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Credit

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Credit Card Issuers Making Life Tough For Consumers

by Flexo on July 2, 2009

in Credit

Whether due to the economy or the impending regulation enacted within the Credit CARD Act of 2009, credit card companies are taking the opportunity to raise interest rates and minimum payments. This is perhaps an unintended consequence of increasing regulation. These changes affect consumers with manageable debt, but others who are trying to get out of debt or living paycheck-to-paycheck are harder hit by these changes.

Issuers’ actions come as a growing number of consumers lose their jobs and default in record numbers on their credit card debt. The industry is also preparing for restrictions to take effect in February 2010… The banking industry says Congress has no one to blame but itself for higher rates and fees because banks had predicted that restrictions on pricing would lead to higher costs for everyone…

Yet some critics say that issuers are taking advantage of a loophole in the law to bolster their financial conditions… In a statement Monday, [Senator Charles] Schumer slammed issuers for trying to “wring more dollars out of their customers.” Some of the changes in card terms, Schumer says, are “against the spirit of the law and … just plain wrong.”

Is credit card reform — the Credit CARD Act of 2009 (Credit Cardholders’ Bill of Rights) — a mistake or are issuers just using the fear of losing future profits as an excuse for bilking customers now?

Consumers hit again as some banks raise credit rates, fees, Kathy Chu, USA Today, June 30, 2009

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Discover as the Most Forgiving Credit Card

by Smithee on July 1, 2009

in Credit

Bankrate.com recently completed a study of 20 different credit cards from 10 different issuers and concluded that if one of your priorities is a card which will forgive your human errors, Discover is probably the card to apply for (or not cancel).

Looking at the fine print for one platinum card and one rewards car for each bank, they found the following significant differences:

  • Most banks will raise your rates if you pay late once, or end up over the credit limit once. Discover will wait for you to make that mistake twice
  • Discover, along with Capital One, have a range of overlimit fees instead of just one flat fee
  • Discover’s grace period is 25 days, instead of 20-25

It’s not all hugs and puppies with a Discover card. For example, if you violate the terms of the credit agreement, your rate goes up to 29.99%, the highest in the industry.

Of course, no credit card is a wise choice to carry a balance on. Check the BankRate survey if you’re in the market for a new card; they’ve done most of the hard work for you.

If you want forgiving, Discover card is the one to pick, Becky Yerak, Chicago Tribune, June 30, 2009

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Comparing the Visa Black Card With American Express Platinum and Centurion Cards

by Flexo on June 3, 2009

in Credit

American Express created a frenzy among the wealthy when it decided to take advantage of rumors of an exclusive black-colored charge card, used by movie stars and music celebrities for purchasing jets and other items beyond the financial reach of us mere mortals. In 1999, American Express introduced the Centurion Card, a black charge card with no spending limits and a veritable cornucopia of exclusive benefits, all for a significant fee.

Last year, Visa saw the opportunity to market to the same demographic when this company launched its answer to the Centurion Card, the Visa Black Card which I’ve previously described in detail.

Although the assumption is that the Visa Black Card would compete with the American Express Centurion Card, it actually has more in common with the American Express Platinum Card.

Do you qualify?

If you want to hold a Centurion Card, you must be a Platinum cardholder for at least one year and you must have spent $250,000 on the card in twelve months. Both the Platinum and Centurion Cards are charge cards, not credit cards, so you are expected to pay off your entire charged balance each month.

To qualify for an American Express Platinum Card, the prevailing thought is that you will need an annual income of at least $100,000 and a high credit score in order to be approved.

Visa Black CardThe Visa Black Card is a credit card, not a charge card, offered to only 1% of the United States population. You and three million other people might qualify for this card. Some current Visa customers have received invitations or have had their existing Visa cards automatically upgraded. There have been reports of people with poor credit and little or no income being approved for this card, and an invitation package was sent to a man who had been deceased for seven years.

Annual fees

The Centurion Card is in a class of its own. When you qualify for the Centurion Card, you will be charged a $5,000 initiation fee and an annual membership fee of $2,500. That’s a total of $7,500 will will owe after the first billing period without having spent any money.

American Express PlatinumThe Visa Black Card carries an annual fee of $495 while the American Express Platinum Card requires a yearly membership payment of $450. This fee comparison makes it clear that the features of the Visa Black Card are more likely to be in line with the Platinum rather than the Centurion.

