Credit Cards in the News

Consumers and cardholders used to look forward to using the opportunity of a balance transfer offer to shift their credit card debt from a more costly and cumbersome credit card to one with more attractive terms and conditions. You can still do that, of course, but it’s no longer as cheap or effective at saving money. That’s because credit card companies used to allow balance transfers free of charge.

Now they will likely hit you with a fee that is about five percent of the value of the dollar amount you transfer. So if you shift $5,000 worth of credit card debt from a high interest card to a new card that offers you a really low introductory teaser rate, you’ll get hit with an additional $250 charge – and start your new savings plan off with that much extra debt.

For many years – especially during the debt-crazed and loan-fueled years that led up to the global credit crisis – it was a really common habit among credit card customers to maintain lots of different credit cards and a totally inappropriate ratio of debt to income. But credit card companies were engaged in such loose lending practices that it was relatively easy to keep one step ahead of financial trouble by using clever balance transfer strategies.

A person would, for example, load up lots of debt on a credit card that offered a great teaser rate. These introductory rates are often as low as zero percent, and the introductory period typically lasts for six months, although a few years ago there were some offers that lasted even longer. So, for example, a person with good credit and a long history of carrying balances but paying them off might have a really high credit limit and be able to load up one of these cards with $10,000 worth of debt – or even more. Then, just a few days before the low teaser rate expired and the credit card company was prepared to start charging double-digit interest on that large amount of debt, the cardholder would call a competing credit card company and offer to switch cards. In exchange for their willingness to switch – which meant the new card company would capture a great customer carrying lots of debt – many card companies would do an immediate balance transfer for free, and also offer a super low or zero percent introductory rate.

Not only that, but customers would also be lured to competing card issuers with offers of higher credit limits. So a person might transfer their $10,000 balance, get a $12,000 credit limit, and be given a six month introductory rate of zero percent on their $10,000 balance. Using this kind of strategy made it possible to escape high interest payments for years, because every time the six-month introductory rate was about to expire the cardholder could just call up a competitor and do a fast transfer while also getting a huge credit line. Of course they would abandon the new company six months later, going to some other new competitor. But they’d hold on to their credit card. In this way a person who kept shifting around a $10,000 debt could wind up with several unused cards – each with a $10,000 or higher spending limit – within a matter of 3-4 years.

While similar strategies may still work, newer card company terms and transaction fees have made it less simple – and more costly. Shift a $10,000 debt around by bouncing from one card to another twice a year now and within 2-3 years your debt will have risen to $12,000 or so – just because of balance transfer fees. Plus it is much harder to get those zero percent offers, and even low rates are somewhat scarce. Once card companies notice that you are carrying a high ratio of debt compared to your income they will stop extending such generous credit – and FICO will likely recalculate your credit score and give you a big downgrade.

So before doing any calculations regarding balance transfers, be sure to read the terms and conditions. You may need to deduct five percent or so from your savings calculations right off the bat, or add that much to your debt and then run the numbers based on paying interest on that amount over the long haul. A better strategy these days is to use a credit card that offers decent rates and terms but also lets you isolate certain parts of your overall balance and pay those off faster. While carrying debt and leveraging credit card offers used to be in vogue, these days the smart cardholders are figuring out creative ways to dump their debt and limit the amount of plastic they have in their wallets.

The hottest news off the presses in regard to credit card use is that if you don’t use it you run the risk of losing it. That’s because many major credit card companies have changed their policies about those people who are cardholders but do not use their cards very much. While experts used to recommend keeping cards instead of cutting them up and canceling the accounts – but not using them – as a strategy to build better credit, they have changed their advice. Now they are warning that people who have cards that are not actively used may incur an “inactivity charge.” In other words if you have a card that you have not used for years, your card company may decide to hit you with a penalty.
 
The reason that people often hold on to cards they do not use – or keep dormant accounts open and inactive – is that FICO, the biggest credit score company on the planet, views open lines of credit that are not used as a plus. In other words if lots of banks or credit card companies are offering you credit but you are choosing not to take advantage of it and to instead just pay your bills each month without borrowing or carrying an outstanding balance, FICO rewards you with a better rating.

But apparently credit card companies see the situation differently. Many of them have been losing money since the recession began, because the average consumer has wised up about the smart use of credit and the benefits of sticking to a prudent budget. Less credit card use – and less borrowing – means lower revenues for card companies. To inspire you to pick up that plastic and go out and spend, they came up with this inactivity charge idea.

