Executives from Chase, Citi and Bank of America Testify Before The U.S. Senate
A lot of folks out there like to bash credit card companies for their high fees and draconian penalties but I don't buy a lot of it, mostly because I've been able to surf 0% offers and enjoy interest-free loans for years now, which has enabled me to do great things from both a business and personal perspective. Bottom line: if you're a responsible borrower then the banks will treat you accordingly. It's really that simple. And I'm writing from experience: I am now a very responsible borrower, and, many years ago, I was the exact opposite (and then some!)
I was watching Bank of America's Bruce Hammonds, Citigroup's Vikram Atal and Chase Bank's Richard Srednicki testify before the U.S. Senate Committee on Homeland Security and Governmental Affairs on C-Span today. The hearing's title was "Credit Card Practices: Fees, Interest Rates, and Grace Periods." It was a very good discussion and I'm glad I caught it. Lots of hard questions were asked, and I learned quite a bit from the responses, comments and complaints made by hearing participants.
I was actually quite surprised to find myself on the side of the banks more often than I was against them. Four industry practices I don't like:
OK, now I present the positive side, the way I see it:
It's my opinion that credit card offers will only improve over time. Just last week, the folks at Citigroup announced that they won't play the Universal Default game anymore. Check out this clip from a recent press release:
Bank of America does not today, and has not in the past, engaged in the practice of Universal Default. Kudos to you, BofA.
The folks at Discover Card recently agreed to remove the Universal Default clause from the terms & conditions related to their credit card offerings. A gold star for you, Discover.
Double-cycle billing is one way that you can end up paying interest on charges even though you've been paying your balance in full each and every month. The folks at Chase recently announced that they won't engage in the practice of double-cycle billing anymore. They also announced that once an account is assessed an over-the-limit fee, Chase will stop adding new over-the-limit fees after 90 days.
Some interesting numbers:
I was watching Bank of America's Bruce Hammonds, Citigroup's Vikram Atal and Chase Bank's Richard Srednicki testify before the U.S. Senate Committee on Homeland Security and Governmental Affairs on C-Span today. The hearing's title was "Credit Card Practices: Fees, Interest Rates, and Grace Periods." It was a very good discussion and I'm glad I caught it. Lots of hard questions were asked, and I learned quite a bit from the responses, comments and complaints made by hearing participants.
I was actually quite surprised to find myself on the side of the banks more often than I was against them. Four industry practices I don't like:
- 1) I'm very much against the marketing of credit cards to high school and college students. My credit woes (which are now ancient history) began in college when I lost my head with a credit card. I just learned today that the credit card companies pay schools for the right to shower kids with credit card offers. Should a kid with no experience with finances, working (maybe) a part-time job at minimum wage have a credit card? I don't think so! A college or high school student should have a prepaid debit card that can be monitored by parents online. Yup. Of course, the credit card companies should not shoulder all the blame: by accepting money from banks and credit card firms, colleges and universities are complicit with this dubious practice. Not good.
- 2) The way the credit card companies calculate the so called "grace period" needs to be fixed. There are credit consumers out there who pay their balance in full each and every month and still get stuck with interest charges because they don't really understand how the grace period rules work. Bottom line: the grace period rules are confusing, and industry leaders need work on improving the way grace periods are structured.
- 3) I understand the reasoning behind Universal Default, but the credit card companies have taken it too far. Credit card companies should either scale it back, or get rid of it altogether (see below for some positive news related to Universal Default.)
- 4) The use of the term "pre-approved." Nonsense. Some time ago I had an application declined, and it was initiated from a so-called "pre-approved" credit card offer. The experience really boiled my blood, especially because any rejection can cause your credit score to decline.
- 5) In my opinion, "fixed" should mean fixed, all the time, every time. Is that too much to ask? Under current federal law, a "fixed" annual percentage rate (APR) on a credit card means that the credit card company can change the so-called "fixed" rate as long as they give you 15 days notice of the change. To be fair to consumers -- especially those who are new to credit cards -- credit card companies should instead use the term "conditionally fixed" or "provisionally fixed."
OK, now I present the positive side, the way I see it:
- O% Intro APR offers: love 'em!
- Credit card debt is unsecured! even if you decide to totally blow off your credit card debt, no one will come and take your home, your car, your first-born child, etc.
