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July 29, 2009

Credit Companies Doing Their Best To Beat The Credit Card Bill

It seems that the government may have made an enormous mistake giving credit card companies several months leeway to adapt to the credit card bill. Credit card companies are now doing everything they can to increase profits before they have to deal with the credit card bill. Unfortunately for credit card holders, this means more expensive interest rates and fees and drying up credit.

Credit Companies Doing Their Best To Beat The Credit Card Bill The credit card bill, signed May this year, is set to become active next year, February. Although some of the amendments of the credit card bill will become active early this August, the majority of the amendments, especially the most useful ones, will still be several months away. In the meantime, credit card holders will have to face up to a growing number of credit card billing changes that are stifling credit and raising credit card costs for them.

Recently, Bank of America, Discover and JPMorgan & Chase moved their fixed rate credit cards to a variable interest rate setup. It seems that the credit card companies have found a loophole in the credit card bill which will negate the amendments in the bill stifling their abilities to change credit card interest rates at will. The credit card bill only controls credit cards with fixed interest rates. Nothing is said about variable interest rate credit cards. As a result, credit card companies are moving the majority of their credit cardholders to a variable interest rate card.

The move to a variable interest rate credit card will mean that the interest rate will be tied to a specific benchmark, the prime interest rate. As of the moment, the prime interest rate is near the zero mark, making the move somewhat attractive for credit card holders. However, by tying the interest rate to the prime interest rate, credit card companies are virtually guaranteed that the interest rate will rise in the near future.

Many credit card holders are finding themselves trapped by their credit companies. While many do not approve of the move to a variable rate interest rate, they have no choice in the matter. Credit card companies are firmly behind this move and are not allowing their customers to opt out of it.

As this is happening, credit card companies are also busy raising interest rates and fee charges for credit card holders. It may be time for credit card holders to rethink if maintaining a credit card is still worth it. A move to a debit card is highly recommended for those who cannot live without the convenience of plastic.

July 12, 2009

Senate Reacting To Increased Rate Hike Trend

The current trend among credit card companies nowadays are increasing interest rates and fees. Most of the major credit companies such as Discover, Bank of America, Destiny and others have already raised and will probably continue raising their interest rates and fees. The result is credit cardholders losing the option of using their credit for purchases and financial emergencies and finding it more and more difficult to pay off their current debts.

Senate Reacting To Increased Rate Hike Trend The situation has not gone unnoticed in Washington and the Senate is finally taking notice of the growing trend of increasing interest rates. Last thursday, Christopher Dodd, the Senate Banking Committee chairman gave notice to regulators to create a draft for new regulations that will require a review from credit card companies of their rate hikes since the beginning of the year.

Connecticut democrat Christopher Dodd was instrumental in the passage of the credit card bill. The credit card bill was a set of legislations which aimed to stop the predatory practices of credit card companies whose actions, while earning them millions of profits from credit card holders, played a large part in the current economic crisis. One of the many credit company practices that the bill will stop is the ability of credit companies to arbitrarily change credit card interest rates. With the bill in place, credit companies will not be able raise their interest as easily as they can right now. As a result, many see that the credit card rate hikes credit card holders are experiencing right now are probably preemptive moves from credit card companies looking to establish their profitability before the credit card bill takes away some of their ability to do so.

Because of these developments, Christopher Dodd recently stated that he is worried about the recent reports of credit card companies raising the interest rates of credit card holders before the credit card bill becomes active by next year. He recently sent a letter to Ben Bernanke, Federal reserve Chairman and other government regulators asking that they draft and enforce rules that will implement provisions in the new credit card law to credit card companies which will stop the current practice of rate hikes before the credit card bill becomes active.

Dodd’s provision requires credit card companies to review accounts that were raised since January 1, 2009 every six months. Credit card companies must also reduce a card holder’s interest rate if his credit risk lowers or the need for an interest hike is no longer there.

July 4, 2009

Secured Credit Card May Be The Way To Go For Those Under 21

The credit card bill was drafted for the purpose of protecting consumers from the dangers of overusing their credit which usually results in heavy debt. Case in point: the current credit crunch is a direct effect of the large defaults that credit card holders started to do once the economy tanked and consumers began losing income.

Secured Credit Card May Be The Way To Go For Those Under 21 The legislation in the credit card bill will changes some of the fundamental rules on how credit card companies run their business. The primary target is the preference of these companies to take on high risk borrowers in the hopes of earning more from them from interest and fee payments instead of from debt payments.

Credit card companies have been against the bill from the start. They claim that it will ultimately result in a drying up of credit, among other things. Although their statements are often times overblown, they are right about one thing: once the credit card bill becomes active, credit is going to be tougher to get. But that’s not necessarily a bad thing.

Most credit cardholders who are under 21 are usually students who are attending college. Recognized as outgoing, adventurous and big spenders, they have long been a favorite target for credit card offers. Unfortunately, this has led to an alarmingly large number of graduating students carrying worrying amounts of debt. College students also carry an average of four credit cards and only a small percentage actually pay off their debts every end of the month. The result is a generation of American graduates carrying enormous debts even before they’ve landed a job.

