Recently, national consumer group advocates urged the Federal Reserve Board to eliminate the loopholes that credit card companies are already exploiting in the Credit CARD Act. Even before the Credit CARD Act has fully gone live, credit card companies have already developed several tricks and traps to counter the restrictions that the new legislation will bring.

One such loophole can be found in the prohibition of the act of rate increases for existing balances unless the card holder is already more than sixty days late. Major credit card company Citibank has already found a way to evade the ruling by charging a 29% APR to card holders but promising them a 10% refund during the next billing cycle if they manage to pay their current bill on time. If analyzed, this is similar to charging a card holder a retroactive 10% rate hike if he misses payment for even one day.

Another loophole that is being exploited by credit card companies is the legislation allowing retroactive rate increases if they are caused by variable index changes which is outside of their control. US Bank, Barclays and Wells Fargo are just three of the major banks which are exploiting this loophole by using only variable rates that can only increase or by picking only the previous 90 days’ highest rate.

In one particular case, it is the Fed’s own proposed rules which would allow credit card companies to evade the intentions of congress to put a limit on credit card marketing to college students. College students were routinely victimized by credit card companies by enticing them with free gifts. They often end up signing up for over priced credit cards in exchange for free gifts. The Fed’s proposed rules would allow credit card companies to continue giving out free gifts as long as those gifts are not conditioned when filling out the application. U.S. PIRG Consumer Program Director Ed Mierzwinski said, “Incredibly, the Fed even proposes to allow banks to perpetuate unfair marketing to college students, even though Congress said to stop. The Fed will allow banks to keep enticing students with free pizza at campus tables, so long as all the students who stop get free pizza, even if they don’t sign up for a card”.

National Consumer Law Center Managing Director for the Washington DC office Lauren Saunders said, “The ink hadn’t even dried on the President’s signature on the CARD Act when we began seeing runarounds by the credit card companies”.

American consumers are already having a hard time trying to get a handle on their finances in a time of economic crisis and increasing unemployment rates. The credit term changes that credit card companies have been introducing could not have come at a worse time, though they would be quite unwelcome at the best of times.

Many American credit card holders are getting hit with interest rate hikes as the holiday season – a time for increased shopping activities among Americans – gets closer. A lot of them are going to see their interest rates become twice as high or even three times as high as the original rates. Grim financial times are ahead for American credit card holders, it seems.

Interest rate changes are not the only credit term changes that credit card companies are issuing which are hurting card holders. There is also the switch from fixed rate to variable rate interests for the majority of credit card holders. Variable rate interests are pegged to the market index which means that card holders might be seeing their interest rates go up anytime soon. Notably, variable rate interest credit cards also free credit card companies from the responsibility of informing credit card holders of interest rate changes.

As a matter of fact, a lot of the changes that credit card companies are introducing can be directly attributed to the upcoming Credit CARD Act which is set to activate on February of next year. Credit card holders, already having a hard time trying to keep their finances in check, are now facing rate hikes, lowered credit limits and minimum monthly rate hikes just to name a few and it is ironic that they are facing these difficulties due to the Credit CARD Act which is a set of legislation created for their own protection from credit card companies.

According to the results of a survey from Rasmussen Reports, half of the survey’s respondents were hit by interest rate hikes during the last six months. Another survey from Credit.com showed that almost one third of American consumers had their rates hiked unexpectedly. This is almost double of the figures taken during a previous analysis done just six months past.

Industry experts say that the recent actions of credit card companies is having a very severe effect on consumer confidence on the credit industry. This is especially damaging to credit card companies considering the already low consumer confidence that they have.

Legislative director of Consumer Federation of America, Travis Plunkett said, “It seems like they’re hurting the customers they need the most. What the industry needs most is trust, having lost it to the traps and tricks they’ve used for years, but they seem to be betraying it even further”.

As the holidays get nearer, more and more Americans are going to be looking for convenient and reliable ways to do their shopping. An option getting more and more popular among American consumers is shopping online.

According to Forrester Research, American consumers are projected to spend around $45 billion during the holiday season this year. That is an increase of 8% from last year’s figures. The numbers are impressive and worrying as well. Shopping online, while it can be quite convenient, also has its inherent risks. Online scams are just about impossible to avoid these days.

One of the most serious problem facing online shoppers these days are those pop up advertisements that promise online shoppers cash back rewards if they click the “yes” button after they have finished an online transaction using their debit or credit cards. Experts say that these offers pose a serious threat to online shoppers.

When a shopper clicks one of these buttons, what really happens is that they are actually agreeing to a subscription service which charges them around $20 every month. Oftentimes, these subscriptions can go on for months before a card holder actually finds out about them. The threat is quite serious even though many would say that the majority of online shoppers are smart enough not to click the “yes” button. The Senate Commerce Committee recently held hearings regarding the issue and, according to its report, $1.4 billion in profits were shared over the years by Affinion, Vertrue and Webloyalty – the main companies offering this service – with their major e-commerce partners.

Committee Chairman John Rockefeller said, “Millions of Americans are getting hit with these mystery charges every month–we have to do all we can to protect the hard-working families relying on us to look out for their wallets and well-being”.

The report also stated that consumers enrolled in these membership clubs number at 30 million. These membership clubs, although saying that they offer promotions on products and services but few if any of their members actually get any cash back awards. The three major companies, Affinion, Vertrue and Webloyalty, also partners with 450 or more e-commerce websites and retailers and they divide the fees 50-50 to allow these companies access to the payment information of their customers. This gives Affinion, Vertrue and Webloyalty easy access to the credit card or debit card accounts of consumers and charge them with fees.

Although these tactics seem very questionable, they are not quite illegal. Consumer advocates are therefore warning consumers, especially those who shop online, to avoid these kinds of scams to save themselves any unnecessary holiday headaches and money.

As the economic crisis continues and the activation of the Credit CARD Act gets closer and closer, credit card companies are busy trying to find new ways to earn profits without turning back to practices that are to be outlawed by the new Credit CARD Act and without scaring off their customers who are now feeling skittish, what with the historically high interest rates and fees that they are now facing.

Bank of America last month tested the reintroduction of annual fees to a select number of accounts. Using what they call “risk and profitability”, Bank of America introduced annual fees ranging from $29 to $99 to a small percentage of their card holders. Many analysts considered that Bank of America’s actions – testing the tolerance of credit card holders for term changes – may become the norm as the CARD Act activation approaches. If Citi’s latest announcement this month is any indication, that may be exactly what’s going to happen.

