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15 novembre 2010 1 15 /11 /novembre /2010 02:10

Rewards

Many credit card customers receive rewards, such as frequent flyer points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses       (Dell XPS M1210 Battery)        .

Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spread. Networks such as Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. Some issuers discourage redemption by forcing the cardholder to call customer service for rewards. On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers      (Dell Studio XPS 1340 Battery)     .

Others encourage redemption for lower cost merchandise; instead of an airline ticket, which is very expensive to an issuer, the cardholder may be encouraged to redeem for a gift certificate instead . With a fractured and competitive environment, rewards points cut dramatically into an issuer's bottom line, and rewards points and related incentives must be carefully managed to ensure a profitable portfolio    (Dell Studio XPS 1640 Battery)    .

Unlike unused gift cards, in whose case the breakagein certain US states goes to the state's treasury, unredeemed credit card points are retained by the issuer.

Fraud

In relative numbers the values lost in bank card fraud are minor, calculated in 2006 at 7 cents per 100 dollars worth of transactions (7 basis points)[16]. In 2004, in the UK, the cost of fraud was over £500 million         (Dell Vostro 1710 Battery)        .

When a card is stolen, or an unauthorized duplicate made, most card issuers will refund some or all of the charges that the customer has received for things they did not buy. These refunds will, in some cases, be at the expense of the merchant, especially in mail order cases where the merchant cannot claim sight of the card. In several countries, merchants will lose the money if no ID card was asked for, therefore merchants usually require ID card in these countries       (Sony VGP-BPS13 battery)      .

Credit card companies generally guarantee the merchant will be paid on legitimate transactions regardless of whether the consumer pays their credit card bill. Most banking services have their own credit card services that handle fraud cases and monitor for any possible attempt at fraud. Employees that are specialized in doing fraud monitoring and investigation are often placed in Risk Management, Fraud and Authorization, or Cards and Unsecured Business       (Sony VGP-BPL9 battery)      .

Fraud monitoring emphasizes minimizing fraud losses while making an attempt to track down those responsible and contain the situation. Credit card fraud is a major white collar crime that has been around for many decades, even with the advent of the chip based card (EMV) that was put into practice in some countries to prevent cases such as these. Even with the implementation of such measures, credit card fraud continues to be a problem      (Sony VGP-BPL11 battery)    .

Promotion

Promotional purchase is any purchase on which separate terms and conditions are set on each individual transaction unlike a standard purchase where the terms are set on the cardholder’s account record and their pricing strategy. All promotional purchases that post to a particular account will be carrying its own balance called as Promotional Balance     (Sony VGP-BPL15 battery)       .

Revenues

Offsetting costs are the following revenues:

Interchange fee

Main article: Interchange fee

In addition to fees paid by the card holder, merchants must also pay interchange fees to the card-issuing bank and the card association      (Dell Inspiron E1505 battery)   .

For a typical credit card issuer, interchange fee revenues may represent about a quarter of total revenues.

These fees are typically from 1 to 6 percent of each sale, but will vary not only from merchant to merchant (large merchants can negotiate lower rates), but also from card to card, with business cards and rewards cards generally costing the merchants more to process   (Dell Latitude E6400 battery)       .

The interchange fee that applies to a particular transaction is also affected by many other variables including: the type of merchant, the merchant's total card sales volume, the merchant's average transaction amount, whether the cards were physically present, how the information required for the transaction was received, the specific type of card, when the transaction was settled, and the authorized and settled transaction amounts         (HP Pavilion dv6000 Battery)       .

In some cases, merchants add a surcharge to the credit cards to cover the interchange fee, encouraging their customers to instead use cash, debit cards, or even cheques.

Interest on outstanding balances

Interest charges vary widely from card issuer to card issuer      (Sony VGN-FZ31S battery)      .

Often, there are "teaser" rates in effect for initial periods of time (as low as zero percent for, say, six months), whereas regular rates can be as high as 40 percent. In the U.S. there is no federal limit on the interest or late fees credit card issuers can charge; the interest rates are set by the states, with some states such as South Dakota, having no ceiling on interest rates and fees, inviting some banks to establish their credit card operations there       (Sony VGN-FZ31S battery)       .

Other states, for example Delaware, have very weak usury laws. The teaser rate no longer applies if the customer doesn't pay his bills on time, and is replaced by a penalty interest rate (for example, 23.99%) that applies retroactively.

Fees charged to customers

The major fees are for:

  • Late payments or overdue payments        (Hp pavilion dv6000 battery)
  • Charges that result in exceeding the credit limit on the card (whether done deliberately or by mistake), called overlimit fees
  • Returned cheque fees or payment processing fees (e.g. phone payment fee)
  • Cash advances and convenience cheques (often 3% of the amount)       (SONY VGN-FZ38M Battery)
  • Transactions in a foreign currency (as much as 3% of the amount). A few financial institutions do not charge a fee for this.
  • Membership fees (annual or monthly), sometimes a percentage of the credit limit.
  • Exchange rate loading fees (sometimes these might not be reported on the customer's statement, even when applied).The variation of exchange rates applied by different credit cards can be very substantial, as much as 10% according to a Lonely Planet report in 2009      (SONY VGN-FZ31z Battery)      .

