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July 5, 2009

Consumer-Costly Changes Being Implemented By Credit Companies For The Credit Card Bill

The credit card bill’s passage may have provided some hope to consumers over the way that their credit card companies were charging and billing them but the changes are still several long months away. In the meantime, credit card companies are continuing their objectionable practices and are even making them worse.

Consumer-Costly Changes Being Implemented By Credit Companies For The Credit Card Bill As the credit card bill’s activation comes nearer and nearer, credit card companies are beginning to get worried that they may not be able to make a profit as well as they used to a few years ago. As a result, they are now raising their rates and fees before it gets too difficult to change them when the credit card bill becomes active.

A recent study has shown that credit has now become more and more expensive for credit card holders and credit card companies are getting more and more aggressive in collecting as much as they can from consumers. One major observation was that credit card companies are still as deceptive as ever, something which will hopefully change, once the transparency laws included in the credit card bill becomes active. One example of this is the concept of universal default. Universal default is an exploitative practice among credit companies where the credit card holder experiences higher interest rates on his debt because of debts from other credit card companies. Basically, the credit company will review the debts that their customer has, even debts from other creditors, and will adjust their rates according to their findings. Nowadays, credit card companies are avoiding the term “universal default” and will say that they do not practice it. However, they are still basically doing the same thing, though they’re referring to it by another name, usually stating “market conditions”.

Credit card companies are also getting more and more aggressive over issuing charges. A lot of them are charging fees for bill payments that involve human to human interaction, usually around $10 to $15 and rising. Fees for late payments are also getting higher, ranging from around $20 to $38 approximately. Over the limit fees are also getting higher, around $32 to $39. Cash advance charges and balance transfer charges are also getting higher and higher.

Observers are saying that these changes are the results of the credit card companies adapting itself to the upcoming credit card bill. Many credit companies are afraid that the credit card bill will stifle their ability to generate profits, though some analysts say that credit card companies will still be earning large profits even with the credit card bill in place. In the end, it is the consumers that are getting hit hard and many are moving away from credit cards to consider other options such as debit cards.

June 24, 2009

Credit Industry Fees Over Credit Card Bill May Be Unfounded

The credit card industry has been quite loud in expressing their fears over the negative effects that the passage of the credit card bill will bring. While consumers are hailing the credit card bill as their long awaited relief from oppressive credit industry practices, the credit industry insists that the bill stifle credit availability for consumers instead.

Credit Industry Fees Over Credit Card Bill May Be Unfounded Last week, President Barack Obama presented his plans for establishing a separate agency to monitor and safeguard the rights of consumers. The agency will be called the Consumer Financial Protection Agency and, among other things, it will be in charge of implementing the rules and guidelines of the credit card bill. This has increased concern among the credit industry even more.

The credit card bill basically aims to limit the ability of credit card companies to issue fees, such as those issued to credit cardholders who go over their credit limits, and interest rate increases, such as those experienced by credit cardholders who miss a payment. Cardholders are naturally all for the credit card bill. However, credit industry advocates have been strongly campaigning that the credit card bill will actually bring more ill than help for consumers. According to them, the credit card bill will instead dry up available credit, especially for risky borrowers. They are also saying that, by cutting off the income generated from the fees issued to delinquent borrowers, the credit card bill will essentially force credit card companies to stop offering rewards programs, greatly limit available credit and credit limits and issue annual fees for all their customers.

While the warnings of credit industry advocates seem worrying, some experts are disagreeing. A few are citing the situation of credit unions as a perfect example of how legislation like those in the credit card bill can actually help both the consumers and the creditors. While major credit industry players are worried over the credit card bill, most credit union operations are already similar to what the credit card bill insists on.

According to a recent study, credit unions are not as likely to charge high fees and interest rates as major credit companies. They also have a lower annual fee and grace periods that last longer than what other creditors offer. However, these credit unions are still able to make a profit. Some may argue that credit unions are different from other credit companies but, on the whole, these companies actually share many similarities. For one thing, they are competing in the same market.

The example being given by credit unions show that the credit card bill can work. There might be some sacrifices but, on the whole, the bill will make the credit industry much more balanced between creditors and credit cardholders.