Following Bank of America’s wake, Citibank has announced a new term change for their credit card holders designed to earn them profits amidst the slow economy and the credit card act. Citibank recently announced that Citibank card holders who meet a minimum monthly spending requirement will be eligible for rebates on the total interest charges that they will be getting for that month. Card holders are also required to make their payments on time to qualify for the rebates.

Citibank’s offer is very attractive for credit card holders because the value of the rebates can be high enough that they will essentially cancel out a fraction or even all of the interest rate hikes that Citibank will also be introducing to card holders. However, the minimum requirement seems to be quite high, as high as $750 per month. The required monthly spending amount and the amount of interest rate increase will vary according to the credit history of the card holder, Citibank says though the company was scant on details. Citibank did say that around half of their card holders will have a chance at canceling out 50% to 100% of their interest rate hikes through the rebates program. The rebates, Citibank says, will also be based on the interest charges for the entire balance of the credit card, not only for the monthly charge.

Citibank’s move is an interesting one and further underlines the trend among card companies. If Bank of America was aiming at making profits from charging annual fees, Citibank seems to be looking at a different source altogether. By encouraging their credit card holders to increase their credit card spending, it seems that Citibank is looking at increasing their interchange fees, says CreditCards.com’s Ben Woosley. To note, interchange fee charges are already a high earner for credit card companies.

Credit card holders hold an advantage over non credit card holders at the check out line. A recent report from the Government Accountability Office (GAO) says, “Consumers who do not use credit cards may be paying higher prices for goods and services, as merchants pass on their increasing credit acceptance costs to all of their customers”.

Although most consumers are not aware of it, whenever a credit card holder uses his or her credit card to pay for a purchase, the amount that they are paying is actually higher than if credit cards were not a payment option. This is fact is applicable to both credit card purchases as well as cash purchases.

The higher cost of the goods is caused by the interchange fees that merchants have to pay whenever they accept credit card transactions from their customer. Unknown to credit card holders, during every credit card transaction, the merchant has to pay a small percentage of the purchase cost to three entities. These are the bank that of the credit card holder, the bank of the merchant and the payment network that is used to process and approve the credit card transaction.

Credit card companies see a lot of profits from interchange fees, amounting to billions of dollars every year. In fact, interchange fees actually account for more than the profits that credit card companies see from the fees they issue in their savings or checking accounts.

Complaints among merchants about the exorbitant nature of interchange fees are well known. Interchange fees in the U.S. are much higher than those in other countries. Merchants are also powerless to negotiate better interchange fee arrangements as well. However, although merchants would rather be free from interchange fees, they have to accept them since they are part of the package of being able to accept credit cards as payments. Merchants generally pass on the expense of interchange fees to their customers by raising the price of their products to compensate. In the end, it is the consumers who end up burdened with it, especially those who don’t use credit cards for payments.

The report from the GAO suggests introducing changes in the structure of interchange fees such as those used in other countries. This includes allowing waivers that grant merchants powers to negotiate interchange fee rates individually, interchange fee regulation and full disclosure to consumers about interchange fees.

Major credit card companies including Bank of America, Capital One and JP Morgan Chase are naturally against these suggestions and the GAO’s report warns that they may raise their fees in other areas to make up for the resulting loss in revenue.

Gift cards have always been popular among American consumers and, this year, it remains as the number one most requested gift for the holiday season. However,a survey by retail organization National Retail Federation and BIGresearch says that, this year, shoppers in the U.S. are going to be pulling back from buying gift cards for gifts. The reason will primarily be due to the weak economy.

NRF and BIGresearch’s survey took a poll of 8,892 American consumers from November 2 to November 10. The survey’s margin of error is at plus or minus one percentage point.

The survey shows that American consumer spending for gift cards this year will average at $139.91. That figure shows a drop of 5% compared to last year’s figure which was at $147.33. The average for gift card spending just two years earlier was at $156.24. The overall consumer spending on gift cards this year is expected to be at $23.63 billion. A drop from the $24.92 billion gift card spending of last year.

Kathy Grannis, NRF spokeswoman said, “ The drop could be attributed to the fact that a lot of people, especially in this economy, are more interested in getting two gifts for the price of one gift card, because so many gifts are on sale”.

Aside from reduced gift card buying among consumers, consumers who receive gift cards this year can also expect to get lower amounts available on their gift cards. The average gift card value this year will be at $39.80%. This is lower by 1.8% from last year’s average.

According to the survey, the percentage of American consumers who will buy a gift card this year will be at 77.2%, similar to last year. The survey also found that gift cards from department stores will be the most popular among consumers, with 38.4% of the surveyed American consumers saying they will opt for them. Restaurant gift cards follow a close second at 33.4% and bookstore gift cards are at 24.4%. Electronic store gift cards come second to the last at 18.8% and discount store gift cards are last at 16.3%. 22.1% of the respondents also said that they will be giving gift cards from credit cards or banks.

A different survey done by the NRF showed that, for 22.1% of the respondents, the main reason why they are not going to be giving gift cards this year is because these gifts are too impersonal for them. 13% said that they will not give gift cards because they are worried over the expiration dates or the fees that comes with gift cards.

The changes in banking practices are hitting American consumers hard. The lack luster economy and the rising unemployment rise is already a heavy enough baggage for most American consumers. Add to that the oppressive credit card terms that credit card companies are making and it becomes clear why American consumers are outraged at the lack of protection from government regulation agencies which are supposed to look after their interests.

It seems that the Fed may finally be looking into what consumers are complaining about. One fix that the Fed has introduced ought to bring some much needed respite for consumers, though it will not be coming until the next summer: no more overdraft fees.

Customer complaints about overdraft fees has been one of the loudest in the past few months. Ironically, overdraft protection, the service where overdraft fees come from, are supposed to be a sort of protection that credit card companies give to their customers against going over their credit limits. Credit card companies say that, when credit card holders go to the checkout counter and pay for their purchases with their credit cards, they do not want to be embarrassed or inconvenienced with having their transaction denied because they are over their limits. To avoid these, credit card companies provide overdraft protection which allows credit card holders to go over their credit limits but, for a price.