Over limit charges

Consumers who keep their account in good order by always staying within their credit limit, and always making at least the minimum monthly payment will see interest as the biggest expense from their card provider. Those who are not so careful and regularly surpass their credit limit or are late in making payments are exposed to multiple charges that were typically as high as £25 - £35      (SONY VGN-FZ31E Battery)

until a ruling from the Office of Fair Trading  that they would presume charges over £12 to be unfair which led the majority of card providers to reduce their fees to exactly that level.

US

The Credit CARD Protection Act of 2009, initiated during the term of President G W Bush, and signed into law by President Obama, will require that consumers "opt-in" to over-limit charges        (SONY  VGN-FZ31J Battery) .

Consumers who choose not to opt-in will be unable to make purchases over the limit; the card will simply be declined and no fees will be imposed. This legislation took effect on February 22, 2010.

UK

The higher level of fees originally charged were claimed to be designed to recoup the costs of the card operator's overall business and to ensure that the credit card business as a whole generated a profit     (SONY VGN-FZ31M Battery)         ,

rather than simply recovering the cost to the provider of the limit breach which has been estimated as typically between £3-£4. Profiting from a customer's mistakes is arguably not permitted under UK common law, if the charges constitute penalties for breach of contract, or under the Unfair Terms In Consumer Regulations 1999        (SONY VGN-FZ31B Battery)      .

Subsequent rulings in respect of personal current accounts suggest that the argument that these charges are penalties for breach of contract is weak, and given the OFT's ruling it seems unlikely that any further test case will take place.

Whilst the law remains in the balance, many consumers have made claims against their credit cards providers for the charges that they have incurred, plus interest that they would have earned had the money not been deducted from their account       (SONY VGP-BPS13 Battery)       .

It is likely that claims for amounts charged in excess of £12 will succeed, but claims for charges at the OFT's £12 threshold level are more contentious.

Neutral consumer resources

Canada

The Government of Canada maintains a database of the fees, features, interest rates and reward programs of nearly 200 credit cards available in Canada        (Dell Inspiron 1320 Battery)     .

This database is updated on a quarterly basis with information supplied by the credit card issuing companies. Information in the database is published every quarter on the website of the Financial Consumer Agency of Canada (FCAC).

Information in the database is published in two formats       (Dell Inspiron 1320n Battery)        .

It is available in PDF comparison tables that break down the information according to type of credit card, allowing the reader to compare the features of, for example, all the student credit cards in the database.

The database also feeds into an interactive tool on the FCAC website       (Dell Inspiron 1464 Battery)    .

The interactive tool uses several interview-type questions to build a profile of the user's credit card usage habits and needs, eliminating unsuitable choices based on the profile, so that the user is presented with a small number of credit cards and the ability to carry out detailed comparisons of features, reward programs, interest rates, etc     (Dell Inspiron 1564 Battery)     .

Controversy

Credit card debt has increased steadily. Since the late 1990s, lawmakers, consumer advocacy groups, college officials and other higher education affiliates have become increasingly concerned about the rising use of credit cards among college students. The major credit card companies have been accused of targeting a younger audience     (Dell Inspiron 1764 Battery)     ,

in particular college students, many of whom are already in debt with college tuition fees and college loans and who typically are less experienced at managing their own finances. Credit card debt may also negatively affect their grades as they are likely to work more both part and full time positions         (Dell Studio 1450 Battery)         .

Another controversial area is the universal default feature of many North American credit card contracts. When a cardholder is late paying a particular credit card issuer, that card's interest rate can be raised, often considerably. With universal default, a customer's other credit cards, for which the customer may be current on payments, may also have their rates and/or credit limit changed        (Dell Studio 1457 Battery)        .

The universal default feature allows creditors to periodically check cardholders' credit portfolios to view trade, allowing these other institutions to decrease the credit limit and/or increase rates on cardholders who may be late with another credit card issuer. Being late on one credit card will potentially affect all the cardholder's credit cards. Citibank voluntarily stopped this practice in March 2007 and Chasestopped the practice in November 2007        (Dell Latitude D610 Battery)       .

The fact that credit card companies can change the interest rate on debts that were incurred when a different rate of interest was in place is similar toadjustable rate mortgages where interest rates on current debt may rise. However, in both cases this is agreed to in advance, and is a trade off that allows a lower initial rate as well as the possibility of an even lower rate (mortgages, if interest rates fall) or perpetually keeping a below-market rate (credit cards, if the user makes his debt payments on time) (Toshiba NB100 Battery) .

