Archive for the ‘Credit Cards’ Category

Fed Watch: What’s the impact of 1/4 of 1% interest rate increase on you (and me)?

September 22, 2015

Last week’s Federal Reserve action (err, make that inaction) caused a stir in the financial markets.

Common view was: ” geez, is the economy so bad that it can’t absorb a measly 25 bps increase in interest rates?”

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Source

In yesterday’s post, I put the number in context, illustrating that the economic cost of a measly .25%  just on servicing the national debt is about $45 billion ( .25% times $18 trillion) ….  equivalent to roughly half of the Federal government’s annual cost for ObamaCare.

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Today, let’s take a couple of more views of the 1/4 of 1 % …. the impact on household incomes.

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Hacked: LifeLock CEO spanked by identity thieves … 13 times.

August 4, 2015

Since LifeLock is in the news again, I thought I should reprise the HomaFiles all-time most viewed post …

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Here’s one from the “you can’t make this stuff” file.

LifeLock is one of the companies that monitors the credit applications and credit worthiness inquires.

Todd Davis became LifeLock’s CEO when the company’s founder was ousted for making repeated misleading statements about his shady past and the company’s origins.

For a couple of years, Mr. Davis was prominent in LifeLock’s ads … revealing his social security number and daring identity thieves to crack his code.

Bad idea.

 

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Reportedly, Mr. Davis has had his identity stolen at least 13 times since his taunt-the-thieves commercials.

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Hacked: The purloined smart card …

June 10, 2015

A friend reported an interesting – and very ironic – breach of credit card security.

She had one of the fancy new cards with an embedded chip intended to confound cyber-thieves.

In “normal” operations, no problems.

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But, she encountered a truck-sized hole in the program .

Here’s what happened …

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Hacked: LifeLock CEO spanked by identity thieves … 13 times.

February 16, 2015

Lots of hacking going on: Sony, Anthem Healthcare …

Here’s one from the “you can’t make this stuff” file.

LifeLock is one of the companies that monitors the credit applications and credit worthiness inquires.

Todd Davis became LifeLock’s CEO when the company’s founder was ousted for making repeated misleading statements about his shady past and the company’s origins.

For a couple of years, Mr. Davis was prominent in LifeLock’s ads … revealing his social security number and daring identity thieves to crack his code.

Bad idea.

 

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Reportedly, Mr. Davis has had his identity stolen at least 13 times since his taunt-the-thieves commercials.

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Hacked: What I learned when I was credit hacked …

July 1, 2014

Last year around this time, I told the said story about how some bad guys tried to steal my identity and open up credit cards and car loans in my name.

Bottom line: An ordeal that burned up a bunch of my time and caused plenty of angst … but, no serious damage (that I know of).

A friend just got had his identity hacked.  Somebody filed an IRS 1040 under his name and social security number, hoping to bag a refund check.  Fortunately, the IRS flagged the return as suspicious and didn’t pay-off against the fraudulent return.

 

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Now, as a public service, here’s what I learned that may help you …

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What’s in your wallet?

June 6, 2014

A couple of interesting charts from the Fed’s Triennial Payments Study…

If you’re like most Americans, there both debit and credit cards in your wallet …. both debit and credit card usage is increasing … with debit card usage increasing by leaps and bounds..

 

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That said, cash is still king …

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Trax: About your credit score(s) …

August 13, 2013

While most people tend to think that they have one credit score, there are actually many different types of scores.

 

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Here are some specifics …

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Trax: The business of credit reporting …

August 8, 2013

Everybody knows vaguely that so-called “credit bureaus” track your credit histories and report them to lenders.

 

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Here are some specifics about credit bureaus that you might not know …

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Hacked: LifeLock CEO spanked by identity thieves … 13 times.

August 2, 2013

Let’s end “hacked” week with one from the “you can’t make this stuff” file.

LifeLock is one of the companies that monitors the credit applications and credit worthiness inquires.

