Credit card companies will be forced to help customers under new laws

New laws requiring credit card companies to help customers to reduce their debt rather than encourage them to increase it will be proposed tomorrow.

What the Prime Minister dubbed "sharp practices", including card companies raising people's credit limit without being asked and increasing interest rates on existing debt, will be stopped.

Companies will be banned from using people's monthly payments to pay off the cheaper debt left on the card while charges incurred for higher interest debt, for example cash withdrawals, are untouched.

This often means that people who make only low monthly repayments for years end up spending longer paying off their credit card than their mortgage.

Gordon Brown said that the proposals were aimed at making "credit and store card companies clean up their act and give people a fairer deal. Sharp practices by lenders — such as hiking interest rates on existing debts without explanation and raising credit card limits without being asked — these sharp practices should end."

Kevin Brennan, the Consumer Minister, said that the Government wanted the credit card companies to change some of the unclear and unfair practices that had contributed to high levels of debt for many people.

"People may not realise that expensive debt like cash withdrawals could stay on their card gathering interest for years because their cheapest debts are paid off first.

"Some people are making low monthly repayments for years, meaning it can take them longer to pay off their card than their mortgage and costing them significant amounts in interest charges.

"When many people were struggling to pay their bills every month it was astonishing that credit card companies were continuing with practices which work against the interests of consumers.

"People have a serious responsibility to manage their finances effectively, but they also have a right to clear and unambiguous information about their finances from credit companies to enable them to do that."

Government officials said that it was common for credit card customers to discover that their credit limit had been increased without their consent. Research by uSwitch, the comparison website, showed that in the past year, 5.7 million consumers had their credit limits changed without their agreement.

Ministers are also concerned about companies increasing interest rates without a proper explanation. They said that consumers who had used their cards responsibly should not pay for excessive risk-taking by financial institutions.

House committee votes to speed up credit card reforms

Legislation that could help more Americans manage their credit card debt took a step closer to becoming reality this week on Capitol Hill.

A proposal currently pending in Congress would speed up the implementation of various credit card reforms that were already approved this year, ranging from limits on the late fees and interest rates consumers are saddled with for late payments, to ways cards can be marketed to college students.

Existing law calls for these reforms to take effect in late February. However, some members of Congress have been dismayed by what they see as unfair behavior towards consumers as they take some final measures to boost their profit margins in advance of the new law. With that in mind, the current bill would move the effective date of the reforms up to December 1.

Earlier this week, Federal Reserve Chairman Ben Bernanke advised against the proposal, saying that lenders still need sufficient time to implement new policies and resolve any regulatory and compliance issues that will be raised by the new reforms.

However, members of the House Financial Services Committee apparently disagreed, and unanimously voted to speed up the reforms. With the committee vote now accomplished, the legislation is set to move on for a full House vote, after which it will await Senate action.

"Just in time for the holidays, Congress can lock in a ban on interest rate hikes on existing balances and the tricks that have kept far too many consumers trapped in a never-ending cycle of debt: tricks like double-cycle billing, due-date gamesmanship, and applying payments to lowest rates first," said Congresswoman Carolyn Maloney, a New York Democrat who is sponsoring the measure, after the vote.

Supporters of the reforms point out that consumers will get some badly-needed help when it comes to managing credit card debt, while the industry has opposed the bill, maintaining that people also need to be responsible for their own spending decisions.

Credit Card Woes

Michelle Higgins's Practical Traveler column "For Americans, Plastic Buys Less", about the refusal by European merchants and automated kiosks to accept American credit cards, which use magnetic strips to store data and not the newer, safer "chip-and-PIN" technology, lets the U.S. card industry off the hook very lightly.

Perhaps the spokesperson for Visa who said "by and large the majority of Visa cards are seamlessly accepted internationally" has never stood in the Lyon train station trying to buy a ticket from an automated kiosk and found that none of the four cards in her wallet will work. Or maybe she hasn't experienced the thrill of being locked in an underground parking garage in Aix-en-Provence for the same, inexplicable, reason.

US Publishes Rules on Credit Card Marketing to Students

The Federal Reserve on Wednesday proposed new regulations to govern the marketing of credit cards to college students. The rules, which were published in the Federal Register, would carry out changes to the Truth in Lending Act that Congress made as part of the Credit Card Accountability Responsibility and Disclosure Act of 2009, which was designed to give consumers more protections from the practices of credit card companies. Among the provisions aimed at helping young people is a requirement that credit card issuers and colleges and universities disclose agreements they make to market or distribute credit cards to students, including so-called affinity cards.

Join the credit card revolution with Fifth Third

Fifth Third gave the RevolutionCard a big boost by deciding to issue this new emerging credit card. What makes this credit card so special is that your name never appears on it.

If the card is stolen the thief must know your pin number to use it. You can change your pin number as often as you like. This feature can greatly reduce credit card fraud.

When using the card, you press Debit/ATM at check out rather than the credit button, because you will need to enter a pin number.

Your ability to use this new card is limited to the stores currently accepting it, but that does include some big names such as Barnes & Noble, Bed Bath & Beyond, Bloomingdale's, Office Depot, Publix, Rent-A-Center, T.J. Maxx, U-Haul International and about 50 others. As the RevolutionCard network grows you will be able to use it at more stores.Retailers save money with this card too. The RevolutionCard charges no interchange payments between banks, so it costs the retailer only 0.50% for transaction processing and settlement. That can save the retailer as much as 80% per transaction.

With the great fraud protection, the retailer has less of a chance that a charge will be questioned due to fraud. Many retailers that do accept the card share their cost savings with customers through loyalty programs and other incentives.

"With Fifth Third as an issuing bank we have our largest opportunity yet to significantly grow the RevolutionCard business," Jason Hogg, CEO of Revolution Money, told Reuters. Other issuers of the card include ChasePaymentech, RBS WorldPay, Cardinal Commerce (online acceptance) and Keystone (petroleum processing for paying at the pump).

Revolution Money also runs the MoneyExchange that enables merchants to collect money from customers and send money to family and friends. It also has features that allow organizations to collect dues from members.

If you're frustrated with your credit card company after they jacked up your fees and interest rates, you may want to check out the RevolutionCard as an alternative. The revolution may take a while but it's time to show the banks and current current card issuers that they are not the only game in town.

Twitter ex-CEO to sell iPhone credit card reader

There is finally some more solid news about the hardware venture being started up by Twitter cofounder Jack Dorsey to turn the iPhone into a credit card reader.

Dorsey, who co-founded Twitter along with Biz Stone, Evan Williams, and others in 2006 stepped down from his position as CEO in 2008. There has been a lot of buzz about his current project, which allows the iPhone and the iPod Touch to be used as credit card readers. The product, known as Square, would come in two parts, a small plastic cube that plugs into the iPhone and an app. As reported in a story by CNET, the connection between the device and Dorsey was made by Coolhunting, who says:

The innovation is in a small, plastic card reader that fits in to the headphone jack of an iPhone (or iPod Touch) and transfers the credit card's swipe data to the app. After the employee enters the amount to charge, the customer confirms by scrawling their signature with their finger and then either one enters the customer's email address to send the receipt to. The payment is processed by Square for a small percentage plus a fixed fee; the funds are transferred directly to the store's bank account, cutting both time and complexity on the processing side. The customer's receipt includes a map showing the location of the transaction which is handy for those who record, sort and file such things.

One interesting note is that Dorsey feels that the company can keep costs low enough to give the device itself and the app to customers. Apparently, he feels that it can be manufactured for about 40 cents each. The revenue for the company, which is called Square-Up, will come for taking a fixed fee for each transaction, plus a percentage of the sale price on a sliding scale according to the price of the item purchased by the customer and processed through Square-Up. One must admit that companies such as Visa International have turned this sort of processing  into a multi-billion dollar business, and it is certainly possible that Dorsey could do the same. It is absolutely a better business model that is in place at Twitter just now.

Outsourced Credit Card Programs Help Small Banks Attract Customers

If it seems like just about every small bank or credit union offers credit cards with perks and benefits just like those from major lenders, you can thank service providers like TSYS. The payment solution company recently announced the formation of TSYS Program Solutions, a new division that offers turnkey credit card marketing and management programs for community lenders across the United States.