- Fraud protection: with most credit cards out there, if you get ripped off and you paid with a consumer credit card, you can dispute the charges (chargeback.) Furthermore, If someone gets hold of your credit card and goes crazy, in most cases you won't be responsible for those charges.
- The Internet makes it easier than ever to pay your bill on time. Even if you don't have an Internet connection, you can always stop by your local library and get online from there. And the industry should be commended for instituting payment tools like scheduled payments, automatic payments and email alerts (I use them all), so even the laziest of the lazy need not worry about late payments.
- Competition and regulation keep the banks and credit card firms in check. Don't like the terms with one card? Switch to another!
- No one is forced to open a credit card account!
- Convenience and Tracking: Who wants to carry wads of cash around all the time? Plus, it's much easier to track your spending when you use a credit card.
- Compared to 20-30 years ago (yes, I'm quite old!), credit is very easy to get today. Furthermore, interest rates were in the 20% range for everybody back then! And the fees! How many credit cards (credit cards, not charge cards) do you have in your wallet that charge and annual fee? I'm willing to bet none.
It's my opinion that credit card offers will only improve over time. Just last week, the folks at Citigroup announced that they won't play the Universal Default game anymore. Check out this clip from a recent press release:
Kudos to you, Citi, for moving in the right direction.
"...Citi is eliminating the industry practice of increasing interest rates for individual cardholders due to their defaults on financial commitments with other parties, sometimes known as “universal default”. Until now, Citi has given customers the right to opt out of any such increase. But with this announcement, Citi is going even further, abandoning the practice altogether for all customers.
Citi is also eliminating “any time for any reason” increases to the rates and fees of its customers’ accounts. Traditionally, credit card issuers have taken the position that they can increase the rates and fees of a cardholder’s account at any time for any reason; for example, to respond to general conditions in the financial markets. As a result of the new policy, Citi will not voluntarily increase the rates and fees of the account until the card expires and a new card is issued (typically two years).
Now, the only reason the rates and fees will increase before the card expires is if a customer pays Citi late, exceeds the credit limit or pays with a check that bounces. When the interest rate on the card is linked to the prime rate, the rate would change only as the prime rate moves up or down..."
Bank of America does not today, and has not in the past, engaged in the practice of Universal Default. Kudos to you, BofA.
The folks at Discover Card recently agreed to remove the Universal Default clause from the terms & conditions related to their credit card offerings. A gold star for you, Discover.
Double-cycle billing is one way that you can end up paying interest on charges even though you've been paying your balance in full each and every month. The folks at Chase recently announced that they won't engage in the practice of double-cycle billing anymore. They also announced that once an account is assessed an over-the-limit fee, Chase will stop adding new over-the-limit fees after 90 days.
Some interesting numbers:
- In 2006, Chase Card Service made $3,206,000,000 in profit, accounting for 22% of Chase's overall earnings.
- Profitability for large credit card issuers was in the 3.6% to 4.1% range between 2003 and 2005.
- Right now there are 6,000 credit card issuers in the United States.
- 41% of credit card account holders pay their balance in full each month.
Labels: bank_of_america, chase_credit_card, citi, credit_card_fees, credit_card_practices, discover_credit_card, universal_default, us_senate
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posted by FedPrimeRate.com | 3/07/2007 10:49:00 PM
10 Comments:
Really excellent article.
I agree with several of your points.
Credit cards are a wonderful convenience, but it is VERY easy to bury yourself in debt if you are not careful!
Hello
I tend to agree that is used wisely then Credit Cards can actually be a very useful tool especially with 0% APR offerings, however after the honeymoon period failure to pay could cause large debt build up.
I also have to agree that I think it is somewhat wrong to market these cards to vulnerable and needy people as they are more likely to use it to extend their monetary value but not consider the consequences later caused by doing so.
The problem with credit is that it is so easy to receive. For instance walk in to your local store and sign up for a store card, only takes 2 mins, and you get a great saving, forget to pay it and you have a great problem as well as a great saving, and you actually loose your saving and quickly spiral into debt. I think there should be stricter regulations on credit cards.
Problem with credit cards is that sometimes they are too convenient to get. Credit cards are just a phone call away. Intense competition has made getting credit cards so easy that even terrorists can get themselves several credit cards without any hassles. There should be some more strict and proper procedures and verifications for issuing credit cards.