Concierge services

All three cards offer 24-hour concierge services. The purpose of a concierge is to have a personal assistant with the resources to take care of arrangements you do not have time for yourself. A good concierge should be able to order and deliver gifts to the people you specify, give dining recommendations and make reservations, even in the most popular restaurants. A concierge would be your proxy for shopping.

American Express CenturionThe Centurion Card goes further by assigning you a personal concierge, so you theoretically always deal with the same employee from the service, who gets to know you and your preferences. Additionally, the Centurion Card reportedly permits you to schedule private shopping at high end stores, such as Gucci, Neiman Marcus, and Sony.

Travel services

The Visa Black Card offers 24/7 legal, medical, and financial emergency travel services, as does the Platinum Card and the Centurion Card. All three cards offer travel accident insurance. The Visa Black Card offers up to $250,000 insurance while the Platinum Card offers $500,000 insurance. The Centurion Card offers $1,500,000 in travel accident insurance.

If your baggage is delayed while traveling, the Visa Black Card will credit you $100 a day for three days, while the Platinum Card will insure your baggage up to $2,000. The Centurion Card will insure up to $1,250 for carry-on items and $500 for each checked bag.

Purchase protection and warranties

If there is a problem with any purchase you make with the Visa Black Card, the card can reimburse the owner up to $500 before 90 days have passed since the date of purchase. The Platinum and Centurion Cards protects holders up to $10,000 per occurrence and $50,000 total per cardholder per year within the same 90 days of the purchase.

Summary

In most cases, the Visa Black Card, despite its appearance, is more competitive with the Platinum Card. Based on these benefits, the Centurion Card is in its own class despite some features in common with the Platinum Card. Many of the Visa Black Card’s services are more aligned with Visa Signature benefits, a level that usually does not carry any annual membership fees.

I’ll stick with a free Visa Signature Card, which also comes with concierge services, purchase security, and all features at levels identical to the Visa Black Card.

Review the details from the sources: Visa Black Card, American Express Platinum Card, American Express Centurion Card, Visa Signature Card.

Your opinions

With fees starting at $450, are luxury credit cards worthwhile? Have you received any offers for the Visa Black Card?

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Congress Passes Credit CARD Act of 2009, Now What?

by Flexo on May 21, 2009

in Credit

Yesterday, the House of Representatives voted on and passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the Senate’s alternative to the Credit Cardholders’ Bill of Rights. Here are some of the provisions, taking effect in February 2010:

Credit card companies must give 45 days notice before raising interest rates. Under current rules, a credit card company can raise interest rates on a customer for any reason at any time with no notice. Normally, the cardholder can refuse the rate increase and close the account, and the issuer will provide a chance for the customer to pay down the balance. The new bill, once signed into law and put into effect, will require advance notice.

Credit card companies must apply your payments to your highest interest rate balance first. Let’s say you took advantage of a 0% balance transfer offer for $10,000 but ended up needing to use the credit card for an emergency and made a $2,000 purchase at an interest rate of 10.99%. Currently, any payment you make is likely to be applied to your balance transfer until you pay off the $10,000, forcing you to be charged interest on your $2,000 balance. The new rules would change this practice.

Minors will not be able to own their own credit cards. Anyone under the age of 21 requires a parent or legal guardian to be the main account holder. The child or student could then be an authorized user on the account. There is an exception for students who have income and can prove they can be responsible for the charges on their own. Currently, my cat could get a credit card. He’s only twelve years old.

Consumers will need to “opt in” to charge above their credit limit. In the “good old days” of credit cards, if you charged more than the level of credit the issuer decided to grant you, your purchase would be declined, the waiter would return to your table, embarrass you in front of your friends, and cut your card in half with a pair of scissors. These days, you are allowed to go over your limit, but you will be charged a fee for doing so.

Credit card issuers claim this is a service; they would be mortified if one of their customers would be forced to live without air conditioning in the dark because the payment via credit card for the electric bill didn’t go through. Under the new law, consumers would have to “opt in” to receive the benefit of being charged a fee. In any situation, it helps to monitor your usage so you know when you are approaching the limit.