According to TSYS Chairman and CEO Philip Tomlinson, community banks enjoy a rare opportunity to win new credit card accounts away from major lenders. "Recent regulatory changes have altered the landscape and we believe the case for re-entry is there if we can demonstrate a compelling and profitable business case," Tomlinson told reporters.

By outsourcing credit card servicing and operations, Tomlinson said, more local lenders can use their neighborhood storefronts to lure business from larger banks that have been perceived as out of touch with consumers. TSYS and its competitors help level the playing field by offering customers of small banks access to the same levels of customer service and product perks as larger institutions.

Call for credit cards liability limit to be reduced or waived

Consumer groups want the maximum liability limit imposed on credit cardholders for unauthorised transactions for lost or stolen cards to be lowered or even scrapped amid the rising number of complaints.

Many feel the RM250 limit is not justified as it is not helping innocent cardholders in view of the rising number of such unresolved cases.

National Consumer Complaints Centre chief executive officer Muhammad Sha'ani Abdullah said there was no question that this limit should be reduced or waived as this amount itself was "not respected and adhered" to by banks.

"Even though the RM250 maximum liability has been in existence for a few years, not many are aware of it or informed of it by banks as there are still hundreds of unsolved cases where the innocent cardholders are non-negligent and without fault," he told StarBiz.

"Even the Financial Mediation Bureau (FMB) seems to be siding with the banks without taking appropriate actions."

When contacted, FMB chief executive officer John Thomas denied there were hundreds of such cases pending. He advised complainants to lodge the matter as soon as possible to the FMB to facilitate mediation.

"Our mediators will look at the case in totality backed by evidence and our decision must be fair to both parties," he said.

The FMB is an independent body set up to help settle disputes between customers and their respective financial services providers.

Consumer Association of Penang (CAP) president S.M. Mohamed Idris said the maximum limit on liability could be reduced to between RM50 and RM100. There were complainants (cardholders) whom CAP thought should not even be paying the RM250 at all, he said.

"As far as we know, the cardholder's limit for unauthorised charges in the United States under its Fair Credit Billing Act is US$50. We have even come across a few cases in Malaysia where cardholders managed to get the fraudulent card charges waived," he added.

Mohamed Idris said in cases where the signatures on the sales slip were obviously different from those on the credit cards, the cardholders should not be held responsible but instead the merchants, as the signature was after all part of the security measures to protect cardholders.

According to the Association of Banks in Malaysia (ABM), the maximum credit card liability of RM250 came into effect in June 2004.

This limit applies only in the event the cardholder has not acted fraudulently or has informed the bank as soon as reasonably practicable after having discovered the card is lost or stolen. Many cardholders were not aware of this limit until the landmark decision by the Kuala Lumpur High Court which stated that Bank Negara Guidelines on Credit Cards limited the liability of cardholders to only RM250 where loss is reported promptly.

Several banks contacted declined comment on the matter when asked whether the limit should be reviewed. ABM in a statement said there was no need for a review of this liability limit with the intent of lowering it.

"In fact, some banks excuse their cardholders from liability for any transactions effected with the use of a lost or stolen card if the bank is satisfied that the cardholder has used all reasonable precautions and diligence to prevent such loss or theft and has notified the bank promptly.

"We advise consumers to be vigilant when it comes to the security of their credit cards. Whilst banks have spent large sums of money to put in place security measures to protect the consumer from credit card fraud, consumers must also play their part and take necessary steps to avoid becoming a victim of credit card fraud," ABM noted.

Sha'ani expressed dissatisfaction with Bank Negara for not having issued the guidelines to the public for transparency and clarity on credit card charges.

Consumers want credit card rules to kick in soon

Fed up with rising fees, interest rate hikes, limit cuts and other harsh changes to their credit cards, most consumers want the date for major reforms moved up.

But some observers say those impending reforms have prompted banks to issue even more of the changes at a time when credit card holders are down.

The latest proof that consumers are having trouble paying their credit card bills came early Wednesday, in JPMorgan Chase's third-quarter results.

The bank, the largest U.S. credit card issuer measured by both the number of cards it has out, more than 119 million, and the amount of debt its customers carry, over $165 billion, reported a $3.59 billion profit. But its credit card division lost $700 million, as it set aside almost $5 billion to cover bills consumers can't pay. It was the only one of seven units to post a loss for the quarter.

JPMorgan said nearly 6 percent of cardholders were at least 30 days behind on their payments.

Analysts expect no better results from the credit card divisions of Citigroup, the second-largest U.S. issuer, and Bank of America, the third largest, when they report on Friday.

That's in part because statistics that measure consumer behaviors like bill paying trail the broader economy. Even if a recovery is under way, JPMorgan said it expects credit card problems to continue through the first half of next year, a view echoed by most who follow the industry.

But the way many consumers see things, while they are struggling to pay off their debts, banks have been moving to make it harder to do so.

A new survey done for Credit.com found that 45 percent of consumers said their card company has changed their agreements by doing things like hiking fees, upping interest rates, raising the minimum payment due and cutting credit limits. The latest move was by Bank of America, which said late Tuesday it will impose annual fees of up to $99 on certain cards starting next year.

There was some hope among consumer advocates after the Credit CARD Act was made law in May that card companies would ease up with such measures, but the opposite has happened, said Adam Levin, chairman of Credit.com, a consumer-oriented Web site. That's one reason that 56 percent of the people who responded to the survey said they want the new regulations moved up. "They're doing what they do and they're going to continue to do what they do, until their ability to do what they do is curtailed," Levin said.

Congress is considering pushing up the date most of the Credit CARD Act takes effect to Dec. 1, instead of Feb. 22. A bill that would change the date is currently before the House Financial Services Committee, and will be voted on in coming days.

But it's unlikely that moving the date will provide the help consumers are hoping for.

For one thing, the part of the law that requires banks to give consumers 45 days notice before they change terms like card interest rates, fees or minimum payments already took effect in August.

That part also requires banks to offer consumers a chance to opt out of such changes by closing the account and paying off the balance at the old interest rate. But closing accounts can backfire on consumers by causing their credit scores to fall.

Meanwhile, the interest rate hikes and other changes keep coming.

The Credit.com survey found that 27 percent of respondents said their interest rate was increased, up from 19 percent in a similar survey done in June. Just short of 19 percent said fees were increased, up from 14 percent in June. And 17 percent said minimum payments were increased, up from 12 percent in June. The telephone survey of 1,000 people was done Oct. 10 and 11.

These changes are part of the "unintended consequences" of the tighter regulations, said Peter Garuccio, a spokesman for the American Bankers Association.

"Both the regulators and Congress understood that in taking the steps that they did, there would likely be higher prices and reduced credit availability," Garuccio said. Congress essentially accepted higher costs as a trade-off in exchange for more consumer protection, he said.

It's not just the CARD Act, but also the weak economy that has led banks to make these moves, he added, noting that the rate at which banks write off bad credit card debt typically tracks the unemployment rate. JPMorgan posted a 10.3 percent charge-off rate, and expects that to rise to 10.5 percent in the first half of 2010. The unemployment rate reached 9.8 percent is September and is predicted to pass 10 percent in the coming months.

Credit card issuers have to take into account both the broader economic risks and the regulatory landscape, Garuccio said. "The two can't really be separated right now."

In the big picture, consumers shouldn't expect friendlier practices any time soon, no matter when the new regulations kick in.

That makes it more important that consumers take control of their own credit, and make sure they use it responsibly, said Levin, of Credit.com. "The reality with all of this is hopefully a better informed, better prepared consumer will be a better borrower, a less risky borrower over time."

Credit Card Act To Bring Sweeping Changes

Sweeping changes are coming to the credit card industry.

The Credit Card Act of 2009 is being hailed as the largest reform ever imposed on the credit card industry, and the move is meant to increase consumer protection -- but it could also have some negative effects for those with good credit.

In the current fast-paced world fraught with economic challenges, paper or plastic has taken on a whole new meaning. More and more people are relying on plastic for their purchases, but credit cards as we know them today are undergoing a big change.

"It's going to be a different playing field," said Michael Johnson, finance instructor at Madison Area Technical College. "It's not going to be quite as easy to get into trouble as it has been in the past."

The Credit Card Act of 2009 is 33 pages of very complicated material, but it is full of important information for those who use credit cards. For example, under the legislation, 18 to 20 year olds will no longer be able to get a credit card without a co-signer.

Another change aimed at protecting consumers adds the right of the cardholder to reject an interest rate hike.