Because of this, the credit card bill included some amendments protecting card carriers under 21 years of age. With the credit card bill in place, those under 21 will not be able to get credit cards as easily as they used to. They will either have to prove that they have an independent income capable of paying off their credit card usage or they have to have a co-signer for their application, which usually means their parents.

Although credit cards are harder to get, it does not necessarily mean that college students should miss out on the convenience of using credit cards. A viable option for them would be secured credit cards. Secured credit cards function similar to credit cards, only that they are secured against a deposit to the creditor from the card holder. Thus, when the card holder makes a purchase, his purchase will be secured. If he is unable to make the monthly payment, the credit company will simply take it out of his deposit.

With secured credit cards, college students have the convenience of using a credit card like service while staying away from the risk of going into debt.

June 25, 2009

Hikes On The Rise For Credit Cardholders

At the moment, seeing your credit card interest rates rise could be the worst possible thing. Unfortunately, this is exactly what is going to happen to millions of credit cardholders. In fact, it has already begun. If you are one of the credit cardholders who carry a balance on your credit card and your current interest rate is below 10%, you may soon see your credit card interest rates jump to double figures.

Hikes On The Rise For Credit Cardholders Major credit card companies American Express, Citibank, HSBC, Capital One and Bank of America have been raising the interest rates of credit cardholders numbering in the millions, citing the difficulties of the economy as their reason for doing so. The increase may affect around four million credit cardholders in the U.S., the Wall Street Journal says. So what can you do to save yourself from the devastating effects of these enormous interest rate hikes?

When you find out that your interest rate is being increased, you should contact your credit card company immediately. This is especially true for those who have maintained their balances to low levels. It is possible that your interest rate may have been hiked by mistake. Credit card companies are generally only targeting those with balances on their credit cards. Even if you have a balance on your credit card, you should still try to talk to your credit card company to exempt you from the hike. Credit card companies have been known to issue exemptions in the interest of keeping their customers.

If it happens that you can’t get out of the hike and you just can’t accept it, you can still choose to pay off your current balances using your current interest rates. Just make sure that you don’t make any new purchases. If you do, the credit card company will automatically move you to the higher rate.

Although most major credit card companies are raising interest rates, there are still other credit card companies who are offering decent rates. You should therefore shop around and see if you can find a good card for you. You might be able to move your current balance to a 0% introductory interest rate card. If you do, make sure to pay it off immediately. Missing out on one payment could mean an even higher interest rate for you to deal with. In the current economic climate, paying off any debts as soon as possible is paramount. Therefore, manage your finances as well as you can and try to avoid credit card purchases for now.

June 25, 2009

Small Businesses Not Protected In The Credit Card Bill?

One of the most talked about features of the credit card bill is its lack of support for small businesses. Currently, small businesses are suffering gravely from the effects of the economic crisis. They are in even worse straits right now because the exploitative practices of credit card companies that were the bane of private credit cardholders are also theirs.

Why Are Small Businesses Not Protected In The Credit Card Bill? The worst part is that, while private credit cardholders have something to look forward to a few months from now, when the credit card bill becomes active, small businesses don’t. They will still have to face the credit card industry practices that private credit cardholders will be saved from a few months from now.

The legislation for including small businesses in the credit card bill was present during the bill’s early stages. The sponsor of the bill was Democratic senator of Louisiana, Senator Mary Landrieu who was also the Senate Small Business committee chairman. The amendment that the senator introduced contained two provisions: extending the definition of consumers included for credit protection to individuals who used their personal credit cards for their business, with a limitation of having at most 50 employees and including small business credit cards for consumer protection.

Many expected Senator Landrieu’s amendment to pass easily through senate. After all, it was riding on a very popular legislation which passed through the Senate with a vote of 90-5. Small businesses are also highly regarded among the people of Capitol Hill. It was also being reported at the time that small businesses with company credit cards were seeing large interest rate hikes and a drying up of credit limits. However, when the bill passed last month, Senator Landrieu’s amendment was nowhere to be seen in the final credit card bill.

The National Small Business Association, or NSBA, stood as the amendment’s chief advocate. According to them, they originally approached Senator Dodd’s Banking Committee for support for the amendment. It was not well received. Senate aides from both the democrats and the republicans said that the Banking Committee were chilly towards the idea because it had not really studied completely the implications of extending the protection of the credit card bill to small businesses.

While protection for small businesses is lacking in the credit card bill, there is a provision which will have the Federal Reserve study the issue. The result may strengthen the case for small businesses. There are also several movements in the House and the Senate which may introduce a new bill for small business credit protection. However, thousands of bills are introduced daily and only a rare few gain ground. The chances of a bill protecting small businesses becoming law is realistically quite low and, if it ever comes, it is probably going to take some time.

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

Smart Credit Cardholders Are Costing Credit Companies

Amidst all the shouting of credit cardholders over how they are being fleeced by credit card companies, it is sometimes difficult to see that credit card companies themselves are suffering in the current credit card crisis.