Todd Davis became LifeLock’s CEO when the company’s founder was ousted for making repeated misleading statements about his shady past and the company’s origins.

For a couple of years, Mr. Davis was prominent in LifeLock’s ads … revealing his social security number and daring identity thieves to crack his code.

Bad idea.

 

image

 

Reportedly, Mr. Davis has had his identity stolen at least 13 times since his taunt-the-thieves commercials.

(more…)

Hacked: What I learned when I was credit hacked …

August 1, 2013

Yesterday, I told the said story about how some bad guys tried to steal my identity and open up credit cards and car loans in my name.

Bottom line: An ordeal that burned up a bunch of my time and caused plenty of angst … but, no serious damage (that I know of).

 

image

 

Now, as a public service, here’s what I learned that may help you …

(more…)

Hacked: This time it’s personal …

July 31, 2013

Though I’ve on the case re: internet tracking, I’ve gotta admit that I’d been pretty cavalier re: identity theft on a personal level.

Not any more.

I’ve been hacked and “thieved”.

And, take it from me, it isn’t pretty.

Computer hacker

 

Here’s what happened and what I’ve learned that might help you

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Charge your cell phone … then charge your burger on it.

October 23, 2012

Punch line: Not many consumers are currently using mobile phones to make purchases, but that’s about to change.

As more companies start to offer and advertise mobile payment options, consumers will start to spend more using their mobile phones.

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Excerpted from Adage’s, “Mobile Payments Still Tiny, Set to Explode in Next Four Years”

A few people have traded in their wallets for their phones to make small purchases like coffee and movie tickets, but we’re about to see explosive growth in the market as more consumers use smartphones to pay for things like groceries and gas.

Research firms estimate that the total transaction value for mobile payments in the U.S. will be $640 million this year, but that will grow to more than $62 billion in 2016 as a bigger segment of the population uses their phones to buy medium-ticket items, including fast-food restaurants.

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The average user of mobile payments will spend $62 a year with their phones in 2012, but that grows to $1,294 in 2016.

The steep growth curve assumes merchants continue to adopt mobile payments and that using phones for purchases demonstrates enough value to consumers to replace credit cards and cash.

The mobile payments market today includes startups like Square, LevelUp and The Protean Echo; services backed by credit card companies like Visa and American Express ; a consortium of big merchants like Target and 7-11 and CVS; tech companies like PayPal, Google Wallet and Apple’s Passbook; not to mention Verizon, AT&T and T-Mobile which have their own consortium, ISIS.

While the array of platforms and technologies creates confusion for consumers, it will also raise awareness broadly, as payment options become more ubiquitous and various players spend on marketing to gain users.

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Amex offers co-branded Wal-mart prepaid card … say, what?

October 17, 2012

Punch line: Wal-Mart and American Express take aim at the traditional credit card model to offer an alternative to lower-income consumers.

The new card will expand AmEx’s customer base while offering Wal-Mart another foray into financial services.

Blubird today, platinum tomorrow … I guess.

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Excerpted from Reuters’, “Wal-Mart, Amex team up on card for lower-income shoppers”

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Wal-Mart Stores Inc and American Express Co. have teamed up to provide financial services to customers who often do not have traditional bank accounts by offering a prepaid debit card called Bluebird.

The move will give American Express … a 4,000-store gateway to tens of millions of so-called “underbanked” households and … Walmart will get to extend its mantra of “every day low prices” to yet another sphere and come closer to achieving its years-long goal of offering banking services.

The Bluebird will allow for deposits by smartphone and mobile bill paying, with no minimum balance or monthly, annual or overdraft fees, the companies said on Monday.

“Bluebird is our solution to help consumers who currently may be poorly served by traditional banking products,” said Dan Schulman of American Express. “In an era where it is increasingly ‘expensive to be poor,’ we have worked with Wal-Mart to create a financial services product that rights many of the wrongs that plague the market today.”