Starting in February, when the legislation takes effect, credit card companies must inform you in writing that they're going to increase your rate -- and you can say no. The rejection would close your account, but would still allow you to continue paying off the balance at the current interest rate.

Another thing that will change is how credit card companies apply your monthly payments to your credit card balance.

As an example, say you have a $1,000 balance at 12 percent APR and then transfer $2,000 to that card at a zero-percent promotional rate. Under the act, credit card companies, would be required to use your monthly payment to pay off the balance with the larger interest rate first. Therefore, in this case, your payments would pay off the $1,000 at 12 percent first, thus preventing consumers from getting stuck with large interest charges.

Those are just a few of the major changes coming, and experts say the act will make the credit card industry a lot more consumer friendly.

"I think this is a really big step in the right direction towards giving consumers some of their rights back -- that they really should have had from the beginning," Johnson said.

If you have good credit, here's the bad news: those low, promotional rates -- like zero-percent interest -- are going to be a lot harder to find, even for those with good credit. Experts also say that it's likely that annual fees, which most credit card company have strayed from, will be making a comeback.

Credit card-stealing device makes its Minnesota debut

A device called a "skimmer" that steals credit card information just by swiping the card has been implicated in incidents in Eagan and Maplewood. The item looks extremely similar to a normal payment-swipe device, so it's easy for criminals to hide their intentions when stealing card info.

Abe Smith worked at an Eagan Wendy's and it looks like he allegedly swiped customers' info as he rung up their orders. He and his friend, Gabriel Langford, allegedly transferred the credit card info to gift cards and used their new cards to go on a shopping spree. We have to admit, if we worked for minimum wage slinging burgers, this would sound like a pretty sweet plan.

Ion Datcu and Stelian Cipu were convicted in September of an even more devious scheme when they attached a skimmer to a TCF ATM in Maplewood; the pair had collected the info 230 credit cards, according to Maplewood police and the Secret Service.

How to make the most of credit cards' reward points

Credit cards are now a common instrument used by most urban Indians and there are several benefits of using them. One aspect is the reward points that come along with the expenses made on the card and these can be used effectively to get additional gains. However, there can also be a loss of opportunity if the benefit is not taken properly.

Reward points
There are reward points available on the use of a credit card. The conditions are different for each card.

For example, there might be two points available for every Rs 100 spent on a card given by one bank, while some other bank might give only one point for every Rs 100 spent. This would determine the extent and manner of the accumulation of points.

Wells Fargo raises credit card rates

Wells Fargo & Co. plans to raise interest rates on a majority of credit card customers by 3 percentage points before new rules limiting such increases take effect, a company executive said. "This is something we've been contemplating for quite a period of time,'' Kevin Rhein, group head of card services, said yesterday.

Wells Fargo began advising customers this week that the change takes effect Nov. 30. That's one day before the chairman of the House Financial Services Committee, Massachusetts Democrat Barney Frank, wants curbs on rates and fees under a new US credit card law to take effect. He plans a hearing today on moving up the date to Dec. 1, from February, to head off increases by card issuers.

Rhein did not comment on whether Frank's bill had any bearing on Wells Fargo's decision.

The bank is also eliminating over-limit fees, which are imposed when customers exceed their credit limits, he said.

Wells Fargo, the eighth-biggest US card lender, accepted $25 billion from the federal bank bailout program.

Bank of America Corp., the second-biggest US credit card lender, has said it won't raise rates and fees on customers in good standing before the effective dates of the Credit Card Accountability Responsibility and Disclosure Act, which takes effect in stages.

Bank of America not to hike fees, interest on credit cards

Call it a policy of appeasement, a move to quell anger amongst customers, or a fire-fighting measure, Bank of America Corp (NYSE: BAC) has declared that it will not alter the fees and interest rates levied on consumer credit cards. Bank of America bucks the trend at a time when all credit card issuing banks are hiking interest rates. BoA has pledged to keep them unchanged till the Credit CARD Act is implemented. The lawmakers have urged the other banks to follow suit

The charges would not be hiked till the time the new federal regulations take effect next year, claimed the largest bank in the United States.

North Carolina-based Bank of America, which is the second-biggest credit card lender after JPMorgan, announced that it "will not implement any change in terms (risk or economic based) re-pricing of consumer credit card accounts between now and the effective date of the CARD Act."

Customer-oriented move
The decision has been taken in wake of the concerns raised by the customers. "We believe that this is responsive to the concerns we have heard and is consistent with other consumer-oriented policy changes we have made recently," said Collingwood.

Bank of America's proclamation comes after many of the credit card issuing banks increased the interest-rates and fees in recent times.

Majority of the new law's provisions, such as limiting banks from raising charges, increasing fees on existing balances and other controversial practices, are scheduled to come into effect in February.

The hikes by the banks on an immediate basis thus made commercial sense; however, these upward revisions of the fees have been condemned by the customers and regulators alike.

Credit CARD Act
The Credit Card Accountability Responsibility and Disclosure Act of 2009, popularly known as Credit CARD Act of 2009, is a federal law passed by the Congress in the United States.

The U.S. President Barack Obama signed it on May 22, 2009, and it will come into effect in February 2010.

Upon signing the bill, President Obama had said, "With this new law, consumers will have the strong and reliable protections they deserve."

The objective of this comprehensive credit card reform legislation is "to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes."

Among other provisions, the Credit CARD Act restricts the banks from arbitrarily raising the interest rates. It requires the card issuing banks to give cardholders 45-days notice of any interest rate increases.

The Act also prohibits card companies from charging interest on debt that is paid on time during the grace period. This clause essentially puts a stop to the so-called "double-cycle billing" practice.

The Credit CARD Act also requires the card companies to mail the billing statements 21 calendar days before the due date instead of the present mandate of 14 days. The act also contains new protections for college students and young adults.

Merchants Seek Lower Credit Card Interchange Fees

Are American shoppers and businesses paying billions of dollars more than they should be to use credit cards? That's the big question that the House Financial Services Committee will look at Thursday.

The issue: interchange fees, the roughly 2% of every credit card swipe that goes to the bank that issued the card. That's a real cost for small merchants that do a lot of credit card sales, particularly in thin-margin businesses like grocery or convenience stores. (7-Eleven is lobbying aggressively on this issue.)

How much do interchange fees cost? $48 billion a year, according to the Merchant Payments Association, a coalition of mostly retail trade associations lobbying to restrict the fees. How much do merchants pay? To put that in perspective, Home Depot pays more in interchange fees than for employee health care. Some of those costs get passed on to consumers.

It's not a black-and-white issue. I think opponents who call interchange "hidden fees" aren't quite right. Credit cards provide a service (both to merchants and consumers) that someone needs to pay for. Card issuers say interchange fees fund rewards programs, protection against fraud, and other costs.

But interchange fees are the largest piece of the costs associated with accepting credit cards. Here's a look at how the fees on a typical credit card transaction break down, according to Dan Price, founder of Seattle credit card processor Gravity Payments:

On average, 1.75% goes to the bank that issued the credit card; 0.1% goes to the network (Visa or MasterCard); and between 0.5% and 1% goes to the processor. (Price says Gravity Payments, whose business model depends on holding onto customers longer than most processors, charges about 0.33% for processing.)

There's not a lot of transparency about how these fees are calculated. From Floyd Norris in the NY Times last week:

How much less depends on what kind of business the store has. (Food stores pay smaller fees than clothing stores.) It depends on what kind of market power the store has. (Home Depot gets a bigger share than Fred's Hardware.) It depends on whether the card is a credit or debit card. (Debit cards have lower fees.) It even depends on whether a credit card offers rewards. So when I use the Visa card that gives me airline miles, the merchant gets less than if I use a basic Visa card.

How opaque is it? You can look at the interchange rates for Visa and MasterCard. (The networks set the rates, even though the fees are paid to the banks that issue the cards.) The MasterCard document is 100 pages.

UK credit card fraud falls by 23%

Credit card fraud in the UK fell by a dramatic 23% in the first half of 2009 with £232.8 million stolen by thieves against £304.2 million in the first six months of 2008. It is believed that a mixture of improved detection systems and new scams in different areas of the economy were behind the impressive fall. However, even though credit card fraud has fallen we all need to be on our guard in the future to put more pressure on the criminal gangs.