Your existing balance will not be subject to “universal default.” Today, it’s common practice for many credit card issuers to automatically raise interest rates if you are over 30 days late, or default, on a debt payment to anyone else who reports to agencies like Equifax and Experian. If this happens to you, you may find your interest rate to be increased on your full balance. The new law does not outlaw universal default, but it does prevent old balances from being affected. Only new charges will be able to be assigned a default rate.

Anticipating and fearing the future expense of these changes, some credit card issuers have already begun raising interest rates, lowering limits, and reducing rewards across the board. Many people I’ve spoken to, and some who have commented on Consumerism Commentary, are concerned that well-behaved credit card users who pay their bills in full each month and reap the rewards will have trouble finding amazing credit card deals in the future. I’m not too concerned.

The glut of rewards in the past decade is an anomaly. The game of credit card arbitrage, moving balances around from one card to another to take advantage of 0% interest rates while your borrowed money is earning high interest in a bank account, has always been dangerous, and in the end, a losing proposition. The ubiquity of these deals has significantly decreased over the past few years, anyway.

Credit is flowing better than it was six months ago. Yes, there are still people out there having difficulty obtaining loans, but for the well-qualified, like those who pay in full and are responsible, won’t find much trouble with credit card offers.

Credit card companies will still be competitive. They’re not going to drop their rewards programs. Even if they’re not making money on interest fees and late charges, they are making up to 3%, sometimes more, on every regular transaction through merchant fees, and the value of rewards that come back to the consumer is usually less than 1%. Credit card users who seek rewards, like me, charge more on their credit cards, so the issuers make more money on us than we’d like to believe.

Personal responsibility is an important lesson that should be learned prior to opening a credit card account. Paying attention to your own finances may alleviate 80% of the headaches pertaining to credit cards. But as customers get savvier, the industry finds ways to make dealing with them more difficult for the issuer, hiding rules deep in the twenty-page pamphlet of fine print and changing those rules on a whim.

I expect that credit card issuers will continue finding new ways to make money off of customers who either don’t pay attention to their finances or find themselves in financial distress due to external or unforeseen circumstances, and I expect that responsible users will continue to find moderate and reasonable rewards for good credit behavior.

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Senate Passes Credit CARD Act

by Flexo on May 19, 2009

in Credit

In a sweeping vote of 90 to 5, the Senate passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, including the sole unrelated amendment to restore weapon carrying rights in National Paks.

The bill differs from the Credit Cardholders’ Bill of Rights Act of 2009, passed earlier by the House of Representatives. Now the Congress must work together to hammer out a compromise to be presented to the President to sign into law.

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Revisiting FICO 08 Piggybacking

by Smithee on May 19, 2009

in Credit

Your money is important, and so I want to make sure I’m telling you the truth in every instance. A few months ago I wrote an article called What You Need to Know About the FICO Update, which contained some news about the process of “piggybacking”:

Not too long ago companies started offering to add someone with poor credit as an authorized user on an account belonging to someone with better credit. After a while, the credit rating for the less fortunate person would improve. Under the new formula, this sort of—let’s be frank—trickery will not be rewarded. Spouses and children, however, will not be penalized in the same way.

Throughout that day, a commenter named Bill tried to tell me I was wrong, and since the e-mail address he used was linked to a company that provides such a service (he didn’t make the address public, so I won’t, either), I still had my doubts.

And I’ve had doubts ever since, in both directions. I thought it’d be worthwhile to wait a few months and see if any news outlets made retractions or corrections to the initial flood of reports that FICO 08 will no longer reward piggybacking. So far they haven’t. Here’s one from May 13th that says the same thing again.

So, I thought, “Well, why not just see what Fair Isaac (the FICO people) say?” And after searching for “fico 08″ on their Web site, exactly one useful page shows up: Fair Isaac Innovation Will Restore Authorized User Accounts to Calculation of FICO 08 Scores.

What that article says is this:

[FICO's] scientists have discovered a way to restore authorized user credit accounts to the calculation of FICO® 08 credit scores while materially reducing any potential impact to the score from tampering. Fair Isaac is now adding the patent-pending technology advance to its FICO® 08 formula. The company estimates that more than 50 million U.S. consumers are legitimate authorized users on another person’s credit card.

It’s that last phrase that I think is the most important: authorized users on another person’s credit card. So, if you have the authority to charge something to a credit card that also has someone else’s name on it, that’s not piggybacking. That’s being an authorized user, and your credit score will benefit from being associated with that person.