Smart Credit Cardholders Are Costing Credit Companies Credit cardholders, both good and bad, have a huge effect on how a credit card company flourishes or flounders in the current economy. In the case of bad credit cardholders, the cause and effect are quite obvious to see. Bad credit cardholders cost credit card companies a lot when they do not pay off their debts. It can be said that credit card companies are covering themselves from risks by increasing interest rates for riskier borrowers. However, when the borrower ultimately fails to pay the debt, it becomes a write off for the company, a loss in their books.

The effect of good credit cardholders are a bit more subtle to see. Good credit cardholders, by definition are good at maintaining their credit. This means that these cardholders rarely, if they ever do, carry any balance on their credit lines. They are also smart spenders and are well-versed in how to “game” the credit card system so that they get the best benefits without the risk of incurring high debts.

A favorite practice among good credit cardholders is to maintain two or more credit cards while actually using only one credit card. The one or two extra cards are used mainly to keep their available credit up so that they can maintain a high credit score. Since credit card companies will cancel cards that don’t have any activity on them, these cardholders will usually charge minimal amounts on these credit cards and pay them off completely every month. Maintaining a credit card this way can earn the credit card company very little while costing them a lot. Also, the one credit card that these credit cardholders are using constantly is, most probably the one with the best rewards offer. They will also be very punctual in paying any balances. This means that, while the credit company is spending on awards, they are earning little from interests.

When credit card companies lose profits, they will usually spread the cost around, increasing interest rates and other cost of service for their other customers. Bad and good credit cardholders are therefore a problem for both credit card companies and other credit cardholders because, by costing the companies more, they are inadvertently stifling the availability of credit for the average cardholder. Still, as credit cardholders get smarter about handling their credit and move further away from the traditional sources of profits for credit card companies, the companies themselves may have to look for a more profitable business model as the current one.

June 22, 2009

A Great Deal For People With Credit Card Debt

It is no secret that the credit card industry is currently having a hard time keeping their finances afloat. The economic crash and the resulting rapid increase in credit card delinquencies and write offs caught the credit companies highly exposed and, as a result many found themselves in the brink of a financial collapse. A timely bailout from the U.S. government has kept most of the major credit card companies afloat. However, the credit card crisis still remains and, as unemployment continues to grow and the economy remains practically stagnant, credit card companies are going to need more than just a government bailout.

The biggest problem for credit card companies right now are unpaid debts. A Nilson report from April 2009 puts outstanding credit card debt at $972 billion by the end of 2008, just a few digits away from hitting a trillion dollars. The report also states that about 15% of American consumers had been late in making their credit card payments and 8% had not paid their debts at all. The resulting rise in toxic assets and write offs ultimately caused the current credit crunch.

Credit card companies, when they issue credits, get to write those credits as assets in their books. However, when it comes to delinquent balances, credit card companies begin to worry when the missed balance payments approach six months. This is because, by regulation, once a credit balance surpasses six months, credit card companies are forced to write the balance off. This does not mean that the debt is forgiven, the company can and will do their best to collect the debt. However, it has basically become a loss for the credit company when it is delinquent for that long.

Obviously, credit card companies would do everything to avoid having a debt reach or exceed six months of non payment. With the current credit crisis, keeping away from write offs becomes doubly important. Because of this, credit cardholders having credit card debt problems may be in for quite a surprise.

Due to the high number of write offs that credit card companies are facing, a majority of credit card companies are now allowing their customers to pay off their debts at a fraction of the original amount. Reports have come in of credit cardholders getting their debts forgiven by paying just 50%, or even less, of their original debt. All credit cardholders have to do is to contact their creditors and make an offer. Some companies are even making the offers themselves.

As great as the deal sounds, there is still something credit cardholders need to be wary of. Credit cardholders who enter into these kinds of deals will get hit hard on their credit scores.

June 20, 2009

Loan Payments Using Credit Cards A Bad Move But Getting Popular

As the economic crisis continues, more and more American consumers are finding themselves barely able to pay for basic utilities. Mortgages, car loans and student loans are becoming more difficult to pay off as less and less cash is available. Many American consumers are turning to paying off these loans using credit cards and the service is getting even more convenient as it has just gotten online.

Loan Payments Using Credit Cards A Bad Move But Getting Popular Currently, there are a few online companies that are offering credit cardholders the chance to payoff their loans and bills online using their credit cards. These companies offer cardholders who pay their bills every month many attractive incentives. One such company, ChargeSmart, allows cardholders to pay for auto loans, auto leases, mortgages, student loans and utilities online using their credit cards.

Philip Mikal, Chief Operating Officer of ChargeSmart said that the company is not targeting borrowers having debt problems. According to him, while the company has processed more than 1,000 transactions since its launching, only 1% to 2% have been for delinquent accounts. He stressed that the majority of their customers were smart spenders who wanted to maximize their rewards program by using ChargeSmart’s service.

Major credit companies are also seeing that loan and utilities payment are an untapped source of income for credit card transactions. American Express was one of the first companies to see this opportunity and embrace it. In 2003, the company allowed luxury rental payments and, in 2006, it allowed luxury condominium down payments. In May of 2007, American Express introduced its Express Rewards Mortgage program to encourage even more cardholders.