June 23, 2009

Credit Debt Traps Buried In Fine Print Could Mean Trouble

The way you look at your credit card probably says a great deal about how much credit balance you carry. If you are one of the lucky few who have remained debt free even in this stifling credit atmosphere, then you are probably someone who spends time to look into your bill and decipher what all the fine print means. If, however, you are one of the many American consumers who are carrying large debts on their credit cards, then there is a large possibility that you are among the American consumers who consider their credit card bills as too arcane to even read.

credit card debt problem One of the measures that the credit card bill will enforce when it becomes active is to force credit card companies to make their bills more easier to understand to the common credit cardholder. The problem is that, currently, credit card companies distribute bills which require some expert deciphering before the credit cardholder can really grasp what is going on with their bills. Here are a few details in the fine print of your bills which you should be aware of.

Available Credit

The problem with available credit is that, most credit card companies consider it more of a suggestion than an actual number which they enforce. Your available credit is something which you should always be aware of. Credit card companies, although they will inform you of your available credit, will happily let you charge over your limit. That way, they can earn form you by charging an over-limit penalty fee.

Another problem is that, credit card companies may suddenly decide to lower your limits without duly informing you. This can happen if they think that you have become a risky borrower.

Double Billing

Double billing was one of the biggest issues when the credit card bill was still up for debate. Double billing is when the credit card company charges you interest rate based on a previous balance. For instance, if you charged $300 and then paid only $200 before the bill became overdue, the company would charge you interest based on the original $300 that you owed.

Residual Interest

If you have an overdue balance and you pay it in full, you would think that you are now at zero balance. However, you would then find out that, when the next bill comes, you have some residual interest to pay for. This happens because your balance will still earn interest in between the time when the bill statement was issued and the time that you actually pay off your balance.

When the credit card bill becomes active, these deceptive practices will finally come to an end. However, that is still a few months off and credit card companies are likely to continue these practices as the months continue. The best way for you to avoid these deceptive practices is to be balance free every month and to keep a keen eye on your bill’s fine print.

June 14, 2009

Credit On The Decline As Economic Crisis Continue

With employment problems and a struggling economy to deal with, more and more American consumers are seeing their credit cards as their last life line. Unfortunately, as credit debt problems continue and credit companies try to secure their future profitability when the credit card bill comes into play, credit is drying up at an alarming rate.

Credit On The Decline As Economic Crisis Continue Equifax, a company specializing on providing credit data to credit companies and similar companies recently released data showing that access to credit cards have considerably diminished. Charge limits for existing credit cards have lowered significantly as well.

According to Equifax’s data, the number of credit card accounts in the U.S. was 365 million accounts for last month. In comparison, the number of accounts in June last year was at 440 million accounts. Credit card companies have also drastically reduced the available credit, withdrawing more than $600 billion in available credit during the past year alone. In May, the available credit stood at less than $3 trillion.

While diminishing available credit, credit card companies are also lowering their risks on existing credit cards. Credit card balance limits are being lowered and balance chasing is beginning to be a real problem for credit cardholders. Credit card companies are also applying stricter rules on who can avail of credit cards.

Credit card companies are hoping that, by limiting available credit, they can minimize their exposure to risk and recover from the damage caused by the increasing number of delinquencies and defaults. However, judging by the numbers provided by Equifax, delinquencies still continue to rise. Last month, the figures for delinquencies in the U.S. were at 4.79%. Delinquencies have been on a steady rise for the past four years. Compared to figures from 2005, the delinquency rate has almost doubled.

As this continues, consumers are losing out on what is possibly their last financial lifeline, their credit cards. Even more worrying is that when the credit card bill becomes active after a few months, credit is going to be even more difficult to get.

Dann Adams of Equifax stated, “The last lifeline for many consumers is their credit card, and that lifeline is getting shorter”.

Still, there may be some respite from the continuing credit crisis. According to Equifax’s figures, while the delinquency continue to rise, the pace has slowed somewhat. Adams said that mortgage delinquencies may be on the verge of peaking.

“We’re hopeful we’ve seen the bottom and are setting the stage for a recovery”, Adams said. “You don’t see it in the numbers quite yet”, he added however.

June 13, 2009

Credit And Students: A Precarious Balance

When the credit card bill becomes active, students, specifically college students, are going to find that getting a credit card will no longer be as easy as it is right now. That’s because the credit card bill will be regulating how credit card companies market their products to the under-21 market.

Credit And Students: A Precarious Balance The legislation is grounded on findings that, among credit cardholders, college students are one of the most burdened with credit debt. So much so that, by the time that they graduate, they are already carrying debts that won’t even be paid up after several years of employment. The credit industry is quite aware of the situation but it isn’t slowing down their marketing of plastic to college students. They’re making enormous profits from this particular market and building up long-time customers, so why should they?

