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May 31, 2009The recent passage of the credit card bill from Congress was cause for celebration for credit cardholders, though the legislation itself won’t become active until nine months have passed. Now, the government is looking into other credit card practices that seem unfair to consumers and how best to legislate them.
Currently, the Government Accountability Office is studying credit card usage among American consumers. They are interested in one particular practice and its effect on merchants and credit cardholders: interchange fees.
Interchange fees are fees that merchants pay whenever a customer uses a credit card. Essentially, when a merchant’s customer uses his or her plastic to purchase an item, the bank of the merchant pays an interchange fee to the bank of the credit cardholder so that the transaction goes through. This is true not only for credit cards but also for debit cards as well. The interchange fee for every transaction is usually at 1% to 2% of the total amount of the credit cardholders’ purchase. Thus, for a transaction of $100, the merchant has to pay anywhere from $1 to $2.
Most people take interchange fees for granted, as they are often buried within their transactions. However, some are taking keen interest in them. Consumer advocates are very much aware of how much interchange fees affect daily purchases of credit cardholders. Merchants are also quite aware of them, being the group who has to shoulder the payment or pass it on to their customers. The credit card companies are also very much aware of the profits that they are getting from interchange fees. Although a 1% charge may seem minimal to the regular consumer, it can mean millions to a credit card company that sees profit from it from thousands of credit card transactions every day.
The recently passed Credit CARD bill (Credit Card Accountability, Responsibility and Disclosure Act) actually has a provision that can be used to address interchange fees. The provision requires investigation on fees that merchants have to pay so that their customers can use credit cards. The main thrust of the provision is to provide disclosure to consumers on the credit card industry’s practices.
Some have noted, however, that disclosure is not enough for change to happen. Although informing credit cardholders of credit card industry practices seems like a good first step, there is still a need for stronger legislation. It ultimately depends on whether there is a change in the way credit cardholders use their credit.
The figures get much worse when considering the current unemployment rate in the U.S, which is, according to Fitch Ratings, at 8.9%. It is the highest unemployment rate of the country since 1983. With little in the way of available cash, consumers are turning to credit cards. Unfortunately, many are not keeping up with their bills and the credit card crisis just gets worse and worse.
According to Sen. Bayh, the regulations included in the credit card bill are specifically designed to protect and help out credit cardholders who have been hit by high interest rates and fees because they have had to rely more on their credit cards when the economic crisis hit. The senator told reporters stories about people who saw such incredible interest rate hikes, some from 0% to 29%, just for missing the payment deadline by one day. Many of those experiencing such high interest rate hikes belong to the middle class and, according to Sen. Bayh, they were “getting ripped off by credit card companies”.
However, a key fact is being overlooked by many of those who are hailing the approval of the credit card bill – the fact that the bill goes into effect only after nine months has passed. Some industry experts are saying that starting now until the law goes into effect, the credit card industry is going to have an open season on earning as much as they can from their customers. This is to offset their impending losses when the credit card bill comes into play.
According to a survey by Sallie Mae, a lender focusing on student borrowers, this April of 2009, college students on the average own four credit cards or more. Most college cardholders are also not very good at keeping up with their monthly payments. A majority of college cardholders regularly get hit by large monthly finance charges because they can’t pay their monthly credit card bills, according to the survey.
During the past few years, the credit card industry has enjoyed high profitability. Many see that this is coming to an end. Although many see the credit card bill as the main reason for this, it may only be one of many factors.
If you are good with your finances, chances are, you will have an excellent credit score. As anyone who keeps track of their finances would know, your credit score indicates how financially responsible you are. For creditors, people with high financial scores are the ideal customers. Keeping this in mind, you should therefore ditch your credit cards that are not offering you the best service when it comes to credit. Shop around for a better deal. Here are a few tips that you can use.
The credit card bill is a controversial bill that aims to correct what many see to be the fraudulent and deceptive practices of the credit industry. Amidst the outcry of overburdened credit cardholders, the President and the Congress responded with a bill that curtails arbitrary interest rate increases, protects cardholders paying off debts, and demands more transparency from credit card companies, especially with their credit card agreements.