Of course that leaves each cardholder who has an active credit card account somewhere with a choice to make. Do you avoid paying inactivity charges, or hold on to your dormant cards in order to win more favorable ratings with FICO? In most cases the answer is that you should dump any card that charges you for superfluous things like “inactivity” and give your business to those card companies that are more reasonable. The exception might be if you are getting ready to buy a house and are strategically trying to boost your credit score by any means possible. In that case you might pay the inactivity fee, enjoy the higher FICO score, and then after you get your mortgage acceptance you can then close down the dormant account.

According to a recent news article on the CNN/Money website, an unhappy customer of Bank of America posted a video on YouTube where she complained about having the interest rate on her credit card “jacked up” to 30 percent. The article explained that since the video went live credit card customer Ann Minch has gotten action from the bank which has agreed to lower her credit card rate back down to where it was originally at a more reasonable 12.99 percent.

The title of the YouTube video is Debtor's Revolt Begins Now! and it was first posted at the beginning of September, 2009. Within two months it was watched by nearly half a million viewers. In the homemade move Minch – who is a fiery redhead with a passionate delivery – alleges that she makes her payments on time and has not exceeded her credit limit. She also says that she has been a customer of Bank of America for more than a decade, and that when she tried to negotiate with them about her super high new interest rate, they refused to budge. So she took her complaint to cyberspace, saying “I could get a better rate from a loan shark.”

Part of the transcript from the YouTube rant included the strong statement by Minch that “You have reaped ungodly profits in your behemoth casino scams, then lost, only to turn around and usurp the wealth of this great nation by the outright rape and pillage of middle-class Americans whose sweat and toil built it,” the CCN/Money article said. She said she was willing to sacrifice her credit rating and stop paying any interest on her card if the bank did not accept her proposal for a more reasonable rate.

Jeff Crawford, a Senior Vice President at Bank of America, must have gotten wind of the YouTube complaint because later Minch posted a follow-up video. In the more recent video clip she said that Mr. Crawford called her and that they discussed the credit card issue. Crawford, she says, agreed to go back to the original rate, and she added that Crawford was very polite.
The woman’s first video rant garnered lots of attention including 5,000 comments – some in support of her and others against her – but it seems to have gotten the desired response from her credit card issuer.

The spam senders are getting desperate. Just about everyone now knows that e-mails from Nigeria are like short stories in the old Saturday Evening Post—pure fiction. Therefore, many Nigerian spammers (and others) are now bouncing their bogus claims, promises and appeals from country to country, trying to hide the true source.

However, in many instances, you can easily find out the country where an e-mail originated, or at least where it was redirected from. If you use AOL, for example, go to “Actions/ViewMessageSource” and hit “Go.” You’ll find initials for the one or more countries relevant to the e-mail. Some initials are obvious, such as “it” for Italy, “ca” for Canada, “mx” for Mexico, and “ru” for Russia. For all the others, go to www.visibone.com/country codes.

Here are a few: “de” = Deutschland. “eu” = European Union. “hk” = Hong Kong. “ng” = Nigeria. “nl” = Netherlands. “za” = South Africa.

Of course, some messages are so unbelievable it doesn’t matter where they originate; no one in their right mind would respond with the personal information requested (and then send the ever-increasing amounts of money they ask for).

For example, here’s an uncorrected excerpt from a recent e-mail: “I am Mr. Phil Brown, Financial Expert worked with well known Bank here in United Kingdom, I will be happy if we can do business together in good faith and this proposal will be of mutual benefit for us. I have a transaction deal in the tune of £52,000,000.00 {Fifty Two Million British Pounds Sterling}  to be transferred to any possible safe account with your good assistance.”

Many spammers ask for your occupation. What would they do if you said, “Interpol detective”?

While the majority of large credit card companies (i.e. those featured on our website) avoid such predatory practices at all costs, we have found that some less popular credit card providers truly target the most vulnerable.

Below is our list of 5 unethical practices that some of these companies have used in the past to attract new customers:

1.      Customers who recently declared bankruptcy
2.      Charging interest on debt from a prior month’s statement which was paid off during current billing cycle
3.      Individuals who don’t have a social security number
4.      College students with substantial student loans
5.      Sending delinquent notices to family members and friends

You should be conscious of these in the new year. If you come across behavior by companies that you believe is unethical, you can report them at the RipOffReport.com.

