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New rules for credit cards will be kicking in less than a month from now, as legislation for fairer industry practices finally begins. These new rules may change the terms on your existing credit cards, so the most important thing to do to prevent being surprised by unnecessary fees or changes in rates is to seek out information on how the new legislation will affect you. Don’t stop reading if you have a great credit history and amazing FICO score, you may be affected as well. Five smart things to do before the the law sets in can be found here, here are a couple of the more salient points.
1) Don’t Get New Cards Until Feb 22- Under the new law, new accounts (after Feb 22) will be protected from interest rates increases for the first year. Since credit card companies will be adapting to the new reform laws, this may mean better deals and exploding offers for people who have good credit histories.
2) Consider Switching to Lower APRs- Although there is a cost of 3-4 percent of the amount transferred, doing a balance transfer from a higher interest rate account to one with a lower APR can save big bucks. In the current economic climate, issuers are offering balance transfer of at least a year to customers with good credit histories. Keep in mind to check what the new interest rate will be after the promo period is over. If the rate ends up being higher or only a bit lower, it may not be worth switching.
3) Under 21 and want a credit card? You’ve got til Feb 22- Young responsible adults hoping to build a good credit history may want to get a card before the new law goes into effect, since under the law, an adult (over 21) co-signer will be required for applicants who are under 21.
Some things don’t change with the new law, such as the consumer’s responsibility to pay on time in order to build up a good credit history.
USA Today reported on the growing trend of consumers quitting their credit card habit: cold turkey.
Although the average person has five credit cards, many Americans are reacting to recent economic trends by cutting off their source of debt creation and living off of cash and debit cards. Revolving credit fell by nearly 20% in November! Indeed, even debit card use has been increasing slowly but surely and has recently started booming (which is great for small business since processing fees are much lower for debit transactions).
Citing aversion to debt, credit card naysayers may suffer incredible backlashes when attempting to do basic things such as renting a car or securing a car loan. Since most of these require checking credit history and FICO score, people without a credit history will be denied, or may require enlisting a cosigner who has a good credit history.
An interesting case study is the young Baker family, whose desire to live a simpler life, free of the chains of debt led them to sell most of their assets, pay off their debt, and travel the world. Follow their adventures here, on their blog.
Another reason for opting out is incredulity at the unfair practices of credit card companies, although their abilities to raise interest rates whenever they feel like is soon coming to a close with the start of new legislation designed to curtail abusive practices. The days of increases to 20% or 30% may soon be over, but credit card companies are gauging consumers and getting the most they can in the remaining days.
Responsible credit card use is of course the desired outcome, but many consumers feel the lure of high spending limits is too much to handle and are instead choosing to go the abstinence route.
Image thanks to http://www.flickr.com/photos/82386510@N00/2977425354/
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD) was a major piece of legislation signed into law on May 22, 2009. The Act was supposed to cause the credit card industry to make sweeping changes and alter the standard use of deceptive practices. “The new rules of the road established by the Credit Card Act will shield credit cardholders from widespread abusive practices,” Senate Banking Committee Chairman Chris Dodd, D-Conn., the Bill’s author, said.
The changes would be made in two stages, the first effective in August 2009 and the last in February 2010. All of the law’s provisions can be read here. One extremely important thing to note, and a criticism why the law is extremely limited, is that it does not apply to business or corporate credit cards. Therefore, deceptive practices in the business arena will continue until legislation similar to the consumer act is proposed. There is a bill (HR 3457) in the House right now which proposes to extend the Truth in Lending Act to small business credit cards, however, this bill was referred to committee last summer and has yet to see any other action.
As deceptive practices pervade the credit card industry, one action the business owner can take is to expect full transparency from his/her credit card processor. Anything less should be grounds for suspicion. To find a fully transparent processor, check out the marketplace of pre-screened processors on TransFS.com. Start and auction and have processors bid for your business with an average savings of 40%. We even offer complementary bill analysis of your current processor so as to see how much you’re actually paying and demystify hidden fees. Transparent Financial Services should be the standard practice and not the exception.