It was interesting to see that so-called credit card skimming or cloned credit card fraud fell from £88.8 million last year to £46.3 million this year and there was also a significant fall in Internet, phone and mail order credit card fraud which fell from £163.9 million to £134 million. The report also shows that there are 38 million dormant credit cards in the UK with total credit facilities of over £200 billion. While many people like to keep credit card on hand in case they encounter troubled times, these particular cards and customers may well be a "godsend" to criminal gangs.

Stay vigilant, stay on your guard and above all, ensure that you read your credit card statement each and every month and question any anomalies.

Man goes to jail for credit card fraud

A Pierce County man is headed to prison for theft and credit card fraud. A Pierce County judge found 41-year-old Raymond Edward Jackson guilty on one count of theft and one count of fraudulent use of a credit card.

In January, a woman told deputies Jackson stole her heart and her credit card and took off. Investigators say they found Jackson in Hawaii where he had used the woman's credit card and married another woman. Monday, Jackson was sentenced to a year and a half in prison and two years of extended supervision.

Picking The Right Credit Card

In yesterday's KERA economy segment, we looked at what new changes in credit card regulations will mean for consumers when they take effect in February. Today, we go a step further with help for choosing a credit card. Todd Mark of Consumer Credit Counseling Services of Dallas says avoid the mail offers and shop around, but know your credit score determines what you'll get.

Mark: If you've got a great score, guess what? The sky's the limit and you should be looking for what's the best cash back opportunity. Is it frequent flyer miles or is it one percent cash back to your favorite shopping stores?

Sam: But now aren't those kind of incentives just to get you to spend more money?

Mark: It is, but if you've got a good score there's a good chance you're using credit the way I want to see you use credit. And that's using it where you're paying it off on time and in full every month. Remember if you do that it doesn't matter how much you spend, it's not costing you a penny in interest.

Sam: Let's say then that you're someone who carries a balance every month, but you pay more than the minimum.

Mark: At that point, you're looking for what's the cheapest card, what are the cheapest interest rates. And of course if you're carrying a serious balance, or say you've had delinquencies in the past, and your score is problematic. You may not qualify for the best deals and you're saying do I have to worry about annual fees or application fees? What are my late fees or balance transfer fees? And certainly, what kind of interest rate are we looking at? You would generally see folks in the ten to fifteen percent range if they've got decent credit and you'll certainly find teasers in the zero, three, six percent range. But if you've got problem credit, we see people regularly in the high twenties, the thirties. And folks that are really troubled, we see some forty percent interest rates on credit cards.

Sam: I didn't know interest rates went that high.

Mark: They do. If you are truly subprime and you are dealing with a lender that is not necessarily looking out for your best interest, you can go that high.

Sam: Shopping around though almost means doing business perhaps with a bank or credit card company that is not maybe even in your city.

Mark: Certainly

Sam: Is that wise? Are you better off dealing with whomever you regularly do business with?

Mark: Well, there's banking relationships and then there's a credit card relationship. For banking, I always want to have a relationship with a local bank or a credit union so that you're not just a number or you're not some process on the internet. But you can go in, sit across a desk from somebody and say here are my needs or I need a loan or there's a problem you need resolved you want to be able to have that face to face relationship. Now if we're talking about a credit card. I've got two credit cards in my wallet. One of them I opened up twenty years ago when I was back in college. I didn't know the bank at the time and I don't have a relationship with anybody at a local bank now, although it's a very well known national bank. I've never had a problem of dealing with them because I always pay it off in time and in full every month. So for me, I don't really care about the relationship with the credit. It was what they were giving back to me as far as a loyalty program, and that's the most important thing.

Sam: Are those offers that come in the mail all the time so bad?

Mark: You know, it always depends on your credit. You may get a preapproved offer, or it says it's preapproved, and it's a mass mailing that they send out to millions of people. And you reply back and say, "This is the deal I want- it's better than anything I found online." And they say "Oh well we're so sorry you didn't qualify for this one but with your credit score we can give you this." So it's almost like a lost leader to get you on the phone or online with them to talk about what you truly would qualify for. So some of the deals, if you qualify for them, they could be fantastic But I'd rather you proactively go out and seek, with your credit, what's the best you can do. Don't just accept what comes through the mail.

Sam: In the end, with all of these choices out there for how to manage credit, what type of credit cards to use, does any of that matter if you're using credit irresponsibly?

Mark: Absolutely not. Credit is a very powerful tool if used responsibly. But if you're using it to buy today what you can't pay for tomorrow, you're just becoming enslaved to a debt that's going to cost you so much over.

Todd Mark is Vice President of Education for Consumer Credit Counseling Services of Dallas.

Most of the provisions in the Credit CARD Act take effect in February. Provisions concerning more time to pay, retroactive rate increases, and more advance notice of rate hikes began in August of 2009.

Schools ex-director broke credit card policies

Metro Schools employees have rules they must follow when using taxpayer-backed credit cards. Their former boss, Pedro Garcia, often broke them.

Garcia regularly violated purchasing card policies by exceeding limits on tips and travel allowances, as well as failing to turn in proper receipts.

The former director, who left the district in January 2008 and is now a professor at the University of Southern California, did not return calls for comment. A review of months' of credit card statements found several questionable expenses by the former schools chief.

Garcia was the third-highest-paid public employee in Nashville, earning $216,000 annually. On top of that, he used taxpayer dollars to buy a $600 iPhone and dine out at restaurants like J. Alexander's and Sunset Grill. School officials said the director returned the iPhone when he quit.

Garcia also liked to eat well when he traveled. Records show that on a trip to New York for a conference, Garcia and top assistant Sandra Tinnon, who still works for the district, had a $122 lunch at the upscale Central Park restaurant Tavern on the Green. The two dined on chicken and salmon, and capped the meal off with desserts of cheesecake and crème brûlée.

For dinner, Garcia took Tinnon and her spouse to a $195 dinner at Victor's Cafe, and then stayed at the $379-a-night Millennium Hilton, where the event was being held. The original expense claim for Victor's indicated Garcia's wife was also at dinner, but Garcia said in an e-mailed response that she was not present on the trip.

"I have no idea what the district document indicate," he wrote. "All I know is my wife did not go to NYC and was not on the trip and Mr. Tinnon was."

Sandra Tinnon, through a school district spokeswoman, said Garcia offered to pay for the meal, but she did not know it was purchased with a district credit card. Tinnon's husband is a school employee but was not approved to attend the conference.
Online shopping

Garcia also used his district credit card to shop online at Amazon.com for what appear to be a series of religious-themed books titled Expository Sermons on the Book of Revelation.

Director Jesse Register, who was hired in January to replace Garcia, does not have a district credit card, though his secretary does and makes occasional charges on his behalf. Register has ordered a top-to-bottom review of business practices in the district. He said axing the purchasing card program may be one way to control spending.

Prepaid, but Not Prepared for Debit Card Fees

Buying a prepaid debit card these days is just about as easy as picking up a bottle of shampoo or a candy bar. Walk into a Wal-Mart or almost any major drugstore, and rows of plastic worth $25, $100 and even $500 beckon from kiosks alongside prepaid phone cards and gift cards for retailers.

Tyrell Blocker of Brooklyn said that fees started to accumulate on his card as soon as the cash from his paycheck landed on it. He complained to Pay-O-Matic and only then was provided a detailed list of card fees.

"No Credit Check. Safer Than Cash. No Bank Account Needed," says the Green Dot Visa Prepaid Card: Just pay at the register and the card is ready for A.T.M. withdrawals, store purchases and online shopping.

For many people who do not have bank accounts, or cannot get a credit card, the appeal is irresistible, making the reloadable cards among the consumer banking industry's fastest-growing products. But their convenience comes with a catch: fees, often hidden in the fine print.

The MiCash Prepaid MasterCard docks cardholders a $9.95 activation fee. Like many competitors, it then charges numerous recurring fees, including $1.75 for each A.T.M. withdrawal, $1 for each A.T.M. balance inquiry, 50 cents for each purchase, $4 for monthly maintenance, $2 for inactivity after 60 days and $1 for a call to customer service.

The Millennium Advantage Prepaid MasterCard goes further, listing an application fee of up to $99. The Silver Prepaid MasterCard advertises that it does not charge for overdrafts as many debit cards do, but it gives itself the option of charging a $25 shortage fee if customers exceed their balance.

"It's a very expensive way to bank," said Jean Ann Fox, director of financial services at the Consumer Federation of America.

