New American Express prepaid debit card coming next Tuesday. Image: AMERICANEXPRESSONLINE/Flickr/CC BY

American Express will start issuing a new prepaid debit card June 21. The company, previously known for aiming at higher-end, luxury buyers, is staking new ground by targeting the average consumer. Other card-issuers are expected to follow suit.

Building on the PASS card

Lat year, American Express introduced the PASS prepaid card, designed to help parents to keep their children on a financial leash. However, the company soon realized that prepaid cards had a far greater potential. Last year, According to the industry group Network Branded Prepaid Card Association, U.S. consumers spent about $37 billion on prepaid cards.  That is double the amount from last year and quadruple the figure from 2008.

Reaching a large demographic

Dan Schulman of American Express stated, “this card is for everyone. It could be for a parent who wants to give their kid a card, it could be for someone who doesn’t have access to credit. It’s a very large market that spans demographics.”

No bank is required  for the new cards, and there is a built-in safeguard against debt. A consumers can only spend what is loaded onto the card.

A promise of minimal fees

American Express promises to shave the fees normally associated with prepaid cards. The company will charge a fee of $4.95 when money is loaded onto the card, although no fee is charged if money is transferred from an existing bank account. The only other fee is a $2 charge whenever the card is used at an ATM. Card holders, however, are allowed one free ATM transaction per month.

Other benefits of the new card

The American Express card will come with online history and balance checks. In addition, card users will receive the other benefits associated with American Express cards, such as purchase protection and roadside assistance.

Other card issuers likely to follow

Given the growth in the prepaid card industry, other banks and card-issuers are expected to follow in the footsteps of American Express. Gerri Detweiler, personal finance expert at Credit.com, said, “I can’t imagine that every large issuer isn’t looking hard at prepaid cards right now.”

Not affected by credit card legislation

Consumer groups warn that prepaid cards are not covered by the CARD Act, which Congress passed last year to limit credit card fees. Prepaid cards are also exempt from the Durbin Amendment, a law soon to take effect that limits “swipe fees,” the fees that banks charge retailers when customers use debit cards. Banks may see the prepaid card as a alternative source of revenue lost from other card transactions and take advantage of the loophole.

The American Express prepaid card will be available at no cost online and will later be available in drug stores and other retail locations. The card purchase fee will be about $5.

Sources

Huffington Post
CNN
Chicago Tribune

Credit card mail offers are coming in great volume lately, according to a Mintel Comeremedia study. (Photo Credit: CC BY-ND/Paul White/Whitesites Blog)

Most people find a mailbox filled with credit card offers unappealing, but look at the bright side: It’s a sign that the squeeze on consumer credit may be loosening. Bankrate reports that the consumer credit industry has experienced a kind of renaissance when it comes to credit card mail offers. The Mintel Comperemedia study found that offers for new credit cards skyrocketed from 551 million in the fourth quarter of 2009 to 1.4 billion in the final quarter of 2010.

How credit card offers stand out in the crowd

In order to attract consumer business, more credit card offers are trumpeting no balance transfer fees, no foreign transaction fees and extended low introductory rates. Waiving balance transfer fees is particularly popular. Senior Vice President Andrew Davidson of Mintel told CreditCards.com that banks will do almost anything to grab the competitive advantage. According to a recent Bankrate study, 15 bank credit cards and 25 credit union credit cards eschew balance transfer fees. For banks that did charge interest on balance transfer fees in 2010′s fourth quarter, the mean rate was 3.06 percent.

Working to be your intercontinental champion

Another area where credit card issuers compete for business is the foreign transaction (aka currency conversion fee) arena. While not as visible as APR, annual fees and balance transfer fees, foreign transaction fees are important to anyone who travels, whether for pleasure or business. Most cards add a 3 percent surcharge for each foreign transaction, a tax that can add up quickly. More than 90 percent of bank cards and nearly 60 percent of credit union cards hit travelers with this fee, according to a Pew Trusts study conducted in July 2010.

Chase, Citibank, HSBC and others currently waive foreign transaction fees on many of their cards, said Mintel.

Consumers like extended introductory rates

Perhaps the most hotly contested area in the credit card mail wars is the extended introductory rate. A low initial APR for balance transfers and purchases is appealing to consumers, and some credit card issuers even dangle a zero-percent APR.

The teaser rate offered by credit card typically exceeded 13 months in the fourth quarter of 2010, reports Mintel. However, that number is trending higher, says Davidson.

“The squeeze on credit observed during mid-2009 is being reversed, and many issuers are now offering durations of 15, 17 or 18 months or more,” he told Bankrate. “We have even seen offers with 24- and 30-month intro rate durations in recent months.”