What Is Credit?

The basic problem is that many cardholders, and not only college students, don’t quite understand what credit is and how it should be handled. In the financial industry, credit is simply payment that is deferred for some time. The consumer can purchase an item with the understanding that it will be paid at a later date. Of course, the one who actually pays for the item is the credit company which is also who the consumer actually owes credit to. The credit company profits from being the one to take the risk of offering credit and offer the consumer credit convenience by charging interest.

Through the many years that credit companies have run their business, they have discovered many ways to earn from interest. That is why, nowadays credit cardholders have to contend with compounded interests and tempting 0% interest offers which soar to 10% once a payment is missed.

College Students

For college students, the temptation and the opportunity to spend is considerably higher compared to other credit cardholders. College students are huge plastic users. They usually use it for dining out, vacations and tech-gadgets. The convenience of using plastic coupled with the satisfaction of getting what they want right at the moment they want it, even though they will have difficulty paying for it in the long run, often get college students into a lot of credit card debt trouble.

The problem can ultimately be traced to responsibility. How responsible can students actually be when it comes to credit? Not very much, judging from student credit card debt records. With the credit card bill in place, this will hopefully change for the better. The bill enforces many measures which will ultimately give students a better understanding of credit while protecting them from making serious mistakes which will jeopardize their financial future. A great first step towards credit responsibility.

June 13, 2009

Probable Credit Card Bill Side Effects Could Add More Burden To Cardholders

Judging by the clamor for the credit card bill and the general jubilation among credit cardholders and their supporters when President Barack Obama signed it this May, it could not have come at a more timely fashion.

Probable Credit Card Bill Side Effects Could Add More Burden To Cardholders The credit card bill is a very important and much needed piece of legislation for credit cardholders. Already burdened with the economic recession and the employment crisis, credit cardholders were staggering under the weight of rising interest rates and fees that credit card companies, themselves trying to stem the tide of the bad economy, were giving out every month. Unfortunately, while the bill has already become law, credit cardholders will still have to hold out for a few more months before it actually becomes active. In the meantime, credit companies are doing everything they can to cover their expected losses due to the bill.

The credit card bill provides many changes in the credit industry which is supposed to benefit credit cardholders. These include more transparency for credit card company practices, a tighter hold on the capability of credit companies to raise interest rates and fees and more control on who can and cannot be offered credit cards. Legislators expect the bill to bring a lot of benefits to cardholders. However, industry watchers see some negative side effects when the credit card bill becomes active.

Obviously, credit card companies are going to lose a lot of profits when the bill goes active. They will be seeking out ways to make up for those lost profits. The bill does not set a cap for interest rates or banking fees and provides no price control. This may be one way where credit card companies could make up for their losses. Cardholders can expect a higher starting interest rate and higher banking fees. Annual fees are going to be much more common for credit cards as well.

Credit cardholders who keep up with their bills, while they seem to be good customers, actually do not generate enough profits for credit card companies. As a result, many perks that they’ve been enjoying such as reward programs and more attractive interest rate offers will probably be ended. They won’t be exempt from high initial interest rates and fees either and they will probably be burdened with annual fees too, if they are not already.

While credit card companies will lose their capability to arbitrarily raise interest rates, they will still be able to raise it as long as they provide notifications according to the requirements of the credit card bill.

To avoid difficulties in the future, credit cardholders should do their best right now to pay off their debts, keep their debt balances low and use their rewards points as well.

June 4, 2009

Does The Credit Card Bill Address The Sickness Instead Of The Symptoms?

Among credit cardholders and within the credit card industry, the current buzz is the credit card bill and what it will mean for each and everyone of them.

The credit cardholders are hoping that the legislation in the bill will give them a better arrangement for paying off their debts and keeping their credit. The credit card industry is dreading the cut in profits that the credit card bill will bring.

Does The Credit Card Bill Address The Sickness Instead Of The Symptoms With the credit card bill in place, predatory practices by credit card companies will certainly be curtailed. The leeway that this will give to customers in paying off their debts will be very much welcome. It will certainly help them survive the economic crisis in a much better financial state. While there is going to be a considerable cut in profitability, credit card companies will certainly not be going bankrupt, their current doom-saying not withstanding.

All this is well and good but, does the credit card bill really go deep down to the root cause of the problem in the first place?