A cottage industry only 10 years ago, reloadable prepaid cards have tapped into the vast pool of about 80 million consumers who have little or no access to bank accounts. The market includes college students who do not want to carry around wads of cash and consumers who do not want to type their credit card number into the Internet.

More typically, it comprises low-income people and immigrants who have fewer financial options than other Americans. Often, they turn to these cards because they cannot open a bank account, or they become fed up with the costs of check-cashing stores or overdraft fees on checking accounts.

Industry officials say the cards are a good deal because users can avoid the fees charged on low-balance bank accounts and at check-cashing stores.

"If you look at these products today compared to even a checking account, many consumers have found that they can be far less expensive," said Gary Palmer, chairman of the Network Branded Prepaid Card Association.

But even as the industry expands, many prepaid cards continue to charge fees — including for purchases and paying bills — that can quickly accumulate.

Like many workers, Tyrell Blocker, 20, of Brooklyn, could ill afford the surprise when he took such a card last week to a Pay-O-Matic Financial Services store in Manhattan after a bank turned him down for an account because he lacked one of two required pieces of identification. As soon as the cash from his paycheck landed on his card, he noticed fees accumulating. Mr. Blocker returned to Pay-O-Matic to complain and only then was provided a detailed list of more than two dozen fees, he said.

"I need every last dime I got; I've got a newborn," Mr. Blocker said. A spokesman for Pay-O-Matic said the card was fairly new and the firm was working to make the fees more transparent.

Little Regulatory Scrutiny
Because it is a relatively new industry, prepaid cards have not undergone the Congressional and regulatory scrutiny of credit and debit cards. In the spring, lawmakers restricted interest rate increases and hidden fees on credit cards, and regulators are now examining stricter rules on overdraft fees on checking accounts. Even gift cards, which expire when the money runs out, will soon be subject to new rules limiting monthly fees and expiration dates.

Congress has asked regulators to determine if prepaid cards warrant the same protections extended to debit and credit cards. The industry's trade association says such measures are unnecessary and would make cards more expensive.

But consumer advocates say the lack of regulation means that prepaid card users can continue to be blindsided by hidden fees, and have few legal protections to recover their money if a card is lost or a charge disputed.

Credit card deals could save retailers millions

The Commerce Commission says agreements unveiled today with seven financial institutions could save retailers tens of millions of dollars.

The agreements with the financial institutions follow settlements reached in August with Visa and MasterCard that paved the way for credit card interchange fees in New Zealand to be set by competition.

A result of the settlements is that merchants can surcharge customers when they use credit cards to make purchases.

Today the commission said the agreements ushered in a new competitive landscape for the credit card industry in this country.

Commission chairman Mark Berry said savings to retailers during the next three years as a result of the settlements were expected to be in the order of $70 to $80 million.

"This represents a significant reduction in the cost of doing business for retailers who offer credit card payment options, and we would expect to see this passed on to consumers over time through lower retail prices," said Berry.

The institutions announced today to have reached settlements with the commission are ANZ National, ASB, Westpac New Zealand, Bank of New Zealand, Kiwibank/New Zealand Post, TSB Bank, and The Warehouse Financial Services.

Berry said the commitments made by the institutions would put immediate downward pressure on interchange fees while ensuring that those fees remained transparent and open to competitive forces.

The commission said that in High Court proceedings it claimed that the parties breached the Commerce Act by agreeing and implementing the Visa and MasterCard credit card scheme rules in New Zealand which, among other things, provided for the payment of multilateral interchange fees.

The commission said it alleged those rules substantially lessened competition by artificially inflating the cost to retailers of accepting credit cards and ultimately raising prices paid by all consumers.

Each of the financial institutions would contribute towards a combined total of $1m to cover the unmet costs of the commission's proceedings, the commission said. It previously recovered $5.6m towards its costs from Visa and MasterCard.

Also today, a group of retailers said it had reached a settlement with MasterCard over interchange fees and scheme rules.

The settlement, along with the commission's settlement with MasterCard and Visa, was significant for the retail industry, spokeswoman Louise Evans said.

The settlement reaffirmed retailers' ability to pass on the cost of accepting credit card payments through a reasonable surcharge as provided in MasterCard's settlement with the commission, which retailers were previously prevented from doing.

"This new level of transparency means that for the first time the actual cost of using a credit card will be known to consumers," said Evans.

"This may ultimately result in customers choosing to use different payment options. It is this development which may have the greatest impact for customers."

The retailers group was made up of Progressive, Foodstuffs, Dick Smith, Farmers, Noel Leeming and Whitcoulls.

"After spending the last three years preparing to go to court, we're pleased to have a satisfactory result and be able to get back to our businesses," Evans said.

Cash is back as credit card technology affects travel

A change in travel may be on the way.  However, unlike most things, we may be going backwards rather than forwards as many travelers may be exchanging and carrying cash rather than using debit and credit cards.

In a recent New York Times article, For Americans, Plastic Buys Less Abroad, new technology in credit cards in Europe and other countries may be making the magnetic stripe cards in the US more difficult to use.  The new cards are called chip-and-PIN cards which store information on the card which is accessed by a pin making counterfeiting and fraud more difficult.  While many stores will still accept the magnetic stripe cards used in the US, kiosks and many ATMs may not making it more difficult to make purchases and access cash.

While Europe is leading the way in this new credit card technology, these aren't the only countries using it.  Mexico, Brazil, and Japan are also using the chip-and-PIN cards with China, Canada, and Latin American countries rolling this out soon.  Unfortunately, the US banks don't seem to be in a hurry to make this move which may make traveling a bit more difficult as cash, exhanging currency, and more old fashioned ways of traveling may be necessary.  For Americans traveling abroad, it may be out with the new and back in with the old.

While this may or may not be a huge hindrance in traveling, it is something to be aware of.  One of the scariest things that can happen is landing in a different country and then realizing you have no access to money.  And from recent comments and articles out there, the inconvenience caused by this is real.

If anyone has had experiences with this, please feel free to share.  The more we understand the effects of this on our travels, the more well informed we can be.  Hopefully, this isn't as scary as it sounds but we all need to be made aware of these changes which could impact our travels.

Why American Credit Cards Suck

If you prefer to use a credit card when traveling abroad due to safety and better exchange rates, bad news. Other countries have adopted smartchip technology in their bank cards, and soon we Americans may be forced to use cash when traveling.

Smartchip technology is sort of a banking equivalent of the metric system—it's superior to magnetic stripe cards, every other country is using it, and the American banking system simply isn't interested.

Twenty-two countries, including much of Europe, Mexico, Brazil and Japan, have adopted the technology, according to the Smart Card Alliance, a nonprofit association that promotes chip cards. About 50 other countries are in various stages of migrating to the technology in the next two years, including China, India and most of Latin America, according to the association.

In the last year, Canada began rolling out chip-and-PIN cards and plans to stop accepting magnetic stripe debit cards at A.T.M.'s after 2012 and at point-of-sale terminals after 2015.

These governments like the cards because they reduce fraud. With an embedded microcontroller, large amounts of data can be stored on the card itself rather than in a central database, and counterfeiting such a card is difficult.

Balance-transfer deals are getting scarcer

Can we really trust the banks anymore to adhere to the terms they offer us?

Balance-transfer terms aren't quite as sacrosanct as they used to be. A few lenders have boosted their minimum payments, and Chase tried charging a $10-a-month "inactivity fee" before customer outrage forced it to back off.

But the biggest risk with balance-transfer offers right now isn't that lenders will renege on the deals midstream. A greater concern is that the good deals are getting scarcer. It's possible that when the low teaser rate you're offered expires, you might be stuck with a double-digit rate and few options to get a better deal.

If you can pay your debt off before the low rate expires, and you would save money even after taking into account the 3% to 4% balance-transfer fee most lenders charge, then you might want to consider one of those low-rate deals. Otherwise, consider looking for a card with a low regular interest rate.

Lawmakers to Debate Credit Card Fees

House lawmakers this week will debate a controversial financial bill that aims to limit the interchange fees that credit card companies exact on transactions at retail stores, according to a report by The Hill.

Democratic Reps. Peter Welch of Vermont and Zoe Lofgren of California have sponsored legislation aimed at clamping down on the fees. Welch appeared at a rally on the issue last week joined by a group of 7-Eleven store operators and NACS -- The Association for Convenience and Petroleum Retailing. The group collected 130 boxes of petitions with more than 1.6 million signatures in support of the new interchange restrictions.