It seems like a overdraft protection is actually a good service until consumers factor in how much it costs and the fact that credit card companies will not warn card holders that they have gone over their limit and will allow them to “overdraft” multiple times in one day. Overdraft fees are not trivial and have actually gone up in the past few months. It gets even more expensive when a card holder, unaware that he or she is already over his or her credit limit, gets charged with multiple overdraft fees.

The new Fed rules is going to stop this practice once and for all. As Ben S. Bernanke, Federal Reserve Board Chairman says, “The final overdraft rules represent an important step forward in consumer protection”.

The new rules will now require card holders to opt in to the overdraft protection system of their card issuer instead of having them enrolled automatically. Compliance to the rules will not be fully implemented until July 1 of next year, though, technically, card holders can still get charged with overdraft fees up to August 15.

Though the overdraft rules brings some much needed change in the credit card industry, some say it is still not enough. Center for Responsible Lending director for the Washington office Eric Halperin is one of them. He says, “We appreciate that the Fed chose to implement the strongest overdraft reform rule it was considering. But this improvement is undermined by the Fed’s failure to propose or enact necessary safeguards against a host of unfair practices”.

With the state that the economy is in right now, the rising unemployment rate and the continuing rise of the cost of credit, American consumers are desperate to find strategies that can help them keep their finances from collapsing.

It seems that a simple and comparatively hassle free tactic which many American consumers may have missed is to simply keep a tight watch on their bank accounts.

Actually, a few American consumers do keep a close eye on their finances. These are usually consumers who prefer to be on top of their financial situation and who understand that banks and financial companies are not going to balk at charging their customers fees and the best way to avoid these fees is to never give them a reason to do so. Since the regular consumer is now struggling with very unstable finances, this practice, which up to now has been followed only by a few, should become a habit for every American consumer.

It is not even very hard for American consumers to check the status of their savings, checking or credit card accounts. Most, if not all financial companies offer online services that their customers can use to check the status of their accounts. It would be a trivial exercise for consumers to check their account status. With just a few seconds of effort, consumers can log-in to their financial company’s site, check their accounts and log out. The benefits that they will be getting would be far from trivial too.

According to the recently held annual study of the consumer-oriented, bank monitoring website, Bankrate.com, the average fees for insufficient funds and bounced checks rose to an average of $29.58 for this year. While a lot of financial institutions offer protection against these, its a money trap as well. So called overdraft fees,  these are fees issued when consumers use overdraft protection which is a service banks offer so that transactions that exceed the available credit or balance of a consumer is covered.

According to figures collected by the nonpartisan, nonprofit group Center for Responsible Lending, $24 billion was collected from American consumers in overdraft fees last year, 2008. The figures also show that that is 35% higher than the amount collected just two years earlier.

These figures ought to show just how important it is for consumers to keep an eye on their bank accounts. Although a certain amount of effort has to be placed into it, being as up to date as possible on bank accounts is a must for American consumers nowadays. Certainly the alternative is much worse. The penalty fees for going over a credit or balance limit is quite considerable – and it is not getting cheaper either.

As more and more consumers move away from credit cards and use debit cards instead, the problems associated with debit cards become clearer and clearer. Since credit card companies have made credit much more expensive and riskier for consumers, many have turned to debit cards instead.

Debit cards work very much like credit cards, only that the transactions that a debit card approves are covered not by a mini loan, like in credit cards, but by the deposit in a linked bank account. Thus, debit cards are lauded for saving card holders from interest fees, one of the heaviest baggages that credit cards bring. There are also other benefits that debit cards bring but, with all these benefits, many industry watchers also consider debit cards to be riskier than credit cards.

Undoubtedly the biggest risk of using debit cards is that it does not carry the same kind of protection that credit cards carry. A large part of this is because debit cards use money directly, not loans like credit cards do. When a debit card gets stolen and it is used to buy items illegally, card issuers cannot easily stop payment as easily as they can with credit cards.

Although a lot of card issuers may market debit cards saying they have the same kind of protection as credit cards, a thorough look at the fine print would show that it isn’t so. It is therefore very important for debit card holders to keep a close eye on their debit cards, especially during the shopping frenzy of the holiday seasons.

A good strategy to keep debit card problems at bay during the season is to carry only the card that is needed. Pickpocketing becomes a huge problem when the holidays are in. Debit card holders should also always keep their cards in sight. This means that debit cards should not be used for restaurant payments where they are usually taken away by the waiter when paying. Even if the transaction is done in front of the card holder, they should still make sure that nothing suspicious is going on such as multiple card swipes. When the debit card is given back, card holders should also make sure that the card that they are getting is their own.

Fraud is quite difficult to prevent, as evidenced by the many instances of fraud that happen every year. The best that debit card holders can do is to detect it as soon as it happens. If card holders detect anything suspicious, they should immediately inform their debit card issuer right away.

As the electronic revolution continues, the next thing that consumers may see to go virtual may be money.

Actually, the move to make money go virtual has long been developing. Nowadays, consumers can easily pay for purchases made through the internet with the use of a virtual form of payment – basically electronic signals being sent, confirming that money has been transferred from a bank account to a merchant. However, for leading virtual payment processor, PayPal, that’s just not enough.

“What we’re trying to do and what we think is very important is to displace the use of cash or checks. We’ll just have one wallet, and it lives in the cloud”, Scott Thompson, president of PayPal said.

Consumers may no longer carry around credit cards and cash in their wallets anymore. They would no longer need them to make purchases. Their bank account and credit information would be stored in remote computers and would be accessible to them anywhere and at anytime. Their purchasing options would no longer be limited and they would be able to pay virtually through the web, through a regular cash register and even through their cellphones.

Already, new virtual applications are introducing innovative ways for consumers to shop. One such application, ShopSavvy, resides in the consumer’s camera phone, ready to scan the bar codes of any item that the consumer is interested in. Once a bar code is scanned, the application can go online and find out if that item is available online at a lower price.

The move to make money virtual would inevitably be followed by a larger portion of the economy going virtual as well and, as PayPal sees it, the benefits would be considerable. According to the company, their virtual service is making the checkout process a more convenient and secure experience not only for buyers but for merchants as well.

Payment methods have changed only a few times in human history. At first everyone was bartering goods, then coins became popular. Paper bills soon began replacing coins and then checks and bank drafts became an alternative to paper money. During the 1950s, banks began issuing credit cards and today, credit cards are fast replacing cash as a payment standard. With the electronic revolution and the virtual payment methods being pioneered by major companies such as PayPal, Visa and Mastercard, it isn’t hard to imagine that the next payment method could become purely electronic.