Edit by JDC

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So much for consumer deleveraging …

June 9, 2011

In the 1960s and 1970s, consumer debt as a percentage of after-tax income averaged a bit over 60%.

Starting in the Clinton years – and gaining steam through the Bush years – the ratio doubled – as consumers took out easy money mortgages and credit cards.

The 2009 financial scare prompted a wave of debt-reduction, but it looks like the austerity wave is becoming passé.

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According to the WSJ:

The economy is likely to be stuck with at best subpar growth until the private sector’s deleveraging, or debt-shedding, process is complete.

Households have made some progress lately, but this still looks to be in its early stages.

While debt as a percentage of after-tax income has fallen from its peak, it remains about 120% — well above the 89% it averaged in the 1990s.

And, there are signs that consumers are even starting to borrow again:

  • Consumer credit outstanding rose by $5.5 billion in April after a $6 billion increase in March.
  • Student-loan debt is at record-high levels
  • There has been an uptick in credit-card borrowing by cash-strapped consumers.

P.S. In Japan, deleveraging took the better part of 15 years.

[AOT]

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In the payments war, merchants signal to Visa: don’t discount us

February 2, 2010

Takeaway: A seemingly inconsequential payment decision by consumers may secretly cost them hundreds of dollars per year.

Merchants have become increasingly irritated by debit card fees, set by Visa and MasterCard and enjoyed by the card issuing banks. Retailers have responded by raising their prices in an effort to pass along these costs to their consumers.

The payment industry is dominated by a few major players and this dynamic has provided payment networks such as Visa with price-maker power. However, in a high stakes move, some businesses are now willing to sacrifice some sales in order to refuse certain types of plastic.

With billions of dollars on the line, only one thing is for sure – this battle of who cedes value to whom is unlike to be settled anytime soon.

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Excerpt from New York Times, “How Visa, Using Card Fees, Dominates a Market” by Andrew Martin, January 4, 2010.

Every day, millions of Americans stand at store checkout counters and make a seemingly random decision: after swiping their debit card, they choose whether to punch in a code, or to sign their name.

It is a pointless distinction to most consumers, since the price is the same either way. But behind the scenes, billions of dollars are at stake.

When you sign a debit card receipt at a large retailer, the store pays your bank an average of 75 cents for every $100 spent, more than twice as much as when you punch in a four-digit code.

Despite all this, signature debit cards dominate debit use in this country, accounting for 61 percent of all such transactions, even though PIN debit cards are less expensive and less vulnerable to fraud.

Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder’s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers.

Seizing on this odd twist, Visa enticed banks to embrace signature debit — the higher-priced method of handling debit cards — and turned over the fees to banks as an incentive to issue more Visa cards.

Critics complain that Visa does not fight fair, and that it used its market power to force merchants to accept higher costs for debit cards. Merchants say they cannot refuse Visa cards because it would result in lower sales.

Visa officials say its critics are griping about debit products that have transformed the nation’s payment system, adding convenience for consumers and higher sales for merchants, while cutting the hassle and expense of dealing with cash and checks. In recent years, New York cabbies and McDonald’s are among those reporting higher sales as a result of accepting plastic.

Visa officials said the costs of debit for merchants had not gone down because the cards now provided greater value than they did five or 10 years ago. The costs must not be too onerous, they say, because merchant acceptance has doubled in the last decade.

The fees are “not a cost-based calculation, but a value-based calculation,” said a Visa executive.

Visa provides an electronic network that acts like a tollbooth, processing the transaction between merchants and banks and collecting a fee that averages 5 or 6 cents every time. For the financial year ended in June, Visa handled 40 billion transactions

An executive from retail giant Best Buy said: “Every additional dollar we are forced to pay credit card companies is another dollar we can’t use to hire employees, or pass along to our customers in the form of savings.”

Merchants said they had no choice but to continue taking the debit cards, despite the higher fees, because Visa’s rules required them to honor its debit cards if they chose to accept Visa’s credit cards.