The House Financial Services Committee will hold a hearing on the bill Thursday.

Retailers argue the fees are excessive and eat into their profit margins, forcing them to pass on the cost to consumers, while financial groups argue that the bill is misguided and the campaign against the fees is not about protecting small retailers.

"The big-box retailers, hiding behind some of the convenience-store folks, want to use the electronic payment system for free, which is ridiculous when they get higher sales, convenience from having to deal with cash, guaranteed payment for their services and products, and all the risk associated with credit cards gets passed onto the financial institutions," Dan Berger, executive vice president of the National Association of Federal Credit Unions (NAFCU), said in The Hill report.

Credit cards are first Wells Fargo products rolled out to Wachovia customers

Wells Fargo executives see a lot of potential for the credit card division to grow with the Wachovia merger.

Now, 15 percent of Wachovia's retail bank customers have a credit card with the bank. That compares with 36 percent of legacy Wells Fargo bank customers who have one.

"So we think there is tremendous opportunity for legacy Wachovia customers to benefit," said Mike McCoy, who works from West Des Moines and is president of Wells Fargo Consumer Credit Card.

To ensure it takes advantage of those opportunities, the company is turning to Steve Samuelson, leader of the integration team for the Consumer Credit Card division — one of about 20 teams throughout Wells Fargo with the task of merging the company's technological and operational systems.

He has 30 to 40 full-time employees and hundreds of others who work on the merger at least part time. "We call on a lot of Wachovia employees. They are very much at the table," said Samuelson, who heads to Charlotte, N.C., from Des Moines about once a month to see employees there.

The division is finishing timelines and planning for merging, Samuelson said. Execution of the plans begins in earnest in November and will continue through much of 2010 and 2011.

"The merger is a great opportunity to grow the business, and it is an opportunity for team members to be building something special," he said. "A lot of times people talk about having new challenges and opportunities, and this really is a chance to step up and take on something new."

Samuelson, who worked on the integration of Norwest and Wells Fargo in 1998, said the company "dusted off that playbook and applied the same type of tried and true principles." He said that merger was successful because the focus on the customer.

It helps that the banks weren't that far apart. "Considering the size and complexities of the two businesses and the success that both have had before the merger, there are far fewer differences than you might think," he said.

Credit cards will be one of the first Wells Fargo-branded items distributed to Wachovia customers. Credit cards will be distributed as cards expire, or get lost or stolen and as new credit card customers sign up after April, he said.Most of the work before April is on the technical side, getting the programs and processes aligned and ready to distribute cards.

For Samuelson, though, the work that goes into the integration is supposed to be invisible.

"The customer didn't ask us to do this merger," Samuelson said. "So our goal is to make this as seamless as possible from a consumer perspective."

Credit Card Act Is Affecting the Job Market

Despite the economic stimulus and various financial bailouts, our economy continues to shed jobs.  One of the reasons for continued job losses is the decline in new hires, especially the lack of new hiring by small business.

As bank analyst Meredith Whitney discusses in the Wall Street Journal, all the major credit programs created by Congress and the Federal Reserve have been targeted at big corporations and Wall Street firms.  However, small companies, especially start-ups and partnerships, do not issue bonds in the debt markets, nor do they borrow from Goldman Sachs.  So these firms have been left out in the cold, as federal credit inventions have favored corporate America.

Adding insult to injury is that not only has Washington subsidized credit to large firms, it has taken actions that restrict the credit available to small firms and start-ups.  The prime example of this is the Credit Card Reform Act signed by President Obama in May.

As Whitney reports, "Credit cards are the most common source of liquidity to small businesses, used by 82 percent as a vital portion of their overall funding."  In restricting the usage of credit cards and reducing the ability to risk-base price, Washington has eliminated the most important source of credit to small business.

Of course, being unable to project their future health care costs, or tax burdens (yes, they are going up, but by how much), many small businesses have either been forced to or chosen to sit on the sidelines of our economy.  Washington needs to recognize that Wall Street and corporate American are not the sum of our economy, if we hope to turn the employment situation around.

The earlier credit card rules change, the better

After President Barack Obama signed a landmark credit card reform bill into law in May, credit card issuers had almost a year to implement the legislation's major provisions.

The first phase of the law took effect in August and, among other things, required card issuers to give you 45 days' notice of any significant changes in card terms, such as an increase in your interest rate.

The full force of the new law is scheduled to kick in Feb. 22, but the protections could take effect Dec. 1 if a new bill passes.

U.S. Reps. Carolyn Maloney, D-N.Y., and Barney Frank, D-Mass., have proposed legislation that would speed up the new regulations by almost three months. The House Financial Services Committee, where Frank is the chairman, has scheduled a hearing on the bill for next Thursday.

The sooner, the better

As far as I'm concerned, the sooner the new rules take effect, the better. Card issuers have used this time to slash credit limits, raise interest rates and bring back annual fees.

"The motivation for Maloney and Frank pushing up the implementation of the [law ] is apparently to outflank issuers who have begun raising rates on people and their existing balances to beat the February 2010 date," agreed Ben Woolsey, spokesman for CreditCards.com.

According to a study by the Pew Safe Credit Cards Project, the median lowest advertised interest rate among 400 credit cards it studied in July rose 20 percent since December.

"It's clear that credit card companies are taking advantage of this period between the signing of my bill and the current effective date," Maloney said. "The breadth and depth of the rate hikes happening now point to the need for faster consumer protections."

Many of my readers who use credit responsibly and always repay on time are understandably angered by the card companies' moves. They need protection now.

New limits

Restrictions scheduled to take effect in February include:

• Prohibiting interest rate increases on existing balances except in limited circumstances, such as when a promotional rate ends, the rate is variable or you make a late payment.

• Eliminating "universal default," or the practice of raising interest rates on customers based on their payment records with other credit issuers.

• Requiring credit card companies to apply a consumer's card payment to the highest-interest balances first. Issuers currently apply all amounts over the minimum payment to the lowest-interest balances first, which extends the time it takes to pay off higher interest rate balances.

Bankers say advancing the implementation date could end up hurting consumers because card issuers need the time to overhaul their computer systems. Without the extra time, they say, mistakes and confusion could ensue.

"It would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill," said Kenneth J. Clayton, senior vice president of card policy at the American Bankers Association. "Behind every credit card account is a complex network of data systems, risk management systems, pricing mechanisms and funding sources."

Mistakes seen ahead

To not be given the time to make the correct adjustments "could lead to mistakes in account statements and create confusion and uncertainty for millions of American consumers, not to mention posing significant legal penalties for banks."

This is a stall tactic.

"If the roles were reversed and they had the opportunity to take an increase in APR or changes that would lead to more revenue, I bet they could make those changes faster," said Bill Hardekopf, chief executive of LowCards.com.

Let's not drag this out. Congress should speed up the implementation date of the law so consumers can be fully protected and not be jacked around by last-minute maneuvers by card issuers.

Credit Crunch Continues

Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source to small businesses) have been cut by 25% since last year.

Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.

Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.

What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt.

As is true in most recessions, banks' commercial lending portfolios shrink as creditworthy customers pay down their debts and the less-worthy borrowers are simply denied loans. Banks, in other words, want to lend only to those that don't want to borrow. Challenging as that may be, in the last cycle small businesses at least had access to their credit cards.

Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled. According to the most recent Federal Reserve data, small business lending is down 3%, or $113 billion, from fourth-quarter 2008 peak levels—the first contraction since 1993. Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially.

Incentives should be provided to smaller banks to step up small-business loans on a greater scale. Smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer."

I believe that we are only in the early stages of the second half of this credit cycle. I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010. This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders. Beginning in the fourth quarter of 2007, lenders began reducing available credit by zip code. During the past four quarters, lenders have cut "inactive" accounts (whether or not the customer viewed the account as a liquidity vehicle).

The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act.

Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences. Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit.

Main Street represents the foundation of this country. Reviving it should take priority over any regulatory reform or systemic overhaul.

Cops warn of scam targeting credit-union members

Suffolk investigators are probing a scam involving attempts to steal card numbers and personal identification numbers from credit union debit card holders, Suffolk police said Friday.