IndyMac Bank and American Home Mortgage were the first lenders to offer American Express’ service. When these two companies collapsed during the sub-prime mortgage crisis, American Express found itself highly exposed. However, it may have not given up on the idea just yet. Sarah Beron, spokeswoman for American Express stated that the company is evaluating the Express Rewards Mortgage program to determine what it will do next.

The problem with these kinds of practices is that it violates a long held rule in finance: Never borrow from Peter to Pay Paul. There is wisdom in this rule. When credit cardholders use their credit cards to pay their loans and mortgages, they are only digging themselves deeper into debt. If the practice continues, it could endanger not only the credit cardholders but it could bring the sub prime loan crisis into the credit card industry, further worsening the credit crisis.

June 19, 2009

New Threat To Subprime Cardholders: Fee Harvester Cards

While the credit card crisis continues, credit cardholders are facing numerous financial challenges ranging from sky high interest rates and fees to credit card limits dropping as fast as they pay their card balances. It seems that, with the profiteering-prohibitive credit card bill looming up for activation, credit card companies are pulling out all stops to generate as much revenue as they can and to cover their exposure to the current financial crisis. So far, this has meant raising interest rates, even for credit cardholders with clean credit histories, and cutting available credit. Now, a new kind of threat to cardholders has cropped up, targeting primarily subprime borrowers.

credit card news Advertisements are running on TV nowadays offering a special kind of credit card seemingly targeted to subprime borrowers specifically. Subprime borrowers are considered as high risk by credit card companies and are often exempt from getting mainstream credit cards because of their lack of capability to pay off their balances. With this new advertised credit card, it seems that subprime borrowers can finally get much needed credit. However, it seems that these cards take more than they actually give.

The main feature of these credit cards are its unusually low credit limits, usually around $700. It seems like the perfect card for a subprime borrower who wants to have credit but needs to keep it in control. However, once the borrower gets the credit, they are immediately billed for several fees which are of considerable values. These fees often take up 80% of the available credit of the consumer resulting in a drastically lowered credit amount available for the consumer.

The fees charged on these deceptive credit cards usually includes program fees, account setup fees, monthly participation fees, annual fees, add-ons such, and memberships which are included even though the consumer did not enroll for it and does not want it. These credit cards also issue high penalty fees when the cardholders exceed their credit limits. It is no surprise that these cards have been dubbed as “fee harvester” credit cards.

Credit card companies have been offering these credit cards for several years now and their collections have been in the hundreds of millions which means that many subprime borrowers, people who are already in deep financial problems, are being profited from through morally indefensible means. However, experts say that credit card companies do have the legal right to do what they are doing and are actually putting the blame on lax regulations and pre-emptive federal statutes that block state usury laws which could’ve prevented these predatory and abusive practices.

Recently, a national group for consumer advocacy is putting pressure on Congress for the passage of legislation which will stop this kind of credit practices.

June 18, 2009

Credit Card Companies Opting For Quick Fixes

As the economic recession continues, credit cardholders are getting weighed down by credit card debt more and more. Rising interest rates and fees threaten to make it heavier still. However, a curious budding practice among credit card companies may be the answer to credit cardholders’ problems.

1194188_31355691 While credit cardholders are worrying about their individual credit card debts, credit card companies are also in dire straits financially themselves. In March, revolving credit was recorded at a total amount of $939.6 billion. Revolving credit is often used as a measure of credit card debt as it is a close approximation of the debt value. According to the Federal Reserve, during the first quarter of the year, the total credit card debts that credit companies had, 6.5% were debts that were 30 days overdue, at least. The Federal Reserve first began following this particular data in 1991 and, since that time, the value from the first quarter was the highest that they ever encountered. The write offs that credit card companies were also at a peak.

With the passage of a few months, the numbers have hardly gotten better which has credit card companies worried. Furthermore, regulations dictate that a credit card balance that has been six months delinquent will have its value reduced to zero in the credit card company’s books. The thinking is that if the borrower is unable to pay up to that point, the probabilities are that the debt will never be repaid.

Faced with high toxic assets and losing the entire debt to a write off, credit card companies are doing the unexpected, they are accepting debt payments 50% or lower than the original debt to have the debt forgiven.

According to Credit.com founder Adam K. Levin, creditors are willing accept a small percentage of the debt payment rather than get nothing in the end. Thus, credit cardholders with large debts that cannot pay their debts completely have the opportunity to offer their credit company payment which is only a percentage of the original debt in order to have their debts completely removed.

The situation is such that credit cardholders who call up their creditors can have these kinds of offered accepted directly by the customer support person they are talking to without consultation of their supervisors. In fact, some credit card companies are actually doing the calling themselves and offering similar deals to people with unpaid debts.

The trade off of this seemingly fantastic kind of deal is that the credit cardholders’ credit records will have a large black mark on it. Still, compared to the prospect of carrying heavy debt indefinitely, the trade off seems worth it.

June 17, 2009

A Preview Of What The Credit Card Bill Will Bring Cardholders

When the credit card bill was passed last May 22, credit cardholders in the United States were elated, expecting a slew of changes in credit card industry practices which will benefit them.