Lawrence H. White is an economics professor at George Mason University specializing in the history of money. He said, “It just keeps getting more and more convenient to get access to your money and transfer it to someone else. When everyone has a cellphone, why reach into your wallet?”

It seems that consumers are getting surprise after surprise during every billing cycle of their credit cards. This is because credit card companies are busy changing their credit card terms to adapt to the current economic climate and to the upcoming changes that the Credit CARD Act will bring. Although credit card companies have begun easing off in their almost-per-cycle credit card term changes, for consumers credit cards have now become a very expensive and risky financial tool.

The upcoming new credit card regulations in the form of the Credit CARD Act and the continuing increase of the country’s unemployment rate is making consumer credit borrowing a high risk for credit card companies. As a result, credit card holders, even those with excellent credit records, are getting hit with huge, generally unpleasant surprises in their credit card accounts.

The most common changes that have been introduced seems to be the hiking of interest rates. However, it’s far from the only one. Credit card companies are also introducing credit cuts, fee rate increases, new fees and increasing the minimum payment rates.

The term changes that credit card companies are organizing are also considerable. Greater Atlanta’s Consumer Credit Counseling Service manager for the group’s debt management team, Dick Reed said, “We are seeing many, many card issuers increase rates to the 27 to 30 percent range”.

Consumer advocacy organizations are seeing a huge rise in clients, an indication of the kind of impact these credit card term changes are having on consumers. For instance, the Chase bank, one of the major banks in the U.S., raised their minimum payment rates for a few of their customers to 5% from the previous 2% of the borrower’s outstanding balance. “Chase has brought us a lot of clients. People just can’t afford that”, Reed said.

Credit card companies first began introducing widespread credit card term changes around one year ago, at the start of the economic slump. The changes were an unpleasant surprise to credit card holders, many of whom had maintained excellent credit payment records. For those who had not kept up with their payments or who had lost their jobs, the changes were an additional and particularly heavy burden.

As Ed Mierzwinski puts it, “The credit card company will not be your friend or help you. In fact, they will try to hurt you”. Mierzwinski is a credit card expert for the Washington based consumer organization U.S. PIRG.

The economic crisis may be blamed for introducing one of the most comprehensive shifts in the credit card industry. Partly caused by credit card industry practices itself, the economic crisis has forced both consumers and banks to rethink how they view credit. What is coming out of all that is a credit climate where the cost of credit is getting to a point that it might just outweigh the benefits that it offers.

According to Dick Reed, Consumer Credit Counseling Service of Greater Atlanta’s debt management team manager, a lot of credit card companies have increased their rates to 27% to 30% highs. For many card holders who carry credit balances, these changes have created “havoc with their budgets”.

Credit card companies are saying that the changes in credit terms are a necessity of the times. American Bankers Association spokesman says, “By and large the industry is not profitable”.

However, many are still questioning whether the recent changes in credit card accounts are actually not an attempt by credit card companies to make advance adjustments before the activation of the Credit CARD Act which is on February of next year.

The Credit CARD (Card Accountability, Responsibility and Disclosure) Act of 2009 was created early this year to introduce more protection for credit card holders against the unfair practices of credit card companies. One of the biggest changes that it will bring is the banning of arbitrary term changes in credit card accounts. Under the new legislation, credit card holders may not get interest rate hikes on their balances if they pay on time. If they do miss a payment, their rates can be increased. If they then continue to make on time payments afterwards, their previous rates are returned. The legislation will also bring other reforms such as longer notices for term changes, complete disclosure in credit card statements and limiting access to credit cards for consumers under 21.

Since the signing of the Credit CARD Act, credit card companies have made a number of changes in their credit card terms such as raising interest rates, lowering available credit, raising fees, adding new fees and raising the monthly payment rates. These have naturally had disastrous effects on credit card holders resulting in the U.S. House voting to speed up the activation of the Credit CARD Act to bring protection earlier to consumers. The Senate is yet to approve the bill, however.

As the Senate continues to debate the merits of speeding up the activation date of the Act, changes in the credit industry continue. Industry experts predict more strategies to come out as credit card companies find ways to restore profits. Annual fees may become commonplace and variable rate credit cards as well. Reward cards may begin to become rare.

Ever since President Barack Obama signed the Credit CARD Act last May 22 of this year, consumers have been getting hit by credit card term changes from credit card companies, all of which were specifically meant to increase the profits of credit card companies regardless of the economic plight of American consumers.

The Credit CARD Act promised to bring comprehensive changes in the credit card industry which would have brought protection to American consumers against the predatory tactics of major credit card companies. Among other things, the Act would have put a stop on arbitrary interest hikes, unfair fees and obscure credit card agreement language. All of this would have assured consumer protection were it not for the fact that lawmakers decided to delay the activation act. A majority of the provisions of the Credit CARD Act were scheduled for enforcement early next year.

As things stand now, credit card holders are seeing very high interest rates and fees, new fees, low available credit and whatnot. According to the Federal Reserve, in the majority of cases, credit card companies will or have already tightened their standards and will continue to do so. Credit cards are becoming more expensive for those who own them and are getting harder to get for those who do not.

According to the Federal Reserve’s survey, credit card companies tightening their standards for credit cards have gone down from peak numbers in the past three months. However, credit card companies had already issued tight standards in the preceding months. The survey by the Federal Reserve, the “October 2009 Senior Loan Officer Opinion survey on Bank Lending Practices”, took into account fifty seven domestic banks and twenty three branches and agencies of foreign banks in the U.S.

The survey also states that, even as the activation of the bulk of the Credit CARD Act approaches, 75% of credit card companies do not expect to be compliant with the provisions of the Credit CARD Act until the February 2010 activation of the legislation.

Consumers are fast getting fed up with the actions of credit card companies. There is now a loud clamor for faster activation of the Credit CARD Act. Nancy Osborne, the chief operating officer of the Santa Clara, CA based Erate.com, a company that publishes financial information and tracks interest rates, said, “ As a result of consumers voicing their frustration, there’s serious discussion in Washington to accelerate the effective date of the credit card reform legislation”.

The new found frugality of the average American consumer is going to be sorely tested this coming holidays. The holidays have traditionally been times of increased consumer spending as consumers go out to spend money on gifts, parties and decorations. According to the National Retail Federation, consumers are going to be spending $683 on average during the holiday season. A substantial amount though that is lower by 3% than last year’s estimate which was at $705.

Considering the state of the credit card industry, a lot of frugal and spending sensitive consumers are probably going to opt out of carrying their credit cards to the stores this year. Some are going to opt for paying in cash while a larger number are going to go for debit cards.

Debit cards have surged in popularity in the past few months as more and more consumers get disillusioned by their credit cards. To be sure, debit card popularity was already on the rise before the economic recession hit. However, when the recession arrived and credit card industries began hiking up credit card interest rates and fees in an effort to increase profits as write offs and defaults rose, credit cards became highly unpopular among consumers. Debit cards became popular enough that it recently overtook credit cards in terms of dollar volume spent.

Unlike credit cards, debit cards are connected directly to a card holder’s bank account and spends only the amount available in that bank account whenever a consumer uses it to pay for purchases. Credit cards, on the other hand, use loans to pay for purchases which earn the card holder interests and “interests” have become a common word of warning among consumers nowadays.

Debit cards have their disadvantages, however. Generally, debit cards have less protection standards than credit cards. Although major credit card issuers may promise consumers protection if their debit cards are compromised, there are some exceptions in the fine print. A compromised debit card could also take longer for its balance to get restored as well.

Privacy Rights Clearinghouse’s Paul Stephens said, “The problem is the consumer cannot control how a crook uses their debit cards”. Stepehens’ consumer advocacy group which is based in San Diego actually advise consumers to avoid debit cards altogether.

The argument that debit cards could help consumers avoid overspending and overdraft fees also has its flaws as well. Although a lot of consumers think that a plastic card whose payment powers are backed by the amount available in a connected bank account would not be able to overcharge, in reality, that is not the case. Last year, banks collected $35 billion in overdraft fees. Overdraft penalties average at $35, a hefty sum to consider. Although a few banks are now stopping the practice, a lot of credit card companies also allow consumers to overcharge multiple times a day, earning themselves multiple overdraft fees.

Senate Banking Committee head Senator Christopher Dodd recently introduced a new set of legislation that would create an independent consumer protection agency which would watch over financial products such as credit cards and mortgages.

The bill proposes to strip the primary financial regulator powers of the Federal Reserve. It would also remove the Federal Reserve and the Federal Deposit insurance Corporation’s bank supervising responsibilities. Instead, the Senate bill would create an independent Consumer Financial Protection Agency whose only goal would be the protection of consumers from deceptive and fraudulent practices in the financial sector. This new agency would also ensure that full disclosure about financial products such as credit cards, mortgages and other loans are readily available to consumers.

The Senate bill addresses the current problems resulting from the fact that the responsibility for regulatory oversight is spread across several agencies. This situation has resulted in difficulties figuring out which agency should be responsible for what particular problem. The problem is particularly prevalent when there are new issues that arise, one which no regulatory agency has yet handled.

During the accompanying press release of the proposal, Senator Dodd commented that the credit crisis and the economic downturn that resulted from it was driven by the failure to protect consumers across the board. He also stated that the new bill would restore the confidence of Americans in their regulatory system. The Senator has taken direct aim at the Federal reserve, noting that it has “repeatedly failed to act despite repeated demands from Congress”.

“When consumer protections are handled by regulators whose primary responsibility is to safeguard the profitability of the companies they regulate, consumer protections don’t get the attention they need. The result has been unfair, deceptive, and abusive practices being allowed to spread unchallenged, nearly bringing down the entire financial system.”, the Senator noted.

The proposed Consumer Financial Protection Agency of the bill would consolidate the consumer protection responsibilities that are now being handled by a number of regulatory agencies into a single independent commission which would be led by a 5-member board. The writing of rules, supervision and the enforcement of consumer protections would be centralized and the new agency would have expansive powers to investigate and pursue abuses in the financial sector. The agency would also be proactive and would be able to deal with issues without waiting for the passage of new consumer protection from Congress.

A new Office of Financial Literacy would also be created by the bill. It also aims to tighten the oversight of credit rating agencies, hedge funds, executive pay, mortgage-backed securities and over-the-counter derivatives. It would also introduce new regulations for shadow banking industries such as payday lenders and mortgage brokers.

Even though the economy is still in a slump and unemployment continues to rise, American Express is seeing signs that economic recovery may be proceeding, albeit a little slow.

Recently, American Express announced that consumer spending on their credit cards increased last October, which is the first time that it happened this year. This is an encouraging sign, American Express says, which shows that consumer confidence regarding the current economy may be slowly rising.

During a conference sponsored by Bank of America Merrily Lynch, Kenneth Chenault, the Chairman and CEO of the company said that the company’s billed business, the amount that is charged on credit cards carrying the American Express name, increased by 3% for October compared to the same month last year. For the month of September, the company saw a 5% decline in billed business and, for the month of August, the decline was more than 10%.

Chenault said that consumer spending had been steadily improving since last spring. The declines seen in billed business may have finally “bottomed out”, he said. After the presentation, the New York-based lender’s shares rose by 62 cents to $39.67.

Even with these turn of events, the economic crisis is far from over, however. Chenault continues to remain cautious. He notes that the continuing economic challenges such as the already high and still increasing unemployment rate will make economic growth quite slow as the economy continues to recover. However, Chenault is encouraged by the spending and credit improvement trends that he has seen.

“There are signs that the recession may be approaching an end”, the Chairman said.

During the last month, American Express announced that the company’s third quarter earnings had fallen by 22% to $632 million compared to the same period the year before. However, the company also said that there were signs that it was seeing which indicated that the declining spending among consumers was on the way to stabilizing and the continued growth of losses from loans was easing up.

The company said that, although credit card spending during the third quarter had fallen by 11%, that was still an improvement. During the second quarter, credit card spending had declined by 13% according to the company.

American Express also said that the rate of loan losses the company saw during this year period was at 8.9%. This is an improvement from the rate that the company saw during the second quarter which was at 10%.

As the activation of the Credit CARD Act approaches, credit card companies are trying to figure out what tactics will help them keep their profits without losing them their customers. A perfect example is the recent move of Bank of America to add on annual fees for a few of their credit card holders. Bank of America is not holding their annual fees in deference to credit card holders with good credit and neither are they punishing the subset of card holders who are getting the fees. What Bank of America is doing is trying to find out how much a burden credit card holders can take before giving up on their credit card companies.