Suffolk residents have told police they have received text or voice messages saying their debit card numbers had been deactivated, and they were instructed to contact their credit unions by phone to reactivate the accounts, police said.

The messages instructed cardholders to provide their credit union account numbers and PINs, police said.

The scam has targeted members of several different credit unions, police said.

Financial institutions do not contact customers by mail, phone or the Internet to request account information, police said.

The scam is under investigation by the Police Identity Theft Unit.

Residents who have received messages they believe are fraudulent should contact their financial institutions immediately, police said.

The text messages, sent to customers' cell phones, and calls to landline phones seem random. Scammers name a credit union in hopes of contacting a customer of that financial institution and tricking the customer into giving out account information, police said.

Cardholders who receive an inquiry via mail, telephone or e-mail from someone claiming to represent their financial institutions, and asking about bank, credit card or loan accounts, should not give out information about their card and personal ID numbers, police said.

Cardholders should contact their financial institutions directly and ask whether the inquiry is legitimate, police said.

Caller IDs displayed on the phone should not be trusted, even if they appear to identify the caller as a legitimate financial institution, because the display information can be "spoofed," or changed to display a fake number or identifier, police said.

3 accused of stealing diners' credit card ids

Three Philadelphia men were indicted yesterday on charges of illegally using the credit and debit cards of customers of two city restaurants by recruiting servers and other workers to steal their account information and then using it to create false - but functioning - cards.

According to the federal grand jury indictment, the fraud and identity-theft ring targeted other restaurants and businesses in addition to the two named: T.G.I. Friday's, 4000 City Ave., and Ruby Tuesday, 16th and Chestnut Streets.

The investigation is ongoing, said Patty Hartman, a spokeswoman for U.S. Attorney Michael L. Levy.

The same T.G.I. Friday's has been targeted by other credit-card skimmers, according to an August grand jury indictment.

In the latest case, Michael Lewis, 35; Cantrell "Man Man" Fletcher, 27; and Keith "Goat" Pearsall, 39, all of Philadelphia, are charged with conspiracy and numerous counts of fraud and aggravated identity theft.

The indictment states that beginning in December 2007 and continuing until this spring, Lewis and Fletcher provided skimming devices "to employees of restaurants, hotels and retail stores throughout the Philadelphia area."

The "skimmers" - waitresses referred to as Co-conspirators Nos. 1, 2, and 3 - would record credit- and debit-card information from unsuspecting customers.

Lewis and Fletcher would then use encoding devices to transfer the stolen information onto the magnetic strips of other credit, debit, or plain-white plastic cards, the indictment says.

Lewis, Fletcher, and Pearsall used the cards to buy merchandise and gift cards, pay for home and car renovations, and pay the restaurant employees who worked for them, according to the indictment.

In charging the men, prosecutors only had to list aggregate amounts exceeding $1,000. For example, the indictment says that Lewis used four credit- and debit-card numbers to make $2,437.35 in unauthorized purchases.

However, the indictment says that on May 6, Lewis possessed 57 stolen credit- and debit-card numbers with the intent to make unauthorized purchases.

Assistant U.S. Attorney Nancy Potts, who is prosecuting the case, declined to provide the total amount alleged to have been stolen, citing the ongoing investigation.

If convicted on all counts, the men would face a maximum of 32 years in prison.

Brazil Seeks Credit Card Rules to Foment Competition

Brazil's central bank proposed new measures to stimulate competition in the credit-card market in Latin America's biggest economy.

The proposals, which weren't provided in detail, were sent to the government for consideration, according to a statement on the bank's Web site today.

"The commitment of the regulatory bodies is with the adoption of measures that will increase competition and transparency," the central bank said.

Market failures allowed Redecard SA, the Brazilian processor of Mastercard Inc., and Companhia Brasileira de Meios de Pagamento, known as Visanet, to post profits higher than what can be considered "fair," the central bank said in a March 31 report.

Redecard fell 0.3 percent to 27.17 reais at 10:32 a.m. New York time in the Sao Paulo trading. Cia. Brasileira de Meios de Pagamento slid 0.6 percent to 17.47 reais.

The proposals will ensure retailers will be able to use a single terminal to receive payments from different brands of credit cards, the central bank said. The measures also seek more "transparency" on certain credit card tariffs.

Visanet raised 8.4 billion reais ($4.72 billion) in the world's biggest IPO in more than a year in June 26.

The number of credit and debit cards in Brazil rose 12 percent in June to 540 million cards, from 482 million cards in June 2008, according to figures compiled by the Brazilian Credit Card Companies Association.

Alliance partners with Pacific Dental for credit card program

Alliance Data Systems, a provider of loyalty and credit card services, has signed a multiyear agreement with Pacific Dental Services (PDS). As part of the deal, Alliance will supply PDS with patient financing and marketing services through a private-label credit card program for dental procedures.

Alliance will handle receivables funding, credit authorization, statement generation, remittance processing, customer service functionality and marketing services to PDS to support the credit card program. Alliance will also integrate account acquisition, authorization and settlement services into PDS' practice management system.

Based in Irvine, CA, PDS works with 195 affiliated dental practices in California, Nevada, Arizona, Colorado and Texas.

Shelley Whiddon, director of external communications at Alliance, said the technology could be used if a dentist determined that a patient needs braces, a root canal or an elective procedure like teeth whitening and he or she is not insured, among other examples.

"If the patient has no insurance or if it's not paying at the level they wish it would, they may need credit," she said. "We're providing PDS a program for financing those dental services."

Whiddon explained that patients in that case generally have to go through an office manager to apply for credit, then wait for approval.

"By integrating the Alliance Data services into PDS' practice management system, there's an interface where that application and approval process can happen very quickly," she said.

Whiddon did not disclose the deal's financial terms. Calls to PDS were not returned.

Keep the Rate or Keep the Card?

Ann has $10,000 in credit card debt.

She had been paying it off month by month -- always on time -- at an interest rate of 7.15 percent.

"Then all of a sudden, when I received my September statement the APR had jumped to 14.99 percent," Ann wrote to me.

This must be a mistake, Ann thought.

So like a conscientious consumer, she called the company that issued her credit card.

There was no mistake.

Ann joined millions of other cardholders across the country who have been notified that their interest rates are rising. They, like Ann, are being told to deal with it or get kicked to the curb.

"I called the credit card company," Ann said. "The gentleman said they had chosen several of their 'products' to raise the interest rate." Ann has two choices. She can accept the higher interest rate -- but says she "can't afford to pay double interest on a $10,000 balance."

Or she can reject the rate hike. "If I reject the terms, I would be able to pay the old rate on the existing balance," she said.

If Ann says "no deal," however, the credit card company will close her account.

Under the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 and Federal Reserve rules, a cardholder who is notified of a change in terms on or after Aug. 20 has the right to close the account and reject that change for the existing balance. If the consumer does so, the card issuer must allow the cardholder to repay the balance on the existing terms, make minimum monthly payments that include no more than twice the percentage of the balance included before the change in terms, or pay off the balance over at least five years.

Ann is worried about her ability to get another credit card at a decent interest rate. She's also concerned that canceling the card will lower her credit scores.

In advance of tougher credit card regulations taking effect next year, many consumers have been receiving notices of lower available balances, interest rate increases or a switch to variable rates.

What the credit card companies are doing is wearing down a lot of good customers who, if left alone with decent interest rates, would have a better chance of paying off their debts.

The Federal Reserve's rules implementing the CARD Act require that Ann be given the right to reject (or opt out of) the interest rate hike. Generally, however, the issuer is permitted to apply the new interest rate to any transactions that occur more than 14 days after notice is given.

Ann has a legitimate concern about getting another credit card with a rate as good as the one she had. With a tightening of credit standards, she may have difficulty getting another credit card at all.

She has less to be worried about concerning her credit score because she does not have any other credit cards.

"A person's FICO score is influenced by everything in the person's listed credit history, so the impact of a change to one account will be strongly influenced by the other information on her credit report," said Craig Watts, public affairs director for FICO (formerly known as Fair Isaac Corp.), the creator of the widely used credit-scoring system.

What most affects a person's score when an account is closed is the presence of outstanding balances on other open accounts -- not the closure of the account in itself. The scoring system looks at how much credit you are using compared with how much you have available.

So for example, if someone has three credit card accounts, all with zero balances, that person could close one of them with confidence that the closure won't change her FICO score, because it won't change her credit utilization rate, Watts said.