In an attempt to generate additional giving this holiday season, the Salvation Army is giving patrons the opportunity to use their credit card when passing by donation kettles. In all, over 500 kettles will have credit card processing capability and are located in higher traffic areas throughout the United States.

However, before swiping your credit card, we recommend that you ask the Salvation Army representative, how your personal information is being secured. If your credit card information was stolen, you would likely not be held responsible for unauthorized charges, but in the case of a debit card which is tied to your checking account, you have little to no liability protection in these cases. For a small donation of a couple of dollars, identity theft is quite a price to pay.

From an innovation perspective, when patrons would place money in a kettle and not receive formal recognition for their donation, these kettles are equipped to print out a receipt which can be used for tax deductions. We applaud this advancement in technology which benefits a worthy cause. If you come across one of these “eKettles” this holiday season, just make sure that  you feel confident your credit information won’t be compromised.

The long lost retail art of using layaway instead of credit is making a comeback. A layaway program benefits consumers because it allows them to make payments in installments without incurring interest charges. Retailers are able to capture the sale and they don't have to release the item until it has been paid for. Therefore, consumers can reserve products early in the Holiday season, setup a payment program, and have the item paid in full by the time Christmas rolls around.

Because of the ease in obtaining credit and the associated purchase rewards, layaway programs had been viewed as archaic until recently. K-Mart reintroduced the concept last month based on customer feedback. Other retailers are reporting spikes in their layaway programs as well. WalMart abandoned their layaway program two years ago and doesn’t have plans to bring back, given the recent surge in interest. Retailers also report that an advantage of layaway programs is that they bring customers back into their stores.

With the recent credit crunch and consumers feeling cash strapped, it makes sense that layaway programs are becoming more popular. Oprah captured current conditions best: “Remember Layaway? That is where we are heading.” 

Other Resources:

• Wikipedia: Definition of Layaway
• NY Daily News:  Stores Drag Layaway Out of Storage
  

While it could be convenient to pay out of pocket medical expenses on your personal credit card, Consumer Reports states that this is a dangerous trend that could result in significantly higher interest rates for consumers. If a consumer misses a single payment or a promotional rate expires, card holders could be stuck with hefty fees on non-insurance covered items.

According to Consumer Reports, credit card companies have started targeting doctors and other medical professionals to encourage new credit card products on patients in order to avoid the hassles of bill collection. Often consumers are confused about what medical expenses their insurance will cover and what is truly considered “out of pocket”. Often it can take months for a doctor to receive payment for all services. By offering a “0% credit card offer”, medical professionals can receive payment right away, patients can pay on credit versus cash and credit card companies can obtain a new customer.

Consumer Reports notes that consumers could charge an estimated $135 Billion of out of pocket medical costs on credit cards by 2015. While potentially convenient, medical related charges on credit cards can add up quickly and end up leading to poor financial health. Rather than carry medical credit card debt, the best practice is to speak with your doctor’s staff up-front and try to negotiate a payment plan that avoids the use of plastic credit.

Consumer Reports: New Market for Credit Cards

JP Morgan Chase received high marks from industry experts given their ability to steer clear of the sub-prime mortgage mess. However, the declining financial health of American consumers has caused the bank to suffer losses in their credit card division. A recent regulatory filing by the bank warns of the potential for substantial credit related losses in the future.

In Q3, JP Morgan's credit card portfolio had a delinquency rate of around 5% which is lower compared to recent reports by competing firms. Given that the highest delinquency rate in the past twenty three years was 7% in March of 2002 (last recession period), it appears that the credit card industry is headed for difficult times in 2009.

The US State Department has issued a warning to approximately 400 passport applicants in the Washington D.C. area of a security breach in one of their databases. The information that was compromised by a State Department employee and a Postal Service employee could be sold to thieves to commit credit card fraud.

In response to the security violation, the State Department is offering the applicants free credit monitoring for a year as well as assuming liability for any charges which are incurred as a result of illegal activity. This black mark for the State Department comes on the heels of additional breaches in which State officials were accused of reviewing the passport records for popular US figureheads.

Because of the increase in "hacking" of the State Department systems, lead officials have ordered a complete revamp of their internal security systems.