Notably, unlike some of its contemporary big name credit card companies, Bank of America has promised that it will no longer raise its interest rates ahead of the Credit CARD Act’s activation which will introduce sweeping changes to the credit card industry. However, if the recent introduction of annual fees to a small percentage of its customers is any indication, Bank of America will not be standing still when the Credit CARD Act’s changes hit either. Instead, it seems that the credit card company will be testing the waters, probing what will work and what will not in terms of keeping its profits and its customers.

Anne Pace, spokesperson of the company said, “What we’re trying to do is get a better understanding of the value the customer places on the card. Right now, it’s still too soon to tell what impact the new rules will have.”

Bank of America’s actions could well be indications of things to come in the credit card industry. The following twelve months will be critical to credit card companies as they look for unexplored avenues of profit as the Credit CARD Act closes down their most aggressive – and oppressive – ones. The Credit CARD Act was created to protect consumers by banning credit card industry practices such as retroactive interest rate hikes, obscure credit card agreement language and what not. A major aim of the Act is to also cut down the high penalty fees that consumers pay to credit card companies every year which is estimated to be at $15 billion. Obviously, the Credit CARD Act is going to cut down a lot of profits for credit card companies.

Considering the current economic difficulties credit card companies are facing, it would be safe to assume that they would be looking at every opportunity to make a profit even with the Credit CARD Act in place. However, they will have to do so without the risk of losing their customers. The Credit CARD Act, among other things, will increase competition among credit card companies and it would mean hard going for credit card companies who make the mistake of pushing their card holders too far.

As the activation of the Credit CARD Act nears, the credit card industry is girding itself for the major changes that the Act will bring. Basically, credit card companies are going to have to overhaul their business practices to keep themselves profitable while still being competitive.

During American Express’ October conference call for the discussion of the company’s third quarter results, the company’s CEO and chairman Kenneth Chenault said, “It’s clear that we won’t be returning to ‘business as usual’ as we come out of this economic cycle. I believe we’ll face a ‘new normal’ with a number of substantial changes”.

The expectation in the industry is that credit card companies may begin testing credit card tactics to earn them profits without losing credit card customers. Bank of America has already done this with their introduction of annual fees to a small percentage – less than half – of their credit card customers. The credit card company is testing how much credit card holders will take before they walk away from the bank’s credit cards.

Anne Pace, the spokesperson for Bank of America said that the company is trying to understand how much credit cards mean to consumers. She added that, at the moment, the impact of the Credit CARD Act is really too soon to tell.

Bank of America’s move may well become widespread among credit card companies as they rush to find other revenue streams to replace what the Credit CARD Act will outlaw. So far, it seems that most credit card companies are turning to old standbys such as hiking interest rates, introducing new fees such as annual fees. Some have even gone so far as to cut available credit for their existing card holders, though allowing them to opt out and cancel their credit cards.

While different credit card companies will try different strategies to earn profits, a strategy that is sure to become common among most credit card companies is to keep their credit card holders with good standing while pushing away those who have not so good standing such as those with bad credit scores, bad payment records, infrequent credit card usage and those who avoid revolving debt by paying off their bills every month.

A few major credit card companies are already following this strategy. For instance, JPMorgan is already decided in developing specific credit card brands for specific customer segments. Evidence shows that other major credit card companies may also be following suite. For instance, the Basic brand visa card of Bank of America, touted by the company to be a simplified credit card offering designed specifically for the Credit CARD Act, seems to be a step in a similar direction.

The recent months have seen credit card terms get more and more strict and more biased towards credit card companies. According to the quarterly survey issued by the Fed, that’s not going to change anytime soon.

The Federal Reserve recently announced that banks are going to tighten their credit card terms as a reaction to the upcoming Credit CARD Act. Aimed to protect credit card holders from predatory credit card company tactics, the majority of legislation in the Act was to be activated on February next year, though the Act itself was signed last May of this year. The delayed activation was to give credit card companies a chance to adapt to the changes.

According to the quarterly survey of the Fed, many credit card companies believe that they will be raising the interest rates, reducing the credit limits and hiking annual fees for both prime and non-prime borrowers. Prime borrowers are card holders who have very good credit histories whereas non-prime borrowers are those whose credit histories are not so good. In addition, credit card companies also said that non-prime borrowers would soon have to contend with higher minimum credit scores, the Fed reported.

As a matter of fact, the Fed’s latest report is hardly a surprise for credit card holders who, for the past few months have already seen credit card companies hike up their interest rates to record highs, cut off their available credit to record lows and raised annual fees for those who had them and added annual fees for those who did not. Credit card companies are doing all of this in preparation for the coming activation of the Credit CARD Act.

Lawmakers are already acting on what the credit card companies and the House recently passed legislation that would activate the Credit CARD Act at an earlier date. Passage at the house does not guarantee the survival of the legislation. The legislation still has to pass through Congress. Unfortunately for credit card holders, the possibility of the legislation’s passage in the Senate is deemed to be low.

As this continue, businesses are suffering from difficulties in getting a loan and so are a lot of private individuals. This will most likely have a negative impact on the recovery of the economy. For policymakers in Washington, it is a delicate time. While they need to encourage credit card companies and other financial institutions to give lending a boost, they also have to discourage the relaxed credit standards that a lot of people believe played a major role in the economic crisis that the United States is in right now.

A quarterly report from the Federal Reserve shows that banks tightening their lending standards have become fewer compared to figures from the previous quarter. This may be a sign that the credit card crunch may be easing up for consumers.

According to the latest survey of the Federal Reserve, banks that are tightening their lending standards for consumers as well as businesses are now at 15% of the total number of banks surveyed. This is approximately a 50% drop from the figures taken from the previous quarter.

Before the economic crisis and the resulting unprecedented rise in defaults and write offs, banks had maintained very lax standards over credit borrowing. Credit was widely available to borrowers, even sub-prime one’s resulting in banks overextending themselves. When the economic crisis hit, banks saw borrowers walk away from their debts instead of paying them off which almost many banks to the brink of bankruptcy.

Banks are now wary of borrowers and have tightened their grip on credit. Borrowing standards have become stricter which means that borrowers, both consumers and businesses, are having a hard getting access to credit. While these tightened standards may be safer for banks, this reduced risk tolerance is also a hindrance to the overall recovery of the economy.