Safeway, 7-Eleven and CVS drugstores automatically prompt consumers to do a less costly PIN debit transaction. The banks, however, still steer consumers toward the more expensive form of signature debit. Wells Fargo and Chase are among those that offer bonus points only on debit purchases completed with a signature.

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Full Article:

http://www.nytimes.com/2010/01/05/your-money/credit-and-debit-cards/05visa.html?em

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Hate Overdraft Fees? You’re Not Alone …

April 9, 2009

Excerpted from WSJ, “Consumers Vent on Overdraft Fees” By Kelly Evans, Mar 26, 2009

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In recent years, overdraft fees made billions of dollars for banks, but only worsened the hangover for a debt-addicted nation. Now, amid an overhaul of financial institutions and their services, consumers are seizing their moment to cry foul.

The Federal Reserve ends a public comment period this month to determine whether banks’ current handling of overdraft fees needs to be changed. In the process, its Web site has become a sounding board for Americans’ frustration with all things banking, from billion-dollar bailouts to the average $27 fine for overdrawing on an account

Overdraft fees usually work like this: A customer makes a purchase … but doesn’t realize his account doesn’t have enough for the transaction. Rather than decline his card or alert him, the bank allows the transaction to proceed, so [the consumer] isn’t aware that his account is negative — or that he has incurred a $35 overdraft fee — until he checks his balance online …

Most banks and credit unions automatically sign customers up for what they call overdraft “protection,” that allows — rather than blocks — purchases and ATM withdrawals that overdraw their bank accounts. For this service, the institutions charge customers fees ranging from $10 to $38 per overdraft …

Some 86% of banks the FDIC surveyed had overdraft programs in place in 2006, and three-quarters automatically enrolled customers in such programs. The survey also found overdraft fees were most common among young adults, ages 18 to 25, and low-income accounts. A separate analysis … shows banks and credit unions earned $36.7 billion in consumer overdraft revenue last year, about three-quarters of their total service charge income

People … say this isn’t fair. They want the option either to opt out of the service altogether or to be told when they’re about to make a purchase that will overdraw their accounts and incur a fee … others also object that when several purchases happen simultaneously, banks process the largest ones first, so that each subsequent smaller charge incurs a fee.

The Fed is considering a number of different approaches, ranging from no change in current practices to requiring banks to give notification on every purchase that would result in an overdraft, but many institutions say the latter isn’t realistic … others say the only real option is to allow customers to opt entirely in or entirely out of overdraft service. Those who opt out would see their cards declined on those purchases exceeding the amount available in their checking accounts …

[However] it isn’t clear how much ramped-up regulation would benefit consumers, especially if it prompts banks to cover the cost of new regulation and make up for the lost fee income by restricting debit-card usage or imposing fees elsewhere, such as on free checking accounts … “Somewhere or another these costs have to be covered,” said William Cooper, chief executive of TCF Bank … it could mean the end of free checking … “Then everyone will end up paying for it.”

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123803178615743761.html?mod=article-outset-box

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A Balancing Act for Credit Card Issuers: Cutting Costs While Keeping Customers

March 26, 2009

Excerpted from Reuters, “Credit Card Firms Slashing Rewards to Cushion Losses”, March 11, 2009

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U.S. credit card issuers are slashing rewards, raising interest rates and increasing fees as loan losses mount, taking action to “maintain a certain profit level in the business.”

Reward programs are expensive for credit card companies—for example, Discover Financial Services posted revenue of $5.7 billion in 2008, while the net cost of its rewards program was $710 million—so issuers want to make sure they are worthwhile.

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In a recent presentation to investors, JPMorgan said cardholders using its reward program showed a faster increase in spending, generated higher revenue and had lower credit loss rates.

But that does not mean card companies will keep offering freebies to attract customers. They are trying to determine which customers are good bets. 

In addