules are almost never followed. The banks that offer credit cards on Visa’s network or MasterCard’s network, like Citi and Bank of America, may not even be fully aware of the signature requirement. I called Citi to speak to a customer service representative to try to gauge the bank’s preference. The person I spoke with seemed unfamiliar with MasterCard’s rule. She mentioned that it’s quite common for customers to write “See ID” on the back of the card and for those cards to be accepted. The representative understands most retailers will ask for identification and complete the transaction without requiring a signature.

According to the customer service representative the retailer has the authority to decline a transaction if the signature is missing even though most retailers don’t. Although Visa and MasterCard would like to require a signature, most retailers are willing to bend the rules to make the sale and remain customer-friendly.

Ryan also asked about online or “swipe-less” transactions. It certainly is legal to use credit cards for online or telephone-based purchases. In these cases, the “card-not-present” situations in which retailers can’t view the signature on the card, retailers are supposed to implement more security features such as the following:

  • Pre-authorize the transaction
  • Ask for the card’s expiration date
  • Ask for the card verification code (CVV2 or CVC2), the three digit code on the back of the card, or the four digit code on the front of American Express cards
  • Verify the card holder’s address (AVS)

It is up to a retailer how secure they want to make the transaction process. Making the process easier for customers, by not verifying address or not asking for a CVV2 code for example, also invites more fraud. Fraud results in chargebacks to the merchant, and merchants really do not enjoy dealing with chargebacks. (This is what happens when you call your credit card to dispute a charge you may or may not have made.)

You are at the mercy of the retailer or cashier when it comes to acceptance of credit cards. If a cashier won’t accept your card without a signature, you could try asking for the manager but don’t be surprised when a retailer won’t complete the sale without a signature. Not many are this strict, but those who do require the signature are sticking to Visa’s and MasterCard’s rules.

Readers: Do you sign the back of your credit and debit cards, leave them blank, or write “See ID?” Have you encountered any push-back from cashiers?

Photo credit: Ciaran McGuiggan
Rules for Visa Merchants, November 10, 2009

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House Approves Expediting Credit CARD Act

by Smithee on November 10, 2009. Filed under Credit.

We reported just a few days ago on the passage of a measure in the House of Representatives to expedite the Credit Card reforms passed earlier this year.

Unfortunately, I left out some of the story, as I’m still figuring out the intricacies of how laws are made, and there were some amendments made to the bill before it passed. In addition to pushing up the enactment date to December 1, 2009 and the other changes we reported, the House version would also:

  • ensure that changes to a credit card agreement that reduce a customer’s interest rate or other fees can be implemented immediately, instead of being subject to the 45-day waiting period required under the CARD Act of 2009 — in other words, the bad things require a delay, the good things do not
  • dictate that any card issuer that imposes a moratorium on increases in rates, fees and terms and conditions of a contract would be exempt from the accelerated date for the provision requiring an issuer to apply a customer’s payment in excess of the minimum amount due, to the highest rate balance — the Credit CARD Act of 2009 fixes the industry abuse of extending a balance by applying payments insincerely. If banks play along and start a moratorium, they can have until Feb. 22 to fix the balance-payment problem.
  • prevent the closure of a credit card account in response to the imposition of a new fee from negatively impacting a consumer’s credit report or credit score

As before, the Senate version includes no additional measures, only moves up the date to Dec. 1. There’s a general sense in the news media that the Senate version would have trouble passing (sound familiar?), but I’m not sure where the pessimism comes from, as the original Credit CARD Act passed with 90% in the Senate.

Here’s the govtrack page to track the Senate version.

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Expedited CARD Reform for Consumers Act of 2009

by Smithee on November 6, 2009. Filed under Credit.

After the Credit CARD Act of 2009 was signed into law, we saw how credit card issuers started making life tougher for their customers. In short, banks were levying fees on their customers indiscriminately, affecting both the good and the bad.

This has been going on for months. Lawmakers have publicly condemned it, and made requests to the federal reserve, but all to no avail. This week, however, an amendment to expedite the Credit CARD Act (giving it an effective date of December 1st) has passed the House of Representatives in a better-than-average bipartisan manner (only 53% of Republicans opposed it), and I’m hopeful for all of our sakes that a similar measure quickly passes in the Senate.

I read through the words in both versions, and found a few differences, which might make it take longer to work through Congress:

In the House

The House version (full text) makes an exception for depository institutions (banks) with fewer than two million credit cards in circulation. It also comes with various clarifications to make sure that the new law doesn’t apply to banks and creditors who haven’t punished their customers (many of whom continued to pay on time and remain in good standing) in advance of the new law.

It also includes new features starting at Section 6 which state that:

  • if you receive notice of a new fee, and you pay off your balance in full, or cancel your account, that won’t negatively impact your credit score
  • there will be a nine-month moratorium on rate increases with a start date of the enactment of the Credit CARD Act of 2009

If these amendments pass, the moratorium would start December 1, 2009, instead of nine months after the law was passed, on about February 22, 2010.

In the Senate

The Senate version (full text) includes no additional clarifications or amendments, only a date change to December 1.

Flexo and I don’t agree on everything (if everybody did, life sure would be boring), but we agree that Congress should pass each idea into law based on its own merits, and not bundle them together into a jumbled mess of unrelated ideas. In this case, if you want to expedite a law, then document the new date and move on. Now’s probably not the time to be adding new regulations.

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    14 comments 14

Bank of America Adding Annual Fees to Credit Cards

by Flexo on October 14, 2009. Filed under Credit.

With the current and upcoming changes in the credit card industry due to the Credit CARD Act and other regulations put in place by the Federal Reserve, banks and credit issuers are maneuvering as much as possible to be in a good position to continue making money off their customers. Public corporations have responsibility to their shareholders to protect their bottom line, and with the threat of reduced profits due to new regulations you can be sure these companies will try anything within the realm of possibility to survive.

Bank of America has announced some anticipated changes to their credit cards that shows what the future might look like: more credit cards will carry annual fees. These new fees, according to the bank, will range from $29 to $99. And unlike most fee-bearing credit cards, the customers receiving these charges may not have cards that offer premium services like a concierge or extensive rewards.

One of the criteria Bank of America will use to determine which customers are lucky enough to receive the fee is “profitability;” in other words, those of us who don’t send the bank extra in the forms of interest payments and late fees or those who use their credit card infrequently — the responsible users of credit — are likely to be assessed the fee. Bank of America could easily determine which customers are not profitable for the company and charge this annual fee to make them profitable.

For now, there are many fee-free credit card choices for responsible users. The climate might change soon, however. Even the most diligent credit card users, those who manage to use cash back rewards and other benefits while paying off their balance in full every month, might find that the new environment will point to a cash-only spending plan for the best deal.

BofA to charge annual fees on some credit cards, Candice Choi, The Seattle Times, October 13, 2009

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