A study recently released shows a very dismal picture. The figures were taken in 2008 and it shows that more than 78% percent of households in the U.S. have at the least, one credit card. That translates to 91 million households. Each household, on the average has 5.4 credit cards. Figures from December 2008 show that the total credit debt is at $937 billion, each U.S. household averaging $8,329 in debt. Coupled with the very low savings rate of the U.S. and the picture gets very dismal indeed.

Consumers now know very well how credit card companies created policies which encouraged more debt among credit cardholders. By giving credit to subprime borrowers, credit card companies cashed in on their inability to pay off their debts by collecting only interest and penalty fees off them. As disgusting as this practice may be to the average credit cardholder, they must also acknowledge that no one really ever “held a gun to their head” to use their credit.

The credit card industry is, indeed guilty of encouraging a lifestyle where relying on credit and being lax on paying it off is the norm. For many years, American consumers have been very quick to use their plastic for purchases, some of which they could have done without. While doing so, they have also been very slow in paying off their monthly debts.

The credit card bill, fortunately helps in these matters. The bill, while discouraging the predatory practices of lenders, also penalizes cardholders who do not keep up with their debt payments. Even better are the amendments in the bill which put limits on who lenders can give credit cards to. With these amendments in place, only people who can actually pay off their credit can carry credit cards.

June 3, 2009

Get Your College Kids Credit Cards Now

If you have been following the news, you probably are probably worrying right now about your credit card and how it’s going to or is affecting your finances. If you are like the majority of American consumers, then you are probably thinking that credit cards are twice as dangerous as they are convenient. So why get your college kids credit cards?

Get Your College Kids Credit Cards Now College students and credit cards don’t mix very well, if recent survey figures from Sallie Mae are to be believed. According to the survey, more and more college students are going into deep debt and many are graduating with large debts to their name, making starting a career even more difficult.

However, like many things, credit cards are bad if you don’t use them right. While an overused and abused credit card inevitably spells financial doom, a properly managed one can help your credit score and can be very useful in times of emergencies. Your college student can get a lot of benefits from a credit card, just be sure to teach them how to use it well.

So why get a credit card right now? Why not when the “cardholder-friendly” credit card bill comes out? For one thing, if your college students get their credit cards now, it will be easier for them to do so than nine months down the road. When the credit card bill comes into effect, getting a credit card will be much more difficult for them. At the start of the school year, credit companies are going to be pushing their credit cards to college students. Make sure that you inform your kids on how to choose a right credit card and tell them to not be deceived by perks and bonuses that many credit card companies will offer along with their credit card applications.

If you are worrying that your college kids are going to go overboard with their credit card use, you can be assured by the low credit limit of credit cards. Most credit cards for college students have a credit limit of $500. You should encourage your kids to avoid overdraft protection. Overdraft fees can cost a lot. Also, colleges are already being encouraged to include financial literacy as part of their program for new enrollees. This will be a big help in educating your college students on how to use their credit cards responsibly.

Financial responsibility is one of the major requirements for success. There is no better and more effective way to teach this to your kids than by letting them try out managing credit cards while they are still in college.

May 31, 2009

Interchange Fees May Be Next Target for Legislation

The 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.

Interchange Fees May Be Next Target for Legislation 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.

May 29, 2009

Credit Card Industry Earnings Likely to Drop

The credit card industry is in an uproar over the legislations in the recently passed credit card bill. The credit card bill is aimed at legislating many credit card industry practices that cardholders see as unfair and deceitful. For the credit card industry, the credit card bill is a disastrous piece of legislation which will destroy their profitability and, according to them, limit the available credit for American consumers.

Credit Card Industry Earnings Likely to Drop 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.

Although the credit card industry is currently preoccupied with the threat of the credit card bill legislations, it is important to remember that the profitability of the industry was already going down even before talks of the credit card bill surfaced.

With the economic crisis, credit cardholders were unable to keep up with their monthly payments. Whereas many of those who struggled with credit card debt were able to at least keep up with the minimum monthly payments, they were ultimately defaulting when the economic crash came. The increase in credit card debt defaults greatly hurt the credit industry. Aside from that, it also proved wrong one common boast in the credit card industry: their capability to analyze a borrower’s risk and balance with the right interest rate.

Credit cardholder dissatisfaction over high interest rates and large financial fees is also another factor to consider. Considered the root cause of the credit card bill and its popularity, the dissatisfaction of credit cardholders over many of the practices of the credit card industry has been going on for some time. It was only a matter of time before the issue blew up on the credit card industry.