Credit card legislation has kept interest rates down

The Credit Card Accountability, Responsibility and Disclosure Act (CARD) has helped stabilize credit card APRs. The mean for 2010′s fourth quarter was 14.03 percent, according to Mintel. Many credit card companies have contrasted their APRs against the relatively high prime rate as a consumer draw, said Davidson.

Sources

Bankrate

CreditCards.com

Pew Trusts

WhiteHouse.gov

Shop around for a better credit card than this

The interchange fees and percentage fees on that $1 soda could be costing small businesses 50 percent or more. Image: Flickr / lancefisher / CC-BY-SA

In the next few months, congressional legislation is set to reduce debit and credit card interchange fees to 12 cents per transaction. Banks and some legislators are attempting to slow the implementation of this new law, worried that it will hurt business competitiveness. But for small business owners, like me, these limits are more important than ever before.

Interchange fee primer

Card interchange fees are, in short, fees paid for the privilege of allowing customers to use a credit or debit card. Otherwise known as “swipe fees,” these fees range between 12 cents and 75 cents and are charged every time a card is swiped. This “interchange fee” is in addition to a certain percentage of the transaction amount that is charged for use of the card. The interchange and percentage fees go to pay the company that provides the card machine, the card processor and the banks involved with the transaction. These fees added up to $50 billion in 2010. Current interchange fees in the United States are about twice as much as those in Europe. Some congress members are trying to push through legislation to stop lower interchange fees, claiming they would make businesses in the United States less competitive.

How interchange fees affect business

For a small business, the decision of whether to accept cards is tough. Accepting credit cards means paying a fee and a percentage on every credit card transaction, plus most credit card processors charge a monthly fee, so the costs are high. For a small business that runs on tight margins, it is even worse. Even with available alternatives that reduce cost, any small business will have to eventually pass on the cost to consumers through minimum purchases, higher prices or additional charges on card payments. There are benefits; accepting cards means customers are more likely to make bigger purchases, and more customers are willing and able to pay for your product or service.

My small business perspective

My husband and I own a small business that offers a variety of products and services. Whether we should accept credit cards was never really a question — it was a necessity. Without a physical location and relatively low monthly sales volume, the $20 to $100 monthly fee of a traditional credit card terminal simply did not make sense. We chose start-up Square to run our credit cards, which charges a flat percentage of every transaction and processes credit cards through smart phones. On an average month with $300 in sales, our business pays more than $8 in credit card fees. Added on to $30 in business taxes and $26 in sales tax we collect, the amount available to pay our suppliers and make a profit gets thinner. The reduction in credit card interchange fees would allow us to reduce the amount we charge customers or be able to actually hire employees. Either way, card fees may not sound like much to a consumer, but those few percentage points are what can take a small business from “surviving” to “competitive.”

Source

Marketwatch

The Square card reader offers personal credit card processing that will compete with Visa's new P2P system. Image: Flickr / cdharrison / CC-BY-SA

For decades, Visa has provided card processing services for businesses as well as credit and debit cards to customers. As of Wednesday, the card company has announced that it will be premiering person-to-person payments. This new service will compete with electronic payment services such as PayPal and Square.

Visa’s new P2P system

The new Visa person-to-person payment system is new only in the U.S. The card processor has offered a system for individuals to transfer payments to one another internationally for years. Now, fronted by services CashEdge and Fiserv, Visa will allow individuals to apply payments to each other’s credit, debit, personal loans, or bank accounts using e-mail addresses or phone numbers. Visa has not yet announced their fee structure of the P2P payment system, though it is likely to be in the range of one to five percent of the transaction amount. The Visa P2P system will also require those using the system to bank with specific institutions.

Visa P2P vs the competition

Though Visa is touting their new P2P system as “revolutionary,” there are several companies offering similar services. PayPal, owned by Ebay, is one of the most popular online payment systems. An average PayPal transaction costs between 5 cents and 3 percent of the transaction amount, depending on the type of payment. PayPal, however, can be clunky to use off-line. Square is a relatively new payment system that processes card payments through a smart phone, and charges between 2 and 3 percent of the transaction amount. Square is proving especially popular for the person-to-person payments market, since it can process just about any type of card, Visa or otherwise.

The increasing cost of payments

In announcing their new P2P payment system, Visa indicated the system would help “eliminate the inefficiencies of cash and checks.” The reality is, though, that cash and checks are the only way that the full amount transferred from person to person stays with the intended recipient. Much like payday loans, using cards to transfer value requires that a fee be paid. These small fees and payments are usually just a few percent — but are also the target of heavy debate. The amount a card issuer can charge in transaction fees is being limited by legislation, and some card issuers are threatening to limit debit card transactions to $50 or less in order to maximize available profit from these transactions.

