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Entries in Credit Cards (45)

Thursday
Jul262012

JPMorgan Chase to Pay $100M for Hiking Credit Card Fees

Peter Foley/Bloomberg via Getty Images(SAN FRANCISCO) -- Under a court settlement filed this week in San Francisco, JPMorgan Chase will pay $100 million to credit card holders who saw their minimum monthly payments hiked from 2 percent to 5 percent between 2008 and 2009.

A class-action lawsuit, filed three years ago, argued that the increase was improper, and that it violated commitments made by the bank to induce cardholders to switch their balances to Chase from other lenders.

Those commitments, says Howard Dvorkin, CPA, a founder of ConsolidatedCredit.org, included interest rates that were supposed to remain “fixed” until balances were paid in full.

“They said come to us and we’ll fix your interest rate for the life of the loan, until it’s paid off,” says Dvorkin.

In 2008 and 2009, however, the bank raised rates, triggering an increase in late payment penalties from hard-squeezed borrowers.  Late payment also could trigger a penalty interest rate of 29.29 percent.

“Your promotional rate that got you to the bank, they didn’t honor,” says Dvorkin.  “A client would go delinquent, and triggering penalty and late fees, and your interest rate could go to 30 percent.  Do I think this was part of an evil master plan?  No.  Do I think it was aggressive?  Yes.  And now they’re paying the penalty for it.”

Chase’s view, according to the proposed settlement, which still must be approved by a judge, was that raising payment minimums was “a reasonable and sensible response to unprecedented economic turmoil and impending regulatory changes” -- meaning the credit card reform act of 2009.

The proposed settlement includes a complex allocation plan for divvying up the $100 million between members of the class.  Class members get a flat payment of $25 plus a pro-rata share of the settlement fund (after legal fees and costs have been deducted).  The plan gives $72 as a representative amount.

“At the end of the day,” says Dvorkin, “it’s the lawyers who make the money.”

A spokesperson for JPMorgan Chase, contacted by ABC News, declined to comment on the settlement.

Copyright 2012 ABC News Radio

Wednesday
Jul182012

Credit Card Settlement May Not Help Consumers

Comstock/Thinkstock(NEW YORK) -- There's one thing plenty of people agree on about the new $7.25 billion settlement reached between big banks and retailers on credit card swipe fees: They don't like it.

"People on both sides of the issue are disappointed," says Anisha Sekar, VP of credit and debit products for NerdWallet, a website that helps consumers decide which credit card program is best for them.

Under the proposed deal -- which, if approved by a judge, would be the largest antitrust settlement in U.S. history -- merchants would be free to tell customers at checkout how much extra they're paying to use a given credit card than if they'd paid by cash.  Merchants also would have the option of imposing a surcharge on credit card purchases, which would help them recoup some of the hefty fees they pay to banks for credit card transactions.

The Wall Street Journal reports that for many retailers, those fees represent the third-biggest cost of doing business, right after rent and payroll.  A merchant's average fee, says the Journal, is 1.5 percent to 3 percent of each credit card transaction.

Defenders of the settlement reached last week say that under it, merchants' costs would be reduced; and further, that consumers would get more information to help them make better decisions about which card to use (or whether to use a card at all, and instead to pay cash).

Jeffrey Shinder, an attorney who represents some 145,000 convenience stores through the National Association of Convenience Stores (NAC), questions how much of a benefit consumers might get.

"If this goes through intact," he says, "you should ask yourself: Are merchants really going to surcharge?  I have my doubts."

Singling out credit card customers for a special charge would be "a PR nightmare in a tight economy," says Shinder.  Moreover, he says, state law in New York, California, Texas and seven other states prohibits such surcharges.  These states together, he says, account for 42 percent of transaction volume.  So, the settlement's terms "won't affect half the country."

One more twist: Merchants who accept American Express are precluded under their agreement with the card provider from imposing surcharges on Amex transactions.  And under the settlement's terms, merchants cannot favor one card over another.  Thus, any merchant who accepts Amex (and can't impose an Amex surcharge) can't impose a surcharge on for any other card, either.

"All of which is to say," says Shinder, "that I don't think there's going to be much impact.  It's why this is not a landmark settlement.  It's not going to benefit consumer welfare."

It could, however, be a huge pain in the neck for merchants.  Doug Kantor, counsel for NAC, foresees widespread confusion and frustration: "At the end of the day, merchants will throw up their hands and say, 'I can't do it,'" he predicts.