It should be noted that the Universal Default practice was actually encouraged by Federal Regulators, particularly those at the Office of the Comptroller of the Currency (OCC) as a means of managing the changing risk profiles of cardholders.

Another controversial area is the trailing interest issue       (Toshiba Satellite M65 battery)       .

Trailing interest is the practice of charging interest on the entire bill no matter what percentage of it is paid. U.S Senator Carl Levin raised the issue of millions of Americans affected by hidden fees, compounding interest and cryptic terms. Their woes were heard in a Senate Permanent Subcommittee on Investigations hearing which was chaired by Senator Levin, who said that he intends to keep the spotlight on credit card companies and that legislative action may be necessary to purge the industry      (Toshiba Satellite M60 battery)       .

In 2009, the C.A.R.D. Act was signed into law, enacting protections for many of the issues Levin had raised.

In the United States, some have called for Congress to enact additional regulations on the industry; to expand the disclosure box clearly disclosing rate hikes, use plain language, incorporate balance payoff disclosures, and also to outlaw universal default  (Dell Latitude D830 Battery)       .

At a congress hearing around March 1, 2007, Citibank announced it would no longer practice this, effective immediately. Opponents of such regulation argue that customers must become more proactive and self-responsible in evaluating and negotiating terms with credit providers. Some of the nation's influential top credit card issuers, who are among the top fifty corporate contributors to political campaigns, successfully opposed it           (Dell Studio 1735 Battery)        .

Hidden costs

In the United Kingdom, merchants won the right through The Credit Cards (Price Discrimination) Order 1990 to charge customers different prices according to the payment method. As of 2007, the United Kingdom was one of the world's most credit-card-intensive countries, with 2.4 credit cards per consumer, according to the UK Payments Administration Ltd      (Dell Latitude D620 Battery)   .

In the United States, until 1984 federal law prohibited surcharges on card transactions. Although the federal Truth in Lending Act provisions that prohibited surcharges expired that year, a number of states have since enacted laws that continue to outlaw the practice; California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, New York, Oklahoma, and Texas have laws against surcharges        (Dell Inspiron Mini 10 Battery)      .

As of 2006, the United States probably had one of the world's if not the top ratio of credit cards per capita, with 984 million bank-issued Visa and MasterCard credit card and debit card accounts alone for an adult population of roughly 220 million people. The credit card per US capita ratio was nearly 4:1 as of 2003  and as high as 5:1 as of 2006         (Sony VGN-FW11S Battery)      .

Credit card numbering

Main article: Credit card number

The numbers found on credit cards have a certain amount of internal structure, and share a common numbering scheme.

The card number's prefix, called the Bank Identification Number, is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first six digits for MasterCard and Visa cards     (Sony VGN-FW11M Battery)      .

The next nine digits are the individual account number, and the final digit is a validity check code.

In addition to the main credit card number, credit cards also carry issue and expiration dates (given to the nearest month), as well as extra codes such as issue numbers and security codes. Not all credit cards have the same sets of extra codes nor do they use the same number of digits         (Dell Studio 1555 battery)      .

Credit cards in ATMs

Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card, but many card issuers charge interest on cash advances before they do so on purchases. The interest on cash advances is commonly charged from the date the withdrawal is made, rather than the monthly billing date        (Dell Latitude E5400 Battery)        .

Many card issuers levy a commission for cash withdrawals, even if the ATM belongs to the same bank as the card issuer. Merchants do not offer cashback on credit card transactions because they would pay a percentage commission of the additional cash amount to their bank or merchant services provider, thereby making it uneconomical        (Dell Latitude E4200 Battery)        .

Many credit card companies will also, when applying payments to a card, do so at the end of a billing cycle, and apply those payments to everything before cash advances. For this reason, many consumers have large cash balances, which have no grace period and incur interest at a rate that is (usually) higher than the purchase rate, and will carry those balance for years, even if they pay off their statement balance each month          (Dell Vostro A840 Battery)     .

Credit cards as funding for entrepreneurs

Credit cards are a risky way for entrepreneurs to acquire capital for their start ups when more conventional financing is unavailable. It's widely reported that Len Bosack and Sandy Lerner used personal credit cards  to start Cisco Systems. It is rumoured that Larry Page and Sergey Brin's start up of Google was financed by credit cards to buy the necessary computers and office equipment, more specifically "a terabyte of hard disks"     (Dell Inspiron 300M Battery)      .

Similarly, filmmaker Robert Townsend financed part of Hollywood Shuffle using credit cards.  Director Kevin Smith funded Clerks in part by maxing out several credit cards. Actor Richard Hatch also financed his production of Battlestar Galactica: The Second Coming partly through his credit cards. Famed hedge fund manager Bruce Kovner began his career (and, later on, his firm Caxton Associates) in financial markets by borrowing from his credit card. UK entrepreneur James Caan (as seen on Dragon's Den) financed his first business using several credit cards    (Dell Latitude E6400 battery)     .

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