Image thanks to http://www.flickr.com/photos/63583256@N00/4229010722/
Here is the much awaited follow-up to our first blog post explaining common acronyms in the PCI (Payment Card Industry).
ACH- Automated Clearing House is an e-payment network which allows fund transfers to occur using Electronic Funds Transfer (EFT). The Federal Reserve, in addition to over 98% of US banks belong to the ACH.
Acquirer- A financial institution (bank, public or private company, etc) that develops a seller’s CCP (Credit Card Processing) account. Acquirers maintain all transactions from the seller and distribute them to credit card issuing banks.
AVS- Address Verification System. A service provided by the seller where he/she verifies the cardholder’s address with the issuing bank.
BIN- Bank Identification Number. The Federal Bureau of Standards assigns a 6 digit BIN which is used by credit card companies to keep track of financial transactions. For example, the Mastercard range starts with a 5 and becomes 5xxxx, and Discover starts with a 6, 6xxxx.(Visa begins with a 4).
ISO- Independent Sales Organization. Third party organizations between merchants and acquiring banks; they must all register with Visa/Mastercard.
MID- Merchant Identification Number. An ID assigned to each merchant by processors for billing and accounting purposes.
POS- Point of Sale. Refers to both the time and place a transaction occurs, and also the devices used to complete the transaction.
The National Retail Federation today reported that more than half a million retailers will begin receiving checks which total over $1 billion this week. The refund is the result of a federal judge’s decision to approve an early payout of funds from a 2003 settlement of a class action lawsuit against Visa and MasterCard’s debit card practices. Retailers welcome the extra money during a slow holiday season where the ongoing credit crunch is taking its toll.
The lawsuit goes back to 1996 and was settled in 2003 for $3.1 billion. Thus far, Visa and Mastercard have paid back about $1.85 billion to merchants represented in the lawsuit, however retailers were expecting to wait at least 3 more years to receive their windfall. To learn more and see if you are qualified to receive money, click here.
An easy way for retailers to save money on operating costs this holiday season is to get a better deal on credit card processing. Check out the reverse auction process on TransFS.com, where the best credit card
processors bid for you business. Average savings for retailers on processing are 40%.
Image thanks to http://www.flickr.com/photos/93302041@N00/498285229/
Restaurants in Louisiana are suing makers of their point-of-sale systems after hackers stole tens of thousands of dollars by stealing credit card numbers. These restaurants maintain that companies who made and resold the systems should pay up on the fines put forth by payment processors after the hack. They have filed a class-action lawsuit alleging that their point-of-sale systems were out of compliance with the PCI DSS (Payment Card Industry Data Security Standards). Read more about the details regarding the damage and claims here.
Many small businesses try to modernize their business by using the internet, however, this may serve to put them at risk for hackers and other cyber-criminals. The moral of the story is: make sure that you know whether you are up to date and PCI compliant. Standards for PCI compliance can be found here. Even if courts end up making the POS systems pay, these small Louisiana businesses will have gone through the time and headache of the lawsuit. If you aren’t sure whether your system is compliant, check up on your processor and ask them the tough questions.
If processors aren’t up front and transparent, you may want to consider switching. We’re here to help: Check out the TransFS.com auction for a simple and easy way to compare stringently screened processors and get the best deal on processing.
Image: Bayou in Louisiana. http://www.flickr.com/photos/8444209@N07/3467061890/
The GAO released this report last Thursday, on credit card interchange rates. Interchange rates are the rates charged by the banks that issue credit cards, and typically are about 2% of each transaction. These rates are extremely frustrating to merchants because they have been steadily increasing and because merchants (especially small businesses) have no practical means for negotiating these rates. Basically, if you want to accept 
Visa and Mastercard you are stuck with interchange rates. But hue and cry from merchants has caught the attention of the Feds. There are several legislative proposals on the table designed to help control interchange rates, and Congress directed the GAO to create a report on the subject.