According to the Federal Reserve’s survey, those banks that tightened their lending standards during the last quarter did so because they wanted to reduce their risk due to the unfavorable economy and worsening problems in the industry. The survey also showed that demand for certain types of loans have also continued to be low.

TD Securities economist Ian Pollick wrote to their clients saying, “The modicum of improvement in various categories seems to be going hand in hand with the pace of economic recovery”.

When the Federal Reserve asked banks about lending to smaller firms whose annual sales went only as high as $50 million, only 16% of the banks said that they had tightened their standards. Last July, during the survey of the previous quarter, more than one third of the respondents said that they had tightened lending standards to smaller firms.

For consumer credit card lending and other types of consumer loans, the tightening of lending standards have also eased up. Only 15% of banks asked about their standards said they have tightened them. Last July, 35% of those said they had done so. The majority of those asked said they had left their standards unchanged since the last quarter.

The continuing credit crisis has placed a lot of strain on the finances of many American consumers. High interest rates, high fees, new fees and more have become the norm for credit cards issued by the major credit card companies in the U.S.

Consumers are becoming desperate over how they are going to handle their financial woes, especially since the predatory practices of major credit card companies don’t seem to be stopping. The Credit CARD Act, specifically created to stop these predatory acts, is already fast becoming obsolete as credit card companies raise rates and fees well ahead of the Credit CARD Act being able to do anything about it. Lawmakers seem to have dropped the ball when they gave credit card companies until February of next year to adapt to the new credit card legislations. Now they have decided to move up the activation earlier but, since credit card companies have already raised interest rates and fees to record highs, that may already be an exercise in futility.

What consumers may be missing, however is that there is a better choice than the expensive credit cards that major U.S. credit card companies are offering. According to research done by the Pew Charitable Trust, while credit cards from major credit card companies are expensive, those that are coming from credit unions are not so. The group’s report shows that the median of the interest rates offered credit unions are lower than those being offered by credit card companies by 20%. Also, while credit card companies charge penalties on average 28.8% for missed deadline payments, credit unions average at 17.9%. Cash advances are cheaper at credit unions as well with charges going as high as 13.75%. From credit card companies, that would cost 21.24%.

To be sure, major credit card company credit cards do carry certain advantages not usually found with credit union credit cards. For instance, their reward and frequent flier mile offers are much better. These credit card companies also used to offer no interest offers for one year for balance transfers as well. That’s no longer widely available in the current credit industry, however and a lot of consumers are probably more keen at keeping their credit expenses down than on how much reward points and frequent flier miles they are getting for every purchase. Credit cards from credit unions are therefore a very attractive option from major credit card company credit cards.

Some consumers might be turned off by the perceived exclusivity of credit unions. Although credit unions generally do limit their membership, a lot of credit unions are much more open. For instance, the Pentagon Federal Credit Union accepts anyone who signs up for the National Military Family Association Membership. Interested consumers can try searching for a good credit union through the Credit Union National Association website.

Ailing major credit card company Advanta Corp. of the U.S. recently filed for Chapter 11 bankruptcy protection. Advanta was well known for being the largest issuer of credit cards for small businesses. Five months earlier, the company had put a freeze on all lending to its more than a million customer base.

The economic turn down definitely played a part in the downfall of the company but there are indications that the actions of the company itself may have had a hand in its current plight. During September of 2008, Advanta hiked the interest rates of their small business cards by 25% and, in some cases, even higher. This move left a lot of small businesses in a financial fiasco. This may have resulted in alienating a number of small businesses from the company. Others may have been financially burdened enough that they were unable to meet their debt obligations. In the long run, it may have contributed to the historically high annualized default rate seen last June. According to reports, almost one in two of credit cardholders gave up paying for their debts.

Last May, Advanta tried to salvage what it can by suddenly stopping credit card lending and putting a stop to all future charges, effectively cutting off available credit to its one million strong customer base. The company also tried to collect as much as it can from its credit card portfolio which had an outstanding $2.7 billion due.

Credit card problems are not the only ones that Advanta is facing. Last July, the company settled an FDIC charge which accused the company of “deceptive and unfair practices”. Advanta agreed to pay a number of small businesses $35 million in restitution for unfair interest rate hikes. There is also a shareholder lawsuit reported by Philadelphia Business Journal which accuses the company for aggressive credit approvals to small businesses without checking their capability to pay. The lawsuit also accuses the company of later on hiding from shareholders the fact that it was seeing losses amounting to millions of dollars coming from credit card defaults.

Advanta Bank Corp is the company division which issues credit cards and it is not included in the bankruptcy filing. In a statement issued by Advanta Corp, the company noted that the capital of Advanta Bank Corp is below the requirements of regulatory capital and the subsidiary will most likely be turned over for receivership to the Federal Deposit Insurance Corp. In the statement, Advanta Corp decided to stop efforts at covering their credit card losses so as to preserve the value for the senior retail note holders and the other stakeholders of the mother company.

It seems that the woes of American consumers are never going to end. The economy continues to be stale, though there are signs of recovery. Unemployment is rising steadily. Credit has become very expensive with credit card interest rates and fees at record highs, new fees being added and available credit getting cut down. To top it all off, new scams are coming out targeting weakened consumers almost every other day.

Now, a new scam is making the rounds among consumers, specifically targeting those with not so healthy credit history. The scam offers loans or credit cards to consumers and promises to ignore whatever credit history the consumer has. For cash strapped consumers who got hit hard with the economic downturn, unemployment and the credit card crisis, it would sound like a dream come true.

The scam works by tempting consumers with ads and online sites that offer loans or credit card to consumers. It seems simple enough. However, the bait is that these offers promise that they will not take a consumer’s credit history into account for approving the loan or credit card application. Basically, loans and credit card applications would be granted regardless of the credit history of the applicant. Considering the number of American consumers right now whose credit history got mangled when the economic crisis hit and it is fairly obvious that this particular scam is fishing in a full pond.

The catch of the scam is that, before the loan or credit card application is approved, the applicant has to pay a certain fee in advance. A warning from the Federal Trade Commission specifically warns consumers that such tactics, demanding advance fees for loan or credit card application approval, is a scam. It is not legitimate business and consumers who pursue such offers would only be enriching the con artist while depriving themselves of much needed money. With this scam, the victim ultimately ends up with a useless application or an unwanted debit or stored-value card.