Copyright 2012 ABC News Radio

Friday
Jul132012

Settlement May Lead Some Consumers to Pay 'Swipe' Fees

iStockphoto/Thinkstock(NEW YORK) -- Payment networks Visa and MasterCard, as well as a number of large retailers, have agreed to a $7.25 billion settlement that may allow merchants to impose a surcharge on consumers for credit card transactions and end a seven-year battle over credit card swipe fees.

Under the current system, merchants pay interchange, or swipe, fees to Visa or MasterCard that go to banks. The settlement may give merchants the right to recover the cost of the swipe fees from consumers.

Kroger, Safeway and Payless Shoe Source settled with Visa, MasterCard and more than a dozen large banks after U.S. retailers filed a class-action lawsuit in 2005. The settlement must be approved by the Eastern District Court of New York.

The settlement will allow greater transparency to consumers, attorneys for the merchants said, because merchants are now permitted to tell them that there are fees associated with credit card use and they are recouping a portion of it. Or, they could tell the customers that it is cheaper to pay cash.

"Although we have strong defenses to all claims, a settlement avoids years of litigation and uncertainties that are inherent in such cases," said Noah Hanft, MasterCard's general counsel and chief franchise integrity officer. "We believe that today's settlements should resolve all issues with the merchant community."

Joseph W. Saunders, Visa Inc. chairman and CEO, said the company believes "settling this case is in the best interests of all parties."

Patrick J. Coughlin, senior trial counsel at Robbins Geller and one of the lawyers for the plaintiffs, said the new rules will allow merchants to "put pressure on the credit card networks to lower interchange or 'swipe' fees, which are the second- or third-highest cost of doing business for many retailers."

Bonny E. Sweeney, the firm's senior antitrust partner and its principal litigator in the case, said the settlement refunds billions of dollars to retailers that paid "artificially inflated interchange fees."

Frank Keating, president and CEO of the American Banking Association, said retailers were showing "little regard for consumers."

"Let's be clear: Retailers, not consumers, benefit from today's resolution," he said in a statement. "This settlement even provides merchants with the ability to impose 'checkout fees' on customers just for using credit cards. This type of behavior is nothing new for retailers."

Michael Kon, Morningstar senior analyst, said the settlement wasn't a surprise.

He said the right to allow a consumer surcharge for credit card transactions, the core of the legal battle, will affect smaller merchants or "mom-and-pop shops" mostly.

"Businesses like small grocery stores might be more flexible in surcharging for credit card transactions, though they risk losing clients," Kon said.

Kon doesn't expect the settlement to make a significant difference to consumers because large merchants, like Target and Walmart, may be hesitant to impose a surcharge on consumer transactions.

"Paying with credit cards is much more convenient for merchants and shoppers," Kon said. "It might be a bad strategy to penalize someone using the most convenient way to pay."

Many analysts note that merchants already take into account credit card swipe fees when they set their prices, whether you pay by credit card, cash or check.

"I don't see them rushing to give this surcharge to a group of shoppers who choose to pay with credit cards," Kon said.

Sweeney agreed that the settlement doesn't directly affect consumers because not all merchants will impose a surcharge on consumers.

"The helpful aspect of the settlement is [that], whether merchants charge customers or not to recover acceptance, having this tool will increase competition in the payment card market and eventually lower merchants' costs, which will eventually bring down prices for consumers," she said.

When asked the likelihood that merchants will pass on the possible lower costs to consumers, Sweeney said, "The U.S. retail market is very competitive, so it seems likely that merchants will pass the savings to customers."

Copyright 2012 ABC News Radio

Tuesday
Jun192012

CFPB Launches Online Credit Card Complaint Database

Hemera/Thinkstock(WASHINGTON) -- Do you have a gripe with your bank about credit cards?  Well, starting on Tuesday you can see if others feel the same way.

The Consumer Financial Protection Bureau is launching a new online database that will allow consumers to see what kind of complaints others have filed on credit card-issuing banks. Visitors will be able to search complaints by ZIP code, time and issue. They will also be able to see how banks have responded.  
The Consumer Complaint Database, which is currently in the beta stage of development, will not include personal information.

[CLICK HERE TO SEE THE BETA VERSON OF THE DATABASE]

Copyright 2012 ABC News Radio

Friday
Jun082012

Credit Card Borrowing Slows as Consumers Worry About Jobs

Comstock/Thinkstock(NEW YORK) -- Consumers cut back on their use of plastic to buy stuff in April and that has got economists worried.

While Americans did increase borrowing by $6.5 billion that month, due largely to auto and student loan costs, the Federal Reserve said it only represented half the gain from March.

The concern now is that consumers don't see employers in a rush to make big hires so they're less inclined to borrow -- a factor that could further slow down the already tepid economic recovery.