Sources

Vancouver Sun
The Register
PayPal
Square

New Fed restrictions are expected to take effect in October 2011, at the earliest. (Thinkstock)

The Great Recession occurred largely as a result of unsafe lending practices that allowed consumers to exceed their means and drag the nation’s economy down with their personal finances. The extent to which this occurred could have perhaps been decreased if more proactive federal regulation had taken place.

It appears as if the Federal Reserve learned its lesson from the national financial swoon as it recently announced regulations that serve to close loopholes within the new credit card law (CARD Act) before they cause significant damage. Such a move comes in refreshingly severe contrast to the laissez fair-type policy practiced by the Fed for the last decade and seems to be a positive sign for the financial well being of the United States.

CARD Act background

The CARD Act — which took full effect in August — instituted numerous consumer protections designed to curb the predatory, harmful credit practices that were previously allowed to perpetrate unchecked and helped lead to the nation’s financial malaise. While this is the most sweeping piece of credit card legislation passed in years, sometimes vague language has allowed certain unscrupulous credit card companies to continue dangerous practices.

APR change protections

Prior to the Fed regulations, the CARD Act stated that issuers could not change a consumer’s interest rate during the first year that an account was open or apply increased APRs to existing balances unless consumers were at least 60 days delinquent. Such rules even pertained to accounts with introductory rates. However, some companies evaded the spirit of the law by offering to waive consumers’ APRs for a certain period of time while retaining the self-conferred right to revoke the waiver at will. For example, instead of offering you a 0 percent APR credit card, they would give you a card with a 15 percent APR, that they would offer to waive for the first 12 months. Their rationale was that waiver revocation would not be an APR change rate but merely a re-instituting of a normal rate. However, the Fed restrictions — expected to take effect in October 2011, at the earliest — close the door on such fee waivers.

Fee limits

The CARD Act also prohibits credit card companies from charging more than 25 percent of a card’s limit in fees during the first year an account is open, a provision that affects bad credit credit cards most significantly. Certain companies found their way around this by charging processing fees that had to be paid before an account could be opened. These fees, according to issuer thinking, did not count toward the 25 percent limit because they were not assessed during the account’s first year. However, like the fee waivers, this semantic interpretation was nullified by the Fed’s decree.

Income Determination

The Fed also banned the use of household income as a determining factor of a consumer’s ability to pay, holding that personal income will provide a far more accurate indication of how much debt someone can afford comfortably. This distinction will help protect people from the widespread severe disparities that existed between amounts owed and means of payment prior to and during the recession.

These Fed changes will surely provide consumer aid upon taking effect, but their larger implication is what’s truly important. If the Federal Reserve continues to address issues before they become significant problems, the chances of facing another recession down the road will decrease significantly. This organization had not acted so swiftly in more than 10 years, so it appears as if a policy shift has taken place. However, once could be a fluke, but two or three make a trend, so pay close attention to how the Fed acts in the coming months. Its behavior could serve as an apt indicator of our economic future.

Consumers are paying down their credit card debt and avoiding new charges, so always open your mail and read the fine print from credit card companies busy creating new ways to gouge their customers. Flickr photo.

Consumer credit dropped in May much further than was forecast, with the decline led by significant drop in credit card debt. Credit card delinquencies fell to their lowest rate since 2002. As Americans save more and borrow less, desperate credit card companies are coming up with new ways to gouge customers. New credit card rules aimed at curbing the usurious behavior of credit card companies may be giving consumers a false sense of security.

Consumer credit drop exceeds forecast

A Federal Reserve report released Thursday showed that consumer credit dropped at an adjusted annual rate of 4.5 percent in May–the fourth consecutive month of declining credit.  Revolving debt, which includes most credit card debt, dropped by 10.5 percent ($7.3 billion) in May, according to the Fed’s report. Non-revolving debt, including car loans, fell by $1.8 billion in May. Business Week reports that economists’ projections in a Bloomberg survey ranged from a decrease of $5.2 billion to an increase of $2 billion in May. Consumer credit has increased only twice since the end of 2008. Consumer spending, which accounts for about 70 percent of the economy and is what America is counting on to revive the economy, will be weak as Americans pay down their debt.