Now, with the credit card bill in place, credit cardholders are going to get the changes that they have been clamoring for. Unfortunately, many of these changes are going to hurt the credit card companies. The legislations on full disclosure of agreements and restrictions on interest hikes and financial fees will hurt the credit card industry the most.

In the past, the credit card industry has profited greatly from credit cardholders who were unable to pay off their monthly bills but did not default, only paying off penalty fees. The impact is hard to calculate, given the credit card industry’s reluctance to release any figures. Many, however, consider the amount to be quite high.

The credit card controversies, coupled with the economic crisis, have also given American consumers a crash course on financial responsibility. Many of them are going to be more careful with their credit card purchases, limiting credit card industry’s previously large profits from subprime borrowers.

May 27, 2009

Will Credit Card Bill Burdens Responsible Credit Cardholders?

The passage of the credit card bill has gone remarkably fast. The House version passed during the last days of April and the Senate version just got passed last week. A few days later and President Barack Obama signed the bill into law.

Will Credit Card Bill Burdens Responsible Credit Cardholders 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.

On the other hand, the credit card industry has been against the credit card bill from the start. Their stance is quite understandable, considering that, with the passage of the credit card bill, they have been essentially stripped of their most lucrative customers the past few years, subprime borrowers.

Partially to limit support for the credit card bill, the credit card industry has been issuing dire warnings of what is to come should the credit card bill become law. One of the most ominous is that responsible cardholders, those who keep their payments up to date and maintain good credit scores, will get hit hard and will basically end up supporting bad borrowers.

The credit card industry says that this will happen because, in order to make up for their losses and decrease their exposure to financial risks, they will have to make credit much less available to credit cardholders, regardless of credit standing. Annual fees will be making a comeback. Initial interest rates will also soar to balance out the inability of borrowers to increase interest rates on existing debts. Reward point programs will also be put a stop or, at least severely curtailed.

These dire warnings, though worrying, may not actually come true. What will assuredly happen when the credit card law becomes active is that credit cardholders will again have some confidence and trust on their credit cards. They won’t be worrying about high interest rates and fees and other unfair credit card industry practices.

The credit card bill won’t save all credit cardholders, however. Those with large credit card debts will have a ways to go to get out of debt. At the very least, however, they won’t have as hard a time paying down their debts.

With credit cardholders much more confident, cardholders will most likely be returning to their plastic for their purchases. They will also most likely be more choosy and intelligent in their choice of credit cards, what with the new credit card bill transparency measures. This will mean high competition among credit card companies. With competition taking place, the credit card company able to offer the best features and incentives package wins which makes the probability of the industry’s dire warnings coming true very low indeed.

May 21, 2009

Keeping an Eye on the Credit Card Bill

Previewing the Credit Card Bill 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.

As the bill continues to be processed in the senate, at least one organization is keeping an eye on what consumer protection rules the bill will carry and what it will not, Demos. Demos is an economic issues advocacy group based in New York. The group has not only been following the progress of the credit card bill but has also lobbied for the inclusion of as many consumer protection laws in the bill as possible.

Currently, the bill is nearing finalization in the Senate. Caleb Gibson, Demos federal affairs coordinator, gives a quick analysis of some of the measures that the bill will most likely carry when it is approved.

Retroactive Interest Rates Increases

Like the House version of the credit card bill, the Senate version will ban credit companies from increasing interest rates retroactively. The House version will, however, allow retroactive increases for cardholders who cannot make at least a minimum payment for more than 30 days. The Senate version extends this to 60 days.

Over the Limit Charges

Currently, credit card companies allow over the limit charges but will charge penalties to the consumer. This was not the case a few years ago, where charging over the card’s limitations was strictly prohibited by the credit company. Credit companies justify their current practice by saying that they only want to keep their customers from being embarrassed when their purchases are rejected at the cash register.

Congress, on the other hand, has a different idea. A ruling in both the Senate and the House bill will ban over the limit charges unless the customer has agreed before hand to it.

Penalty Fees

Penalty fees that credit companies issue will have to be reasonably based on the actual costs that the credit company incurs when a credit policy is violated. The burden of proof for large late fees, over the limit charges, and other penalties will be on the credit companies.

Rules for Extending Credit to Those under 21 years

Previewing the Credit Card Bill 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.

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