When hiring picks up, as it had during late 2011 and the early part of this year, people will use their credit cards more often because they're less fearful of taking on more debt.  Less borrowing mean more anxiety about the economy.

Even though most economists don't anticipate another recession, consumers are unlikely to use their credit cards as much as they had during the peak housing boom that ended in 2007.

Copyright 2012 ABC News Radio

Monday
Apr232012

Women Pay More for Credit Cards, Study Finds

George Doyle/Stockbyte/Thinkstock(NEW YORK) -- Women pay more for their credit cards than men do, according to new research.

A FINRA Foundation study found that, on average, women pay a half a point higher interest rate on their cards than men do.  And that's after factoring in things like income level, education and even financial literacy.

The study also found more discouraging news for women.  They were:

-- five percentage points more likely to carry a credit card balance;
-- four percentage points more likely to make only the minimum payment;
-- and six points more likely to be charged a late fee.

However, among financially literate men and women, these last three stats disappeared.  Men and women, instead, were equal.

"For women, having a high level of financial literacy appears to pay off," said FINRA Foundation President Gerri Walsh.  "Becoming more financially literate is a great step that any woman can take to keep more of her hard-earned money in her pocket."

Copyright 2012 ABC News Radio

Tuesday
Apr102012

High Gas Prices: Should You Blame Your Bank?

iStockphoto/Thinkstock(NEW YORK) -- Should you blame your bank for high gas prices? A new report out Tuesday says it’s not just supply and demand and Middle East politics that determine the price of a barrel of crude; Visa and MasterCard and the other card companies share some of the blame for the high price of gasoline, the report said.

The new report by the National Association of Convenience Stores says it’s those so-called swipe fees at gas stations.  That’s the fee that stores have to pay credit card companies every time a card is swiped. (Congress took aim at those fees for debit cards, but not credit cards.)  According to the report, when gasoline is $4 a gallon, about 7 cents of that can be blamed on swipe fees.  At $4.50 a gallon, the fee rises to 7.6 cents. That swipe fee, which is partly a percentage of the sales price, goes up with the price of gas.

In the grand scheme of things, swipe fees don’t represent a huge portion of the price.  By some estimates the recent jump in gasoline prices has added only an additional $30 a year to the average driver’s fuel bill.  But convenience stores, which sell a lot of gasoline, point out that folks will drive a great distance just to save a few cents a gallon. They also say that these hidden fees get passed on to every customer, even those paying cash,  because it’s a cost of doing business.

The credit card industry, as might be expected, begs to differ. In a statement, Ken Clayton, an executive vice president with the American Bankers Association, told ABC News, “Once again, the convenience store lobby wants something for nothing.  They want to continue enjoying the benefits of our nation’s payments system -- from lower costs to fraud prevention -- without paying for it or providing lower prices to their customer base.  This ‘report’ is really about convenience stores seeking government price controls that pad their bottom lines, leaving consumers to pick up the tab while they rack up additional profits.”

Jeff Leonard, the vice president of Industry Advocacy for the National Association of Convenience Stores, argues that the bankers’ group “isn’t taking into account the reality of gasoline retailing.” Lower swipe fees would get passed back to consumers, because the price at the pump is so competitive, he said.

“The goal is to lower the price of gasoline and get them in the store,” he added.

Clayton, of the banker’s association, points out that swipe fees are a small part of the retail price, “Gas prices are driven by Middle East instability, gas refinement costs, and the broader issues of supply and demand. It’s time the retail lobby recognizes that and stops making up arguments driven by their own self interest.”

As for consumers, they’re just glad prices seem to be inching down from the recent record highs.

Copyright 2012 ABC News Radio

Monday
Mar262012

‘PayPal Here’ Turns Phones Into Credit Card Readers

ABC News(NEW YORK) -- You’re likely familiar with PayPal as an online payment system. The company’s logos are frequently found on eBay pages or on other websites. Click it and you can pay big or small retailers online via credit card or checking account.

But the equivalent of those online PayPal buttons are going to start showing up in the world outside of your computer screen. Or at least that’s the company’s mission.

“The mobile phone has revolutionized the way we shop,” PayPal’s director of communications Anuj Nayar told ABC News. “If you are making a purchase from your mobile phone in store, what sort of purchase is that? Is it an online purchase? The reality is it is all about multichannel retail.”

And multiple options are exactly PayPal’s strategy. The company has a number of solutions that allow consumers to use the service to pay away from the computer, but its newest one — PayPal Here — allows small merchants and independent sellers to take credit cards right on their phones.

The entire solution is based around a small triangle-shaped dongle, which plugs into an iPhone. When plugged into the headphone jack, sellers can swipe a customer’s credit card right along the top, and then process the payment on the phone using PayPal’s backend. The dongle is fully encrypted.

