January 2012 - Posts - Dollar Stretcher Guest Bloggers
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January 2012 - Posts

  • Another Swipe Fee Battle Unfolding

    by Bill Hardekopf

    Another major dispute on interchange fees could take place, and this one may have new, painful consequences on consumers. This time, the battle centers around the swipe fee that retailers pay on credit card transactions.

    According to CNBC, there is an antitrust suit between five million retailers and Visa, MasterCard and 13 large banks, including Citi, Bank of America, Chase, Capital One, U.S. Bancorp and Wells Fargo. Retailers claim that banks and the payment systems have unfairly worked together to increase the amount of the interchange fee retailers pay on credit card transactions.

    The amount that each retailer pays as a swipe fee varies widely but the industry average is approximately 2 percent. This antitrust suit could cut that figure by three-quarters down to 0.5 percent. That would be one more devastating revenue blow to the banks as well as Visa and MasterCard, leading to billions of dollars in lost income.

    Last year, the Durbin amendment went into effect on October 1, cutting the interchange fee on debit card transactions from an average of 44 cents to no more than 21 cents (plus 0.05 percent of the transaction, with the possibility of an additional cent if banks comply with fraud prevention procedures). Banks tried to make up for this lost revenue by implementing a monthly debit card fee which led to consumer outrage. Banks eventually rescinded this monthly fee.

    If the retailers win this antitrust suit, it could have have a significant impact on consumers:

    • Banks will lose billions of dollars at a time when they have already suffered significant cutbacks in revenue. Whenever banks lose revenue in one area, they try to make up for it in another area and that always comes at the expense of the consumer. An increase in existing fees, the introduction of new fees, and an increase in the credit card interest rates are changes that could be pushed by banks.

    • A significant decrease in credit card reward programs. The lucrative cash back and airline mile rewards will likely decline. Most banks eliminated debit card rewards when the Durbin amendment passed. The same could happen with credit card  programs if retailers win this suit.

    • A likely decrease in attractive balance transfer offers. Currently, credit card issuers are offering 0 percent interest rates for extended periods of time in order to lure customers from their competitors. The Citi Platinum Select card offers 0 percent for 21 months; the Discover More card offers 0 percent for 18 months; and the Slate from Chase card offers 0 percent for 12 months with no balance transfer fee. If retailers win this antitrust suit, look for credit card issuers to scale back these balance transfer offers.

    • On the positive side, a possible decrease in prices at store level. Retailers claimed the passage of the Durbin amendment could lead to a decrease in prices since they would no longer have to pay the high swipe fees on debit card transactions. It is difficult to see if this actually took place. However, retailers may face more pressure from consumer groups to cut prices if the interchange fee is also slashed on credit card purchases.

    Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

  • A Healthy Outlook for Credit Card Issuers

    by Bill Hardekopf

    Banks released fourth quarter earnings this week and the reports show that credit cards issuers are in a much healthier position than the last few years.

    Consumer use of credit cards is growing, while the default and delinquency rates continue to drop.

    Credit card lending is entering a sweet spot where cardholders are charging more purchases to accounts once again while staying current on their payments.

    This healthy outlook will probably lead to more aggressive marketing on the part of credit card issuers in 2012. We will likely see some new cards and offers, as well as an increase in the number of credit card solicitations in your mailbox, especially if you have a good or excellent credit score.

    According to the Wall Street Journal, American Express credit card loans grew 4.5% from November to $53.7 billion in December. Capital One credit card loans grew 3.3% in December to $56.6 billion. Citi credit card loans were $75.9 billion in the fourth quarter, up almost 3% from the third quarter.

    While these figures are positive for the issuers, so, too, are the default and delinquency rates. Charge-offs and late payments peaked in the summer of 2010 and have dropped rather steadily since then.

    All six of the major credit card issuers showed declines in the delinquency rates in December, while four of the six issuers also showed drops in the charge-off rates.

    • The Capital One charge-off rate dropped to 3.98% in December from 4.29% in November. The delinquency rate dropped to 3.66% in December from 3.73% the previous month.