A Preview Of What The Credit Card Bill Will Bring Cardholders While it is true that the credit card bill will put a stop to some of the more predatory practices of the credit card industry, the changes that the credit card bill will bring will actually have both a positive and a negative effect on credit cardholders. What follows is a list of the pros and cons that the credit card bill legislation will bring once it becomes active on the first quarter of 2010.

Pros

1. Credit card companies will have to mail monthly statements a minimum of 21 days before the statement’s due date.
In a situation where there are multiple debts to be paid off, payments to the credit card will go to the debt having the highest interest rate. Currently, the reverse is true.

2. Credit card introductory rates are to remain active for a minimum of one year. If the credit card company wants to raise rates after that, it is required to give the cardholder notice 45 days before the interest rate is to be increased. Currently, the minimum is only 15 days notice.

3. Double billing cycles will no longer be allowed. Currently, double billing cycles are the bane for credit cardholders who transition from full monthly payments to carrying a balance. Double billing eliminates the period of no interest in between the transition.

4. Credit card companies have to make full disclosure of their practices. One very useful result of this legislation is requiring credit companies to inform their customers how much will be the total cost and how long paying off the debt will take if the customer only pays the minimum amount due every month.

Cons

1. The interim period before the credit card bill takes effect will see many credit card companies raising interest rates and fees; essentially doing everything they can to increase profits. Consumers can also expect higher introductory interest rates as banks won’t be able to raise them for at least a year.

2. A cut back on available credit is expected as credit companies try to cover their profit losses caused by the new legislation.

3. Annual fees and other kinds of charges are going to be making a comeback to generate more income for credit card companies. Even cardholders with great credit card ratings won’t be spared.

4. People with low credit card ratings will have a harder time securing credit, especially through unsecured credit cards. An option is a secured card. This type of card will require a deposit.

June 16, 2009

Young Credit Cardholders Up For Some Regulation

The Credit CARD (Card Accountability, Responsibility and Disclosure Act ) Act is going to be putting a dent on college students plannig to get some financial independence once they start college.

Young Credit Cardholders Up For Some Regulation To date, credit card companies have been aggressively marketing their plastic to college students. College students make for great credit cardholders because, one, they are purchase-promiscuous. They are up on the latest trends and, whether it be designer coffee or designer jeans, these trends almost always means spending and purchases, something that plastic is inherently perfect for. Two, college students, once hooked on plastic (and on the ensuing debt), make for long term, if not life long, customers.

Recent data from Sallie Mae shows just how bad the credit problem among college students are. Figures show that the average college student owns more than one credit card and owes large debts they have no hope of repaying before finishing college. Most college students also graduate with large debts to their name, a bad piece of luggage to have when you are out looking for a job. Why? Because employers right now are looking at credit reports as much as academic records to determine acceptable employees.

Parents are therefore going to be much relieved when the credit card bill comes into play. Unfortunately, that won’t be for several months yet. In fact, this year’s college opening may be the last time that credit cards are going to be very easy for students to get. Still, with the credit card bill in place, students will learn some financial responsibility, whether they want to or not.

The biggest change that the credit card bill will bring is prohibiting college students to own credit cards unless they have a co-signer such as a parent, a guardian or someone older than 21 years old who will be jointly liable for the debt incurred on the credit card. This means that the co-signer will be responsible for 100% of all debts that the credit card incurs.

Students can bypass this requirement, however if they can prove that they are financially independent enough to repay any debts he or she puts on her credit card. Of course, if a college student is already at this level of financial responsibility, it is safe to say that his or her parents hardly need to worry.

With these two conditions in place, parents looking out for their children’s financial welfare can keep them away from debt for a few years more until they graduate. Hopefully, by that time, another legislation included in the bill will have sunk in enough for their children to keep away from credit card debt: educating students for financial responsibility.

June 15, 2009

Capital One’s Unique Approach To New Credit Legislation

The credit industry is understandably worried about the new credit card bill signed into law by President Obama last May. The credit card bill, an answer to the mounting clamor of credit cardholders burdened with increasing interest rates and fees, will put a number of restrictions to the credit card industry. Among others, the credit card legislation will disallow interest adjustments on existing debts, limit who the credit card companies can offer credit to and push for complete transparency on credit card contracts.

Capital One's Unique Approach To New Credit Legislation These restrictions that the credit card bill will introduce are seen by the credit card industry as highly restrictive. Credit card companies are already saying that the loss in profits due to the bill will be huge. As a result, they will be taking drastic measures to cover their losses such as increased APRs, cutting down rewards programs and the return of annual fees. Credit card companies will also be more restrictive on issuing credit which will mean a loss of credit for consumers. Although the credit card companies still have a few months leeway before the credit card bill becomes active, they are now implementing rule changes in preparation for it.

Competition among credit card companies remain at a healthy level, however. Capital One for instance is taking a different path towards maintaining profitability while dealing with the credit card bill.

Major credit card companies, including Capital One, have been issuing notices to credit cardholders of changes in APR and fees. This is in preparation for the industry regulation changes that will happen when the credit card bill becomes active. Capital One, however aims to be more attractive to credit cardholders and gain the loyalty of existing customers by deferring price increases.