While the money that a victim loses is definitely a serious concern, the personal information that the scammer collects is even more serious. Cases of identity theft are already very common. Victims of this scam could well belong to the pool of identity theft victims as well.

According to the FTC, consumers can best defend themselves by recognizing the red flags of the deal. Loan and credit card pitches that show no interest in a consumer’s credit history is definitely suspect. Asking for undisclosed advance fees is another suspicious practice. Even more suspicious is when they insist to conduct business over the phone or through the internet only and use business names that copy established and trusted companies or organizations.

With the holiday season fast approaching, a lot of American consumers are probably thinking about what to get their loved ones for the season. A gift option which has become quite popular among consumers are gift cards.

Gift cards are one of the easiest and most convenient gifts to give during the holiday season. For the giver, shopping for a gift is no longer a problem. For the receiver, it means that they can buy the items that they actually want. They may even postpone their purchase and wait for the item they want to become available or for a more opportune time to spend their holiday gift.

As great as gift cards sound, there is an ugly side to it for consumers. Gift cards may seem like great deals at the surface but if consumers were to examine the fine print, they would see that some gift cards come with several fees which would effectively subtract a large amount from the value of the gift card itself. The new Credit CARD Act does have some provisions for gift cards. However, it does not specifically address the fees that gift cards come with and they won’t probably be eliminated any time soon. It is best for consumers to first know what they are going into before they commit to giving the gift of gift cards.

Basically, there are two types of gift cards. One is the store gift cards and the other is the general purpose bank cards. General purpose bank cards usually carry regular credit card branding such as MasterCard, American Express or Visa. They can be used anywhere where credit cards are accepted, unlike store gift cards which can only be used in specific stores. However, general purpose bank cards are the ones that are loaded to the hilt with fees. They also cannot be reloaded and there is no protection provided so purchases using these cards cannot be contested and no “stop payment” service is available.

The fees that come with general purpose gift cards are decidedly nasty. The moment that this particular gift card is purchased, there is already an expiration date that starts ticking. For instance, Wells Fargo gift cards usually expire four years after purchase. Not only that but gift cards also have so-called dormancy fees. An example is the $2.50 deduction that Wells Fargo and Chase take from gift cards every month one year after their purchase. Unused cards could therefore be eventually depleted. Also, according to Washington, D.C. based Consumer Federation of America, some general purpose gift cards can see charges within six months from the day of purchase.

Gift cards are definitely financial traps waiting to happen. Consumers should do their research well before giving one as a gift or, as Consumer Union staff attorney Michelle Jun says, “Write a check or give cash – then you know there won’t be any fees”.

As credit cards go, store credit cards have one of the most tempting offers: instant discounts. With the holiday approaching, more and more consumers are going to be looking for ways to finance their holiday shopping and, for consumers who shop at major store chains, store credit cards are going to look very attractive.

In reality, store credit cards may actually end up costing consumers more compared to regular credit cards. That is going to be hard to remember for consumers who are going to see store credit cards being offered with tempting discounts by stores looking to up card sales as the holiday approaches.

According to Credit.com’s Adam Levin, “You must always beware of retailers with credit cards pushing gifts”.

Although store credit cards might offer impressive 10%, 15% or 20% discounts for consumers who open a store credit card, in the long run, that card is going to end up costing the consumer even more. Leslie McFadden of Bankrate.com explained, “They typically have low credit limits, and they have high interest rates. So if you’re going to revolve a balance, they’re not the best credit cards to use”.

For consumers who think that store credit cards, which are much easier to apply for, may be a great option for building up their credit score by building credit history, that does not work either. According to Levin, a consumer who wants to build up credit history should go for a general purpose credit card that offers aggressive pricing so that he or she can get the best deal in terms of rates. Store cards should not be where these consumers are going.

Some consumers may want to take advantage of the discounts store cards offer by opening an account or a few accounts, using them and closing them right away. This is also not a good idea. Even if the consumer plans to pay each card in full before closing them immediately, doing so will still hurt them. Opening a credit card and then closing them immediately is a questionable move for credit scoring institutions. Closing a credit card also lowers the available credit of a consumer which means that the ratio of their debt against their credit limit goes up resulting in a drop in their credit score.

Basically, store credit cards are really not a good option for consumers. They may useful for the handful who have really no other alternative, though, it will ultimately worsen things for them in the long run. For most other consumers who are looking for a great credit card bargain, a better way is to hunt for regular credit cards offering excellent terms and apply for those instead.

With the continuing economic crisis, the rising unemployment and the credit crisis, consumers are going to be less than thrilled to shop for the holidays. Credit cards used to be the backup plan for cash strapped consumers during the holiday seasons. This year, however, that may not be a smart move. Interest rates are up, fees are up, new fees are in, credit has been cut down and minimum monthly payment rates are up. It seems that consumers cannot get a break from the credit industry.

Still, the fact remains that this coming holidays, consumers will need some way to shop for their loved ones and for themselves, if only to remind them of better things than the on-going crisis. The key to surviving this year’s holiday season shopping is most likely shopping smarter.

One thing consumers can do is to shop earlier. Usually, when the holiday shopping season peaks, bargains can be harder to find, what with the increased demand. It is therefore a much better solution to shop earlier. For instance, fall items are probably on sail right now. Street festivals and holiday markets which come with the fall season are also great venues to find cheap but creative gifts. Black Friday is a popular practice among retailers. It is usually held on the day after Thanksgiving and, during this day, retailers usually offer very impressive discounts.

Given that credit is getting more and more expensive this year, it is probably best for consumers to shop with cash. Higher interest rates can bite back consumers who shop for the holidays and then find that they are unable to pay off their balance fully. There are also penalty fees to consider as well. Cash also has the unique advantage of keeping consumers aware of their budget. In particular, paying in cash usually keeps consumers aware of the rate that they are losing funds making them more cautious.

In fact, it might be a better idea to give cash this year. For those who are giving cash gifts to friends or loved ones, they might be in dire need of cash to pay off credit card debts or utility bills. Cash gifts might turn out to be budget savers and may be the best gift to give in this cash strapped times.

Considering the dire economic times, it might also be a good idea for consumers to pare down their gift giving list. The recession is still hurting a lot of people and it is quite understandable to gift less this year. For young adults and teenagers who are aware of the state of the economy, it can be a great way to teach them how to save. Younger children will be tougher, however and will require a bit more creativity from their parents.