Watts also cleared up a common misconception. Closing a credit card account won't affect the duration of someone's credit history. That's because credit reports include the history of closed accounts for a number of years after closure, and FICO scores consider both open and closed accounts when calculating the person's length of credit history.

So, deal or no deal for Ann?

Ann, tell your credit issuer you won't be played. Similar to the weary, downtrodden worker in David Allan Coe's song "Take This Job and Shove It," have the nerve to walk away.

Ann shouldn't be carrying $10,000 on her credit card, but she shouldn't stand for this treatment. She should pay off this debt -- and until she does, she doesn't need another credit card.

So, Ann, don't take the banker's offer.

No deal.

New government proposals could help consumers with credit card debt

The Federal Reserve has proposed new rules that could help consumers who are struggling to pay down credit card debt.

According to the Fed's announcement, the new proposal would mostly prohibit rate increases for the first year that an account is opened or for existing credit card balances. Creditors would also be prohibited from issuing new accounts to people under age 21 unless that person can demonstrate an ability to pay their balance or can obtain permission from a financially solvent parent or guardian.

Other provisions would limit the fees that can be associated with subprime credit cards, ban two-cycle billing and other tactics that maximize interest costs, and require customer permission before imposing fees on transactions over the credit limit.

"This proposal is another step forward in the Federal Reserve's efforts to ensure that consumers who rely on credit cards are treated fairly. The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts," said Federal Reserve Governor Elizabeth Duke.

The proposals also mirror a number of reforms approved by Congress that will take effect in early 2010, which will further help those struggling with credit card debt.

American Express to End Monthly Fees on Gift Cards

American Express announced on Wednesday that it would eliminate monthly fees on its popular gift cards, a move that is likely to pressure its competitors to do the same.

The company's decision, which takes effect immediately, goes further than legislation Congress enacted in the spring that would limit, but not eliminate, monthly fees on gift cards.

Alpesh Chokshi, president of American Express's Global Prepaid unit, said consumers loved the gift cards but often complained about the monthly fee that ate away at their balance. There were no monthly fees in the first year, but on the 13th month, American Express began charging $2 a month.

Mr. Chokshi said eliminating the monthly fee was now possible because the gift card business had enough scale to remain profitable without the fees. The company will continue to make money from the purchase charge, which ranges from $2.95 to $6.95, as well as from its share of transaction fees, up to 4 percent each time the card is swiped.

Gift cards began as a plastic replacement for paper gift certificates and were originally embraced by retailers like Blockbuster, Starbucks and Barnes & Noble. In those instances, the cards could be used only at a specific retailer.

The major credit card networks, like American Express and Visa, now offer gift cards that can be used at any retailer that accepts their credit and debit cards. Mr. Chokshi said American Express began selling gift cards five years ago, and it now sells more than $1 billion worth of cards a year.

The gift card legislation was tacked on to a much broader credit card bill that sought to limit the most onerous interest rates and fees on credit cards. As part of the bill, Congress prohibited inactivity fees or monthly service charges on gift cards, unless there had been no activity on the card for 12 months.

"Consumers no longer need to worry about their gift card losing value if they don't use it quickly," Mr. Chokshi said.

He declined to say how much American Express had made from charging monthly fees.

FDIC safe harbor uncertainty may impact credit card ratings

Uncertainty over whether the FDIC will continue to grant "safe harbor" status to the securitizations of banks in receivership, as new accounting rules go into effect, may spur negative rating actions on top-rated credit card securities, Moody's warned in a report.

The American Securitization Forum, a leading financial industry group, submitted a proposal to the FDIC in late September, on behalf of market participants to address those concerns as new accounting rules get set to go into effect.

"There are a variety of possible outcomes, ranging from full protection from repudiation and stay risk to no protection at all," said William Black, a senior vice president at Moody's Investors Service.

"In the worst case, absent further clarification from the FDIC, we believe that some credit card ABS will be exposed to repudiation and stay risk," Black said.

According to the Moody's report, "these incremental risks amplify the linkage between the ratings of the sponsor bank and the related credit card ABS and, assuming they remain unmitigated, there will likely be rating downgrades on some credit card ABS."

The credit strength of the sponsor will be among the factors that determine the magnitude of any downgrade.

"Generally, the weaker the credit strength of the sponsor, the more likely that these incremental credit risks will materialize, and the greater the magnitude any rating action to senior ABS -- virtually all of which are currently rated Aaa," said Black.

Credit card securitizations that are structured as legal true sales may be less at risk of repudiation and stay despite the loss of the safe harbor. "Even so," said Black, "a multi-step true sale transfer does not allay all our concerns."

Moody's said it will continue to assess new transactions, and to the extent they are sponsored by banks rated at least Aa3, may assign Aaa ratings.

"Despite the uncertainty surrounding the future actions of the FDIC, the likelihood of a downgrade to ABS sponsored by Aa3 or above rated banks is low, and should it occur, the degree of rating transition will be very limited," said Black.

If the safe harbor issue remains unresolved, Moody's will likely place under review for downgrade those outstanding Aaa-rated credit card transactions that are not sponsored by banks rated at least Aa3.

The timing of any review would coincide with the effective implementation date of the new accounting rules, with fiscal years beginning after November 15, 2009, the rating agency said.

Feds announce credit card regulations to take effect within months

Canada's banks will now be required to increase payment details on credit card statements and to provide a standardized grace period to pay off purchases.

This, despite a warning from the Canadian Bankers Association about "unintended consequences" that could hurt consumers.

After a brief consultation period, Finance Minister Jim Flaherty on Wednesday said most of the new regulations will take effect Jan. 1, including a new summary box on credit contracts and application forms that highlights interest rates and details about how long it would take to fully repay the balance if only a minimum payment is made each month.

The biggest change — mandating Canada's federally registered banks to grant their customers a minimum 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full — won't take effect until next September. Flaherty said this switch will cost banks "tens of millions of dollars" in lost revenue.

"Our government understands the pressures Canadians face in these tough economic times," said Flaherty. "The last thing they need is a surprise on their credit card statement. By increasing transparency, our government is taking real action to protect consumers."

The newly published regulations also will require cardholders' consent for credit limit increases; limit debt collection practices used by financial institutions; and prohibit over-the-limit fees solely arising from holds placed by merchants.

Banks also will be required to provide advance disclosure of interest rate increases prior to their taking effect, even if this information had been included in the credit contract; currently, banks are already required to provide 30 days' notice when they plan to hike rates.

After Flaherty presented the proposal in May, the Canadian Bankers Association warned that its members were "concerned about the potential for negative impacts on consumers" if the government moved forward with the regulations, including limiting the number of credit cards options available and reducing the availability of credit to some customers."

In an interview Wednesday, association president Nancy Hughes Anthony reiterated these concerns, saying each bank will have to assess its own business plans as it implements the new regulations.

"It's complex, it's obviously very costly for banks to implement all these things within the time frame required, and I hope that it will have the benefit to consumers that the intent is and we're going to try and absolutely make that happen," said Hughes Anthony.

Opposition politicians, however, say the regulations are incomplete.

"Obviously, it's missing the most important thing in our opinion, which is the high interest rates, the excessive fees and the unsolicited premium cards with even higher interest rates. So there's no protection and no relief coming there, and that's what I think Canadians with credit cards are looking for," said Ontario MP Glen Thibeault, consumer protection critic for the New Democrats.

Added Dan McTeague, the Liberal consumer affairs critic, "Notification that your interest rates are going up doesn't provide any real help to consumers."

Millions of consumers who don't deal with Canada's big banks won't see any difference in the way interest is calculated on outstanding balances.

That's because financial institutions such as National Bank, HSBC Bank, Laurentian Bank and the HBC retail credit card issued by GE Money Canada, along with provincially regulated financial institutions, already meet or exceed the federal government's new threshold for a minimum 21-day grace period and the accompanying new rule that will require cardholders to pay interest only on any balance — but still enjoy a 21-day grace period on new purchases.

However, the method currently used by the Bank of Montreal, Royal Bank, TD, Scotiabank and CIBC for the application of grace periods will have to be changed.

For example, if a customer currently using a card issued by BMO, CIBC, Scotiabank, RBC or TD carries a balance of $300 from April into May, and makes a new purchase of $50 in May, he has to pay interest on the $300 and on the new purchase of $50 in June, without any grace period, because he carried a balance from April.