Credit Cards » Credit Card News » Credit Industry Fees Over Credit Card Bill May Be Unfounded
Date 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 UnfoundedLast 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.

Date June 18, 2009

Debit Card Gaining Popularity, Now Includes Rewards

As more and more American consumers see the risks of using credit cards for their purchases, debit cards are fast becoming the plastic of choice in the U.S. As a matter of fact, the switch from credit cards to debit cards has been a growing trend among consumers for a few years now.

Debit Card Gaining Popularity, Now Includes RewardsIn most cases, debit cards have many similarities to credit cards. They are essentially similar in form. They are supported by Mastercard and Visa. They also offer the same convenience of paying with plastic instead of cash and allowing cardholders to withdraw money when needed. The main difference between the two is that, when a cardholder completes a purchase using a credit card, he or she is taking out a loan to pay for that purchase while, when a cardholder uses a debit card for that same transaction, he or she is using his or her own money to pay for the purchase.

With credit cards, accumulating debts is virtually inevitable. With debit cards, its impossible because, unless you opt for an overcharge feature, once you’ve zeroed your account, you cannot make anymore purchases unless you deposit more money into it. Debit cards have therefore become the preference for people who want to have the convenience of credit card transactions while still keeping a tight control in their finances.

Debt card usage is definitely on the rise. Statistics from CardData show that while purchases from Mastercard and Visa credit cards increased to 40% since 2004, debit card purchases increased to 120%. Attempting to cash in on the trend, credit card companies are doing their best to attract more customers through the traditional hook they use for credit cards: rewards programs. These days, debit cards, much like credit cards also offer reward points and cash back programs for cardholders. However, there is a difference.

Debit cards generally have a weaker rewards points program compared to credit cards. For example, instead of earning 1 point per $1 spending, debit cardholders need to spend $2 to earn 1 point. Debit cards that offer rewards also come with an annual fee which increase as much better benefits are added. Also, while debit cardholders use a PIN to execute regular transactions, for reward transactions they have to opt for a signature transaction to get the reward.

Although debit cards present a great way for consumers to keep their finances in check, for the credit savvy, it can mean losing out on the attractive rewards programs of credit cards. Therefore the choice is between losing control of your finances and getting rewards points for purchasing with plastic. Consumers will have to choose which one is more important for them.

Date 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 LegislationThese 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.