Most credit companies who are issuing notices for APR and increases will be implementing these changes to within a few months’ time from the date of the notice. Capital One, however will defer price increases for a period of time, which can be as far off as Janury 2011, before their increase takes effect. In the meantime, transactions being done before the “activation” time of the increase will be treated as promotional and no increase will be implemented.

This comes as a very welcome surprise for Capital One credit cardholders who are probably worried about the increases in APRs and fees of their other credit card lines. This move of Capital One also makes its credit cards more attractive to consumers especially at a time when consumers are very wary of credit cards and are apt to be more critical on their credit card payments.

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 12, 2009

Robocalls Scam Alert

It seems that the credit card debt crisis is spawning a variety of innovative scam artists. One of the latest are the so-called Robocalls that questionable companies are making to catch unwary credit cardholders looking for a quick fix to their debts.

Robocalls Scam Alert The Better Business Bureau has been alerted and is monitoring the practices of these robocalls. Robocalls are actually just telemarketers who are cashing in on the current panic over credit card debt.

The call usually starts with an automated message which states that “This is our final attempt to reach you since you’ve not responded to our other calls to discuss your credit-card debt”. It then gives instructions on how the callee can dial another number to talk to an actual person. Understandably, if the one receiving the call has some serious credit card debt, he or she would be tempted, to say the least, to make that call. When the phone number given is dialed, the first thing that is asked from the caller is their credit card number and the “operator” will then give a sales pitch on how he or she can help the caller manage his or her credit card debt.

Technically, the service that the operator offers, calling a lender to negotiate a better debt payment arrangement for the caller, can be quite helpful. The problem is that they charge anywhere from $700 to $1,000 for a service that any credit cardholder with a large debt can do for him or herself without incurring any costs. These large fees, which usually have to be paid upfront, are hardly necessary and only put more burden on the credit cardholder who is probably already struggling with debt.

Aside from basically scamming people with a service they can get for free, these robocalls also violate the “do-not-call” laws. Numerous complaints have been made to the Better Business Bureau about the practices of the companies behind these robocalls. They are not only a nuisance but they are also a danger to credit cardholders who are not that familiar with their credit rights.

For credit cardholders who receive these robocalls, the best thing to do is to hangup immediately. If, for some reason this is not possible, then refrain from giving away any personal information such as your credit card or bank number or your social security ID. To stop these calls from disturbing you, you can try and put your number on the do-not-call list. You can do this by visiting the website: “donotcall.gov” . If they continue to call you after you’ve done so, you can report them to the Federal Trace Commission through the same web address.

June 8, 2009

What Good Credit Actually Means When The Credit Card Bill Goes Live

Consumers heaved a sigh of relief when, last May, President Barack Obama signed into law the credit card bill which was fast tracked through Congress and released also this May. Consumers are seeing the credit card bill as a great equalizer which will give them better control over their credit and curtail the unfair and abusive practices of credit card companies.

What Good Credit Actually Means When The Credit Card Bill Goes Live However, credit industry insiders are warning that the credit card bill may not be as consumer friendly as it sounds.

For the past years, credit companies had been profiting greatly, expanding available credit without taking into account the rising debt of cardholders and profiting mainly from high interest rates and large fees instead of debt payments. When the economic crisis hit, the credit industry found itself in a financial dilemma, burdened with toxic assets and increasing defaults. As a way to salvage what they could, they raised interest rates to astronomical levels and increased fees.

With the credit card bill in place, cardholders are hoping that things are going to change for the better for them, credit wise. However, if credit industry experts are to be believed, their sense of relief may be misplaced.

While the credit card bill does provide legislation which will make credit card practices less predatory and more consumer friendly, these same legislation will also mean that credit cardholders are going to have to deal with credit that is harder to get. For instance, the legislation limiting the capabilities of credit card companies to adjust interest rates of an existing debt means that credit card companies are going to be offering higher interest rates at the very start. It won’t matter either how good of a borrower the credit cardholder is.

Credit card companies see adjusting interest rates on an existing debt as a way to adapt the specific credit line according to the risk exposure of the cardholder. Without this capability, they say that they have no other choice but to spread their risks across their customers, regardless of risk. What this means is that, if a one cardholder is not able to pay the interest rate commensurate to the risk that he or she poses for the credit company, then all the other customers of that company have to pay a higher interest rate as a result.

Whether this scenario will actually happen or not still remains to be seen, cardholder advocates counter. Credit cardholders are getting smarter about managing their credit and, with the disclosure amendments in place, they can make much more intelligent decisions. Competition among credit card companies is another factor in their favor as well.

June 8, 2009

Unrivaled Convenience With iPhone Credit Card Processing

iPhone find one more reason to enjoy their smart phones with iPhone credit card processing.

Unrivaled Convenience With iPhone Credit Card Processing CellCharge, specialists in enabling cellphones for credit card processing, offers iPhone owners the most convenient way to process credit card transactions for merchants. The service is a great way for small businesses to add credit card transactions to their payment options without having to invest a large amount. They can also process payments anytime and anywhere, as long as they have their iPhone with them.