Nowadays, measuring scale that determines whether your loan is approved or not is your credit score. A credit score is a simple, three digit number that lenders rely on to calculate the probabilities that you can actually pay off the loan you are trying to take out. The better your score, the better your chances of getting that loan.
Credit cardholders are excited to finally see some sensible regulation for credit cards. Long feeling oppressed and frustrated by arbitrary interest rate increases and unreasonable fees, credit cardholders have been pressing for the passage of the credit card bill since it first came out in congress.
Some types of credit card fraud can also be difficult to detect and, since consumers only see the summary of their purchases when their bill comes, finding out that they’ve been a victim always comes after the fact. This makes credit card fraud much more difficult to track and the perpetrator much more difficult to apprehend.
Following a string of controversies, TASC or The Association of Settlement Companies, have released a statement saying that they are pushing for legislation that will regulate debt settlement companies on both the state level and the national level. TASC is a non-profit organization which claims to be the watchdog of the debt settlement industry.
Credit card industry practitioners have constantly been issuing warnings that the passage of the credit card bill would mean making less credit available for consumers. The credit card industry says that, when the bill passes, it will mean that introductory interest rates will increase and annual fees will once again be charged to credit cardholders, regardless of credit standing.
Throughout the deliberations of the credit card bill, the credit card industry has largely been on hand providing dire warnings that the passage of the bill could have largely negative effect on the credit industry. According to credit card companies, with the passage of the bill, American consumers will experience a drying up of credit.
The last minute provision of Sen. Robert Menendez prohibits companies that issue credit cards from opening credit card accounts without first thoroughly considering the ability of the bower to meet the required payments. The rules on just how companies can comply with the provision will be left to the Federal Reserve.
Travis Plunkett from Consumer Federation of America recently said, “This is probably the strongest piece of consumer legislation to pass Congress in a decade.”
Risky borrowers have been very lucrative for credit card companies for the past few years. Lending to borrowers with low credit scores may mean that the chances of them paying their debts are low but creditors have not been daunted. Instead, credit card companies turned the situation around and made enormous profits from the fact that payments from credit cardholders with low credit scores usually go to interest rates and fees instead of their debts. Basically, these cardholders pay the credit companies not to decrease their debt but to be allowed to keep them and to have access to more credit.
Credit repair companies offer some of the most enticing deals for credit repair nowadays. No wonder that, at a time when most companies are facing economic problems, credit repair companies are growing. As more and more people face debt, credit repair businesses become more and more lucrative. Unfortunately, credit repair businesses often have more bark than bite.
The credit card bill of the Senate aims to correct many credit card industry practices, which consumers have found to be unfair and deceptive. Among many things, it will stop the industry practice of arbitrarily raising interest rates and requiring disproportionately large fees, requiring the industry to issue advance notices for interest rate changes and controlling “over limit” transactions as well as the fees involved.
Credit card debts from college students are fast becoming a serious problem. Credit card companies often exploit college students, giving credit card offers to them while knowing that they are hardly in the position to be able to pay off their debts. Oftentimes, college students graduate with an already large amount of debt to their name, even before they find employment.
Here are a few tips to get your credit score up to muster.
The much awaited credit card bill from congress should be heading for the office of the president anytime this month. With the support that the bill has been getting, not the least of which is President Obama’s constant support campaigns, the bill is being processed through the senate with impressive speed.
The bill from the House puts a limit to credit lines available for college students to either 20% of their income or $500, whichever is lower, unless they have co-signers. The Senate version makes proof of income, co-signers or a personal finance course passing grade requirements for credit approval for those under 21.
Discover Bank is now issuing prepaid credit cards for the teenage set, with the proper parental control locked in. This practical approach of Discover is being received warmly by parents who understand the convenience of credit cards for teenagers but who also are wary of the financial responsibilities that it carries. With prepaid credit cards, parents get the best of both worlds.
Government legislators are up in arms over what to do with the economic downturn that is recently plaguing the United States. Their latest bid to stem the tide is the much hyped credit card bill scheduled for release Tuesday.
The credit bill is going to get passed soon enough, but is it really enough to get Americans off debt in the long term? Some say that legislation will take care of that by limiting and reigning in the credit card industry, which seems to have been running wild the last few years. Others argue that the problem is actually the American people themselves, specifically their spending habits.
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