And one other thing which I hate about them is their way of marketing. They irritate customers so much by repeatedly calling us on mobiles with offers and one yes you say and without thinking they send a pre approved card. Imagine me being a student I have received over 30 such calls for credit cards. What will a student do with it?
They should stop such marketing practices. Its invasion of privacy as mobile companies sell the database to financial companies for large sums.
Otherwise I agree Credit cards are very convenient way of carrying cash.
I think that credit card companies marketing themselves to vunerable people, even children is underhand and there probably should be laws against it.
In my opinion it's actually getting harder now to get a loan or credit card but it's more likely because credit card companies are more worried about getting their money back rather than their customers wellbeing.
There does need to be new regulations as for credit card marketing, too many people are being tempted into debt.
The real problem with the credit cards, for me, is the no easy way to consolidate the payment dates. I have Four at the moment and using all, but i am using much time in micromagnament. I think if exist a easy way to consolidate the payment dates, to any payment dates given for us or the banks, then we dont forget pay, and can compare better what is the real status or advantages of each one.
Credit Cards can actually be very useful,They can be used to build a positive credit history.This can enhance ability to receive a private student loan, buy a car, rent an apartment, get a job, and eventually, try to buy a house. Of course, there are many advantages to having a credit card,I agree with several of your points.
Hello
I tend to agree that is used wisely then Credit Cards can actually be a very useful tool especially with 0% APR offerings, however after the honeymoon period failure to pay could cause large debt build up.
I also have to agree that I think it is somewhat wrong to market these cards to vulnerable and needy people as they are more likely to use it to extend their monetary value but not consider the consequences later caused by doing so.
The problem with credit is that it is so easy to receive. For instance walk in to your local store and sign up for a store card, only takes 2 mins, and you get a great saving, forget to pay it and you have a great problem as well as a great saving, and you actually loose your saving and quickly spiral into debt. I think there should be stricter regulations on credit cards.
Problem with credit cards is that sometimes they are too convenient to get. Credit cards are just a phone call away. Intense competition has made getting credit cards so easy that even terrorists can get themselves several credit cards without any hassles. There should be some more strict and proper procedures and verifications for issuing credit cards.
In my opinion it's actually getting harder now to get a loan or credit card but it's more likely because credit card companies are more worried about getting their money back rather than their customers wellbeing.
I would have to say that I disagree with your opinion that credit card companies should not advertise to young adults.
It is important that we learn the importance of managing finances at a young age. I am currently 16, and I have had a credit card for a while now, using it only for emergencies.
It is an extremely big responsibility; it is better that youngsters get over the burden of dealing with money at a young age rather than dealing with it as an adult, when a stupid decision could break them financially.
I must concede that there are many young people perhaps not fit to deal with credit cards, however, dealing with finances is an obstacle they will have to overcome at some point in their life.
Recently, statest have brought into effect laws that require high schools to implement an e-portfolio or some equivalent where students have to plan out finances for their future and submit the results in a report.
I would have to say, overall, that I agree with you: credit card companies can be rather deceptive. However, when you are on the top-end of managing your finances, there are many benefits such as "cash-back" reward offers for using your card.
As long as you pay on time and do not make foolish decisions such as renewing your mortgage, you should be fine.
Again, nice article; I will recommend it to my friends.
> it is better that youngsters
> get over the burden of dealing
> with money at a young age rather
> than dealing with it as an adult...
Thanks for your comment.
IMO, the first finance-related lesson a young person should learn is the importance of spending what you have to spend, and not using a credit card to live beyond your means.
I'm not against students having credit cards, but I am against the aggressive marketing to students by the credit card companies, especially on campus.
The credit card companies cast a very wide net, approving many people who really shouldn't be approved. As a result, the folks who pay their bills on time each and every month end up paying more in interest charges in order to compensate for those who pay late and/or default.
If a student wants or needs a credit card, he/she can easily find an application online or off.
It's amazing how when you really listen and pay attention to what's going on, the banks aren't the big bad guys that they are often made to look like.
Now don't get me wrong; the consumer credit industry isn't the nice guy, either. However, my observation is that consumers simply do not take enough responsibility for their own actions. Debt can indeed be a trap, but so can mishandling your finances and borrowing irresponsibly. Credit was originally designed to be a lifeline, but many consumers treat it like a pipeline that delivers free money to all those who can't afford to buy what they want when they want it.
Great post, even though it's a bit older. Just proves that this is a really solid blog!
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