Credit card delinquencies also drop

Credit card delinquencies are declining right along with consumer credit. The American Bankers Association (ABA) reported that late payments for bank credit cards fell in the first quarter to the lowest level in eight years. Market Watch reports that bank card delinquencies–card payments at least 30 days overdue, fell to 3.88 percent of all credit card accounts in the first quarter, compared with 4.39 percent in the fourth quarter of 2009. The credit card delinquency rate, the lowest its been since the first quarter of 2002. The ABA reported also said that overall consumer loan delinquencies declined, but only job creation will bring further improvement.

New credit card rules are to be broken

Credit card companies are seeing revenues decline. But even with new credit card rules designed to protect consumers going into effect next month, credit card companies are trying harder than ever to burn customers with creative new fees. CNNMoney.com reports that banks will be able to get around many of the new rules. For example, new rules cap late fees at $25 and do away with inactivity fees, but now more credit card companies are charging annual fees.

Credit card companies hope you won’t notice

When it comes to the new credit card rules, consumers may think that credit card companies can’t raise interest rates on existing cards anymore. But in reality, they can do anything they want with new balances, as long as they give 45 days notice. If your credit card company sent you a letter that you didn’t open a while back and you see your interest rate skyrocket on your latest charges, that’s what happened. Plus, credit card companies can still cut credit limits and close credit cards without advance notice, which will really hurt a credit score.

Always open credit card company mail

Other credit card companies have recently hiked balance transfer fees, cash advance fees and foreign transaction fees. Gerri Detweiler, personal finance advisor at Credit.com, told CNN that read the mail you get from your credit card company is more important now than ever. Don’t automatically assume its junk mail, because you’re only going to have the 45 days to opt out if you actually read the fine print. And as credit card companies become more desperate, they will not only raise existing fees but create all kinds of new fees.

Because of the recession, many credit cards are no longer beneficial to customers. The lending crash and overall state of the economy have caused many problems with finding finances. Defaulting loans have sent credit card companies into a panic, forcing them to try to mitigate their losses any way possible.

The lending crash

The number of people defaulting on loans has caused credit card companies to go into survival mode, charging even good customers high interest rates and cutting their limits. Because of Credit Card Reform, many companies are trying to squeeze as many dollars out of the American public as they can before heavy restrictions begin. If you have a credit card, it has most likely changed drastically this past year. According to Cardratings.com, Indexcreditcards.com and Lowcards.com, there is a list of the worst credit cards to have. Here are some of them:

Macy’s credit card

Although, in general, retail credit cards are not beneficial to customers’ finances or credit, Macy’s manages to be worse. Justin McHenry of Indexcreditcards.com stated, “Almost without fail, retail cards charge exorbitant interest rates. The worst offender I know of is the Macy’s credit card, with its 23.99 percent interest rate…but cards from J.C. Penney, American Eagle, Gap and J. Crew all come in at rates of over 20 percent.”

Many people apply with the hopes of getting an immediate discount on purchases; they don’t realize that the same discount could be had if they found a major credit card with a deep discount. McHenry added, “If you really want a store credit card, try to get a store card associated with Visa, MasterCard or American Express—those cards generally have interest rates lower than the store-only credit cards…for example, I just got a Banana Republic Visa with an interest rate of 14.24 percent. Compare that to Banana Republic’s store-only card, which charges a rate of 21.9 percent.” The key is to not carry a high balance, but still benefit from a card you can utilize at a variety of places.

Money Return Platinum Plus Visa from Bank of America

Initially this may look like a good deal. They advertise 0 percent on balance transfers, no annual fees, and a 10 percent cash rebate. However, you only get the 10 percent cash back if you carry a balance. And carrying a balance costs from 9.99 percent to 19.99 perent. Curtis Arnold of CardRatings.com stated, “So you pay up to almost a 20 percent APR to earn (back) only 10 percent of your interest that you pay out of your pocket. Doesn’t take a math genius to figure out that this is a lose-lose proposition.”

Centennial Gold MasterCard from First Premier Bank

This is a bad-credit card and offers bad options to suit. Arnold said, “The subprime card boasts a 9.9 percent fixed rate, an amazing rate for any subprime offer.” However, there are more terms to the card that aren’t so beneficial. There is a one-time setup fee of $29 and a one-time program-fee of $95. There is an additional $48 annual fee attached, along with an additional $7 monthly service-fee. Arnold added, “So if you get approved for a $250 line of credit, you’re out $256 in fees during your first year of card membership and only have $71 available credit your first month.”

Beneficial cards

Consumers looking for credit cards need to be wise and research their options. Many card companies are using advertisements that are true on the surface, but when you read the fine print, a wide variety of additional fees and rules are revealed. Be smart and understand what your card is offering. It may take some time, but you can find cards that benefit your lifestyle.