A companion app provides a place for the customer to confirm the transaction and sign. The same app allows the seller to invoice the buyer or record a cash transaction. While PayPal’s Internet services paved the way for small sellers to open up shop, the dongle and an iPhone now let small stores, street merchants and others to create a very mobile, electronic cash register.

If a merchant doesn’t have the new dongle they can use the app to just take a picture of the credit card. The little triangle itself doesn’t cost anything, but sellers are required to pay PayPal a flat rate of 2.7 percent on any transaction. PayPal Here will be rolling out soon to select small merchants. It will also be available for Android phones very soon, says Nayar.

Other companies, like Square, provide similar tools to sellers.

Copyright 2012 ABC News Radio

Thursday
Mar152012

Thieves Target Gas Pumps to Skim Credit, Debit Cards

iStockphoto/Thinkstock(LOS ANGELES) -- High gas prices have been putting a dent in people’s wallets in recent months, but a small device planted by thieves at gas pumps could be affecting your wallet in a much bigger way.

The thieves are known as “skimmers,” people who steal debit and credit card account information using a high-tech device at gas pumps.

Skimming has been a financial crime across the United States, but has particularly been an ongoing problem in Southern California. Since January of 2011, there have been four cases reported with the Torrance Police Department, according to Sgt. Steven Jenkinson, who works there. Each case can have many victims, with the most recent case affecting around 130 credit card accounts.

“They accessed the panel behind the pump by prying the door open, and they were able to insert an electrical device that captures your account information when you swipe your card,” said  Jenkinson.

A customer was paying for gas by credit card when they realized the card reader was not working. Subsequently, they notified the gas station who decided to call maintenance.

“And then maintenance looked at it. They said, ‘Hey what is this thing? What’s this device in here?’ They knew what it was and that’s when they called us,” said Jenkinson.  Officials arrested three suspects on March 1 for skimming debit and credit card information at the gas pump.

Some gas station owners have taken it upon themselves to prevent the thefts. At Valero gas station in Sierra Madre, Calif., the owner installed four seals on each pump. While the owner declined to comment, Jenkinson explained a broken seal can help the owner identify whether the pump has been tampered with.

“It’s not regulated and it’s not mandatory,” added Jenkinson.

However, he believes it’s important for card users at pumps to be aware of the skimmers.

“People can check their bank statements regularly, if not daily to make sure there are no charges they didn’t make,” he said. Other tips have been to pay inside, use cash and avoid pumps that seem to have been tampered with.

Copyright 2012 ABC News Radio

Wednesday
Feb222012

Credit Card Disclosures: Effective or Not?

Comstock/Thinkstock(WASHINGTON) -- Do credit card disclosures influence consumers’ financial behavior? And if so, do they influence it for the better or the worse? Both, a new study finds.

The Consumer Financial Protection Bureau meets Wednesday to discuss the credit card marketplace, a year after the effective date of many of the provisions of the Credit Card Accountability Responsibility and Disclosure Act (“CARD Act”). Those provisions include a requirement that lenders disclose to consumers on their monthly statements the difference in cost between making the minimum payment due versus some higher amount.

A study by the Harvard Business School addresses such disclosures; it finds they indeed affect consumer behavior, but not always in the way regulators might expect. The findings come from a non-controlled experiment involving 132,000 members of the Affinity Plus Federal Credit Union of Minnesota with a collective portfolio of some 30,000 credit cards.

In the experiment, card holders were given a disclosure explaining the difference in cost to them between paying the monthly minimum and the amount they would need to pay in order to retire their whole card balance in three years.

The sample disclosure showed that if they paid the minimum, it would cost them $6,534 over 14 years to pay off their balances, but that if they paid more ($147), it would cost them $5,297 (a savings of $1,237) over three years.

The results of the experiment were mixed.

Given the disclosure, more consumers opted to pay more than the minimum, and some of them, some of the time, chose to pay the 3-year payoff amount. But consumers who chose this option tended to be those with higher credit balances, those who paid more slowly and those with lower credit ratings. Even when paying the higher amount, they were consumers going ever more deeply into debt.

The reason, says Harvard professor Dennis Campbell, one of the study’s authors, is that lenders revise the 3-year amount with every monthly statement. “It’s a moving target,” he says. Not all consumers understand that.

“We can confidently say that more consumers paid the larger amount,” says Campbell. “But what type of disclosure is best is an open question.” A more useful disclosure, he suggests, might explain the fact that the 3-year target amount is being constantly reset, with the result that consumers who pay it will always be three years away from full repayment, never closer.

Copyright 2012 ABC News Radio







ABC News Radio