In the descriptions I’ve read of services that provide piggybacking, you don’t get access to the credit line or the authority to charge anything on a stranger’s card. Of course you don’t; that would be absurd. I think this is the gap where FICO’s scientists are able to distinguish between authorized users and piggybackers, and why my original conclusion still stands.

Here’s a good article from Bankrate (that updated a previous article) which explains FICO’s:

  1. original decision to ignore all authorized users
  2. the protests (from people like Bill)
  3. and the subsequent tweaking that FICO made to keep authorized users, but still ignore piggybackers

Here are a couple of key phrases:

Legitimate authorized users, such as spouses, parents and children, have relationships with the primary accountholders and reasons to share access to the accounts.

Fair Isaac said lenders complained that using FICO 08 would inhibit compliance with Federal Reserve Regulation B, which requires lenders assessing a married person’s credit risk to consider the credit history of accounts shared by the spouses.

Fair Isaac is keeping the specifics of the new analytic approach secret but says it has found a way to restore authorized-user accounts to the formula but also reduce the impact of piggybacking.

To conclude: authorized users = spouses, children, people with a relationship to the cardholder. Piggybackers = unauthorized.

I don’t want to riddle your screen with links to each news outlet’s report, so I’ll just direct you to Google News for more. Check out a comprehensive list of articles from 2009 that all agree. (Well, they all agree, except for the ones that are reproductions of press releases from companies that offer piggybacking services.)

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Credit Cards That Already Follow the Rules

by Smithee on May 8, 2009

in Credit

As part of our complete coverage of the forthcoming (maybe) Credit Cardholders’ Bill of Rights, I noticed a helpful article over at SmartMoney.com highlighting four different cards which already adhere to the Fed’s new rules about Credit Cards (which don’t technically have to be followed until next year) and/or some of the provisions of the Bill up for consideration in the Senate.

Some of the “benefits” (in other words, they treat you like a human being) include:

  • Set your own credit limit, lower than the one on the card, so that you can better control your own spending
  • Choose your own due date
  • Make payments by phone (you’d think this was already available everywhere)
  • Make payments on the due date without being charged extra (ditto)
  • Your card’s rate won’t go up if you behave poorly on an unrelated account (AKA “Universal Default”)
  • Get at least a month’s warning before a rate increase goes into effect
  • The statement is mailed well before the due date to prevent late payments
  • Avoid double-cycle billing (imagine paying your rent for May based on how many days you lived there in May and April)

These cards also have other benefits that actually do go above and beyond in an effort to entice you to switch. The above list, however, are things that the average “man on the street” would reasonably assume are already true of every credit account.

The article cites four credit cards following the rules: Discover® Motiva Card (apply here), Citi Forward Card (apply here), Capital One Platinum Prestige, and Wells Fargo Platinum.

I’m just one man, of course, with one man’s opinion. Here’s a summary of the opinion of the general public.

4 Consumer-Friendly Credit Cards, Kelli B. Grant, SmartMoney, May 7, 2009

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Public Reaction to the Credit Cardholders’ Bill of Rights

by Smithee on May 5, 2009

in Credit

So the The Credit Cardholders’ Bill of Rights Act of 2009 (full details and timeline) passed the U.S. House of Representatives by a wide margin, indicating strong support from Republicans, Democrats and Independents alike.

Of the 427 Representatives who bothered to vote, 70 voted against it. So that’s about 84% in favor. I thought I’d take a trip through various parts of the Web to see how random groups of Americans felt about it.

Last August, CreditCards.com reported a survey which concluded that 74% of respondents agreed at least somewhat that “The government should regulate the credit card industry more carefully”.

A New York Daily News Poll which phrased the question as “Are credit card companies’ fees charges fair to consumers?” (which isn’t really what the Bill is about) found that 88% of respondents say “No.”

Over at OpposingViews.com, with only 250 votes so far, 75% of people think the Bill will help consumers.

A recent CNBC poll question: Do you think you have been unfairly treated by a credit card issuer? sees 67% responding “Yes”.

It’s not just Americans, either. A recent poll reported by the CBC in Canada says that 82% of Canadians want some kind of “bill of rights” to protect them when disputing unfair practices by the credit agencies.

It looks to me like the U.S. House vote is directly in line with what the public wants. I’m not sure I can tell you the last time I noticed that happening. If this topic is new to you, see what all the fuss is about.

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