    • The American Express charge-off rate dropped to 2.3% from 2.4%. The delinquency rate dropped to 1.4% from 1.5%.

    • The Citigroup charge-off rate dropped to 5.11% from 6.36%. The delinquency rate dropped to 3.11% from 3.28%.

    • The JP Morgan Chase charge-off rate dropped to 4.11% from 4.18% in November. The delinquency rate dropped to 2.48% from 2.54%.

    • The Bank of America's charge-off rate rose to 6.05% from 5.67% in November. The delinquency rate dropped to 3.82% from 3.96%.

    • The Discover charge-off rate rose to 3.15% from 3.04%. The delinquency rate dropped to 2.32% from 2.43%.

    Lower default rates are good for banks because they set aside less money for losses and this money can boost the bottom line.

    Credit cardholders and issuers have both made changes that brought an excessive system of credit card borrowing and lending back under control. Many of the borrowers who could not pay off their debt have already defaulted, while others have diligently paid down their balances and used other forms of payment to avoid the high interest rate penalties. Credit card issuers have closed risky accounts, cut credit limits on millions of accounts, and tightened lending standards to cut their risk of defaults and late payments.

    Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

  • Credit Card Debt Increases Significantly

    by Bill Hardekopf

    Americans are borrowing and charging much more, according to the latest Federal Reserve G19 report.

    Consumers increased their overall borrowing by $20.4 billion in November which represents the largest increase in ten years. Many analysts believe this is a sign that Americans are feeling better about the economy.

    However, there could also be some red flags in this latest report.

    Revolving credit, the majority of which is credit card debt, increased at an annual rate of 8 1/2 percent and grew for the third straight month. The $5.6 billion jump represents the largest gain since March 2008.

    This is a big jump in credit card debt, and these are November figures. With the strong holiday sales, we will likely see another increase in December during the peak of the shopping season. While this increase may be good news for retailers, it also means that consumers will soon be getting credit card bills with much higher balances. Consumers can't get lured into running up more credit card debt if they can't afford to quickly pay it off. Increasing credit card debt is not a trend to be carried over into the new year.

    Here are six tips for paying down credit card debt:

    1. Get an honest assessment of how much you owe for all credit cards debts. It may have been easier to pay the minimums without looking at the total amount that you owe, but misleading yourself only makes it worse. Write down a debt summary that includes the creditor, monthly payment, interest, balance due, credit limit and due date for each loan.

    2. Pay more than your minimum payment. Your minimum payment is usually only 2-5% of your balance. At this rate, it will take years to pay off your debt. Try to pay at least twice the amount of your minimum payment every month.

    3. Pay off the card with the highest APR first. Continue to pay at least the minimum on your other cards until you pay off the card with the highest rate. Then focus your effort on the card next in line. After you pay off the card, keep it open, especially your oldest cards. Losing this available credit can lower your debt utilization ratio which could lower your credit score.

    4. Consider transferring your balance to a card with a lower rate. If your rate is above 15%, look for a card that offers 0% for at least 12 months. You will need to determine if the interest payments you save outweigh the fee you will pay on the amount you transfer (usually 3-4%). To take full advantage of this 0% introductory offer, don't charge anything more on this card and try to pay off the entire balance during that introductory time period. When comparing cards for a balance transfer, also look at the ongoing interest rates. If you are unable to pay off the balance before the introductory period ends, you will then pay the ongoing interest rate. Another consideration is that the credit card issuer may only accept a portion of the amount you want to transfer because, depending on your credit limit, the issuer will want to leave room for new charges. The best offers will typically be given to applicants with a credit score in the mid-700s. If you have a score less than this, you may receive a shorter introductory period, or your application may be declined.

    5. If you have a credit card balance, stop using it for anything other than necessities. Use cash instead. If you carry a balance, you are paying interest for every purchase, including clothing, entertainment or dinner. Factor that in to each purchase. Paying with cash will not only save money on interest, but it will also reduce the amount you spend.

    6. Pay your bills on time, every time. Not only do you have to pay a late fee, but late payments can also appear on credit reports. Negative information like this can result in lower credit scores and higher interest payments.

    Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

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