Setting up an account with CellCharge is also quite easy. First, merchants have to have the proper iPhone software to do CellCharge credit card transactions. The iTunes store has the CCTerminal and the ProcessAway iPhone application available for just this purpose. These two are also the recommended software applications of CellCharge. The two iPhone applications are low priced and are very user friendly, even for beginner-level users. For merchants, ProcessAway is a much better application because of its inclusion of a “tip” feature.

Merchants who want to get ahead of the competition should really consider CellCharge’s service. It is a well known fact in th industry that credit cardholders are spend much more than those who pay with cash or checks. They are also more prone to impulse buying and are more generous tippers as well. With the ease and convenience of paying through an iPhone application, merchants can receive payments anywhere and anytime.
With the current economy the way it is, merchants are also going to appreciate the fact that CellCharge does not charge hidden fees. This is something that merchants should be aware of about credit card processing through cellphones. Some credit card companies who offer this kind of service actually have a hidden service fee which merchants are rarely aware of. The only fee that merchants will have to worry about are the interchange fees which are dependent on Visa and Mastercard. Of course, should these companies raise the interchange fee, then merchants using the CellCharge’s service will see a rise in their transaction fees, but that is hardly company’s fault.

The service being offered by Cellcharge is also quite flexible. Unlike other companies which charge extra for transactions which are called in through phone, Cellcharge has a toll-free number that merchants can call to run transactions through. The number of users doing transactions through phone is also not limited to only a single user. Thus, three or four merchants could run transactions through the phone. Even better, the merchant can also run transactions through his or her iPhone at the same time as well. Merchants who are interested in the service that CellCharge offers can do a search online and visit their website to see what they have to offer and to sign up.

June 5, 2009

Credit Card Bill Means Industry Restructuring, Says Visa

The largest payment network of the world, Visa Inc., recently released a statement saying that the new U.S. legislations are going to force the credit industry to rethink itself and restructure to adapt to the expected loss in revenue.

Credit Card Bill Means Industry Restructuring, Says Visa The legislations that Visa is referring to is the much heralded and highly controversial credit card bill which President Barack Obama recently signed into law. Among other things, the bill will take away the capabilities of credit companies to make arbitrary interest rate increases, it will block them from charging certain types of fees and it will put a limit on the penalties that credit companies give out which the government considers to be unfair.

According to Joseph Saunders, Chief Executive of Visa Inc, the credit card bill will have a major impact on the way the credit industry operates. “It’s going to cause the whole industry to rethink itself.”, he said during an interview. He further elaborated that the legislation will result in a shortage of credit, making it available only to a limited number of people.

Major credit card companies including Citigroup, JPMorgan, Capital One, Bank of America, Discover and American Express will be the ones who will feel the effects the most. Collectively, these companies hold 80% of the credit card industry in the U.S.

In the past few years, these credit card companies saw their profits rise to astronomical levels as the credit boom happened. When the economic crisis hit, they soon saw losses by the billions. Credit cardholders, burdened by debt and pressured by job losses and other economic forces began to default on their credit card payments. Credit card debt was at the $945 billion mark last March. Although this figure may be lower than the $962 billion posted last December, it still represents an increase of around 25% from figures taken a decade before.

Credit card companies will have to make up for losses in some other way. The most obvious would be a tightening up of credit and a decline in investments on risky borrowers. Credit is also going to be more expensive, with annual fees making a come back and initial interest rates going up from their previous levels.

Although partly protected from the credit crisis which has reached global levels, Visa is still seeing a slow down in revenue growth as consumer transaction volume go down. Visa thrives on the transaction processing, not on fund lending. According to Saunders, the slowdown on credit card transactions will be markedly offset by an increase in electronic payment. Debit cards, he said are also going to be very important and will play a large part in the continuing operations of Visa.

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 2, 2009

Credit Card Law Is All About Compromise

Debates about how good or bad the recently passed credit card law is has been going around even before the legislation got out of congress. There have been some valid points voiced out but, in the end, the credit card law is simply a compromise so that the credit card industry and the consumers survive the on going economic crisis and, perhaps build a better relationship between credit card companies and consumers.

Credit Card Law Is All About Compromise The credit card industry found itself on the verge of collapse when, at the outset of the currently ongoing economic crisis, credit cardholders began defaulting on their credit card payments. The industry found itself especially vulnerable because, for the past few years, they had been profiting mainly from credit cardholders who could reliably pay off the penalty fees, not the their debts. The credit card industry had found these types of borrowers to be virtual goldmines as they continued to pay the credit card companies without really seeing any substantial decrease in their debts. The profits the credit card companies took from these types of borrowers have not been publicly released but experts estimate the value to be quite staggering.

When the economic crisis hit, weak borrowers were the first to default. Coupled with the dry up of employment, the credit card industry soon saw record levels of defaults. In an attempt to stem the flow and recover, they raised interest rates and fees, even for their credit cardholders who maintained a good credit standing. The result was a national outcry that led to the formulation and eventual passage of the credit card bill.