The GAO report verifies the perception of merchants that interchange rates have gone up. The report also suggests that issuing banks may exercise market power, such that they can raise rates without losing customers (an economically inefficient state of affairs). That aspect of the report is the good news for merchants and their political advocates. The bad news is that the report criticizes the most commonly proposed approaches for fixing the problem, including (i) setting interchange rates, (ii) requiring disclosure of rates to consumers, (iii) prohibiting card networks from imposing rules on merchants, and (iv) antitrust exemptions to allow merchants to directly negotiate with issuing banks (which would generally be considered an illegal agreement in restraint of trade). The GAO is apparently skeptical that such measures would actually reduce prices for consumers.
While the best solution to interchange rate hikes may need to come from government, there are other transaction costs that merchants can negotiate down, including processing fees (for an earlier blog post explaining the difference between interchange and processing fees, click here). In fact, the GAO report found that the market for processing fees is in fact highly competitive. Each year approximately 1.4 million merchants switch processors (otherwise known as merchant account providers). TransFS tries to make it easier for merchants to make this switch, by setting up an internet auction to find the best-priced processor.
On Monday the U.S. Senate Committee on Commerce, Science, and Transportation released a report summarizing its investigation into deceptive e-commerce business practices. The report highlights the growth of sleazy direct-marketing practices on the internet, particularly companies such as Affinion, Verture or Webloyalty. These companies, which have operated for years through direct mail and telemarketing, exploit consumers’ confusion about the online “checkout” process to sign consumers up for monthly payments in exchange for services that consumers may not want or understand. The report highlights two deceptive practices in particular: (i) “misleading ‘Yes’ and ‘Continue’ buttons that cause consumers to reasonably think they are completing the original transaction, rather than entering a new ongoing financial relationship” and (ii) the “data-pass” process whereby “direct-marketing companies receive automatic transfers of credit or debit card information from a familiar web seller to the third-party membership club.” After “agreeing” to enter into a relationship with direct marketers, consumers are typically charged $10-$20 per month until the consumer cancels the membership. According to the Senate Committee, thousands of online consumers have complained to their attorneys general about these deceptive and misleading practices.
Why would a reputable web commerce company enter into a partnership with a sleazy third-party membership club? The answer is that such partnerships are extremely profitable. Whereas typical internet advertising banners have CPMs (cost per thousand people who view the ad) around $30-$40, third-party membership clubs pay out CPMs of between $850 and $2,650, depending on conversion rates.
However, when reading the frustrated testimonials of customers who feel duped by these deceptive practices, one wonders whether it is truly in the best interest of e-commerce companies to allow third-parties the opportunity to deceive their customers.
CEOWorld Magazine just released a comprehensive review of the best business and corporate credit cards. The market for business credit cards has been becoming increasingly competitive as credit card companies look for new ways to entice small businesses with useful tools. However, as usual, it’s tough to tell which cards are truly interesting vs gimmicks to attract new business customers. Whether your business’s primary needs for credit card usage come from travel expenses or you prefer a certain loyalty program, check out this great article on which card is best appropriate for you.
A recent CardRating.com article noted a trend in the language of credit card companies. In light of economic conditions, card issuers are lauding credit cards as finance management tools. For example:
“American Express promotes its charge cards as an effective cash flow management tool for small business. A few years ago, analysts saw this core American Express product line as a liability. Today, industry watchers celebrate it as a low-risk, high-reward opportunity to generate profits from interchange charges and annual fees.”
JP Morgan Chase has even taken a drastic step in unveiling its new program called Blueprint, which waves interest fees for consumers on everyday items. As with all marketing ploys, make sure to read the fine print. In the case of Blueprint, the average consumer won’t notice much of a change since the program is aimed more towards the affluent consumer.
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