The credit card bill addresses many credit cardholder concerns such as: unfair interest rate hikes, obfuscated industry practices and other predatory credit card practices. While credit cardholders are getting plenty of breaks from the credit card law, they won’t be given credit on a golden platter, either. Interest rate hikes will be controlled but, if the credit cardholder continues to perform poorly in terms of payment, they will get hit with high interest rates. Many predatory practices of the credit card industry will be curtailed but they credit cardholders will have to take responsibility for their credit card buying practices.

The credit card industry will certainly lose a lot of their profitability when the credit card law becomes active. However, it does not mean that the system will collapse entirely. They will just have to adjust to a less aggressive style of doing business. They basically have to return once again to basing credit availability on the capability of the borrower to pay off debt, not on how much they can profit from him.

In the end, the credit card bill simply reinforces what was once common practice in the credit industry: credit available where credit is due.

June 1, 2009

Controversial Credit Card Bill Basically Good Despite On-going Criticisms

The credit card bill was signed before Memorial Day just a few days ago and already, it is getting hit by criticisms left and right. Credit card industry supporters are saying that the bill ultimately cuts off credit from people when they need it the most. Credit cardholder advocates are calling the legislation weak.

Controversial Credit Card Bill Basically Good Despite On-going Criticisms The credit card bill is essentially a legislation that came out directly from the credit cardholders themselves. The complaints of credit cardholders got loud enough that lawmakers finally paid attention. With the constant prodding of their constituents and President Barack Obama himself, Congress released a workable credit card bill in record time. Except for the “guns in national parks” amendment, the credit card bill is basically what the credit cardholders asked for.

Unfair and downright deceptive practices of credit card companies had gone on for several years before the government finally took a stand against them.

Over the years, credit card companies had figured out that they could maximize profits by shifting their target from responsible credit card owners to credit cardholders who cannot fully pay off their debts but are willing to pay penalty fees to be allowed credit. The credit card companies basically make money off people who are desperately trying to pay off their debts as much as they can. They do this by increasing interest rates as the debt ages, adding penalty fees to late payments, and deceptive practices, such as including a “minimum amount due” entry in their bills, which when followed does not actually subtract from the debt balance of the credit line.

Other practices include initially offering very low interest rates that go sky high once the balance goes unpaid even for a month, and allowing overdrafts by default but charging high penalty fees for it later on.

The credit card bill restores some semblance of fairness between credit card companies and cardholders. Legislation in the credit card forces credit card companies to give ample warning to credit cardholders before raising interest rates, restores raised interest rates to lower levels if the cardholder consistently pays off the balance for six months, and encourages full disclosure by credit card companies of their policies.

These measures will definitely hurt the profitability of credit card companies. However, it will not mean the end of their business; they simply have to adjust to a fairer, more consumer-oriented business model. Credit cardholder advocates should also appreciate the advantages of credit cardholders receive and they should face the fact that a lot of the responsibility for avoiding credit card debt lies on the credit cardholders themselves. In any case, the credit card bill may only be the opening salvo, as legislators continue to look into other issues pertaining to the credit card industry.

June 1, 2009

Parent Empowering Credit Card Legislation to Curb College Student Debt

Signed a few days before Memorial Day, the credit card bill provides wide ranging legislation to curb the rampant “profit-is-the-bottom-line” practice of credit card companies. Among the many areas the credit card bill will touch is the debt laden, below 21-year old credit cardholders. This particular population of credit cardholders is largely composed of college students.

Parent Empowering Credit Card Legislation to Curb College Student Debt Credit card debt problem among college students is well known within the credit industry and its observers. A survey recently released by Sallie Mae shows that 84% of the college student population carry at least one type of credit card. Surprisingly, on the average, a college student carries four credit cards. With their credit lines, the average college student has a debt balance of $3,173. This figure is three times that of four years ago. Considering that the average student does not have the income to pay off their balance, the debt problem among college students is a very serious one. A lot of college students actually graduate college already loaded with credit card debt.

College freshmen are perfect targets for credit card companies. Fresh out of high school and seeking to establish independence, especially in terms of money, college freshmen are easy prey for credit card sellers. Since most of them are also first time credit cardholders, credit card companies are also anxious to lure them in order to build up brand loyalty. So far, credit card companies have been very successful in their efforts, based on the increase of credit card ownership and debt among college students.

With the credit card bill in place, this will soon end. Legislation in the credit card bill strongly prohibits credit card marketing to consumers below 21 years old. Credit card companies will also be disallowed from marketing credit cards inside or near college campuses. Aggressive marketing strategies, which include giving away T-shirts, water bottles, and other items to lure in young consumers to apply for credit cards will also be put to an end.

However, credit card ownership will not be beyond consumers below 21 years old. In order to obtain a credit card, they only have to prove that they are capable of paying their credit or they can get a co-signer for the account. Co-signers are usually either one of the parents or a guardian. Credit card companies are also prohibited from increasing the cardholder’s credit limits without written approval from the co-signer of the credit card.

Because the problem of credit card debt basically hangs on the responsibility of the credit cardholders, responsible credit and debt management will also be part of the orientation program of colleges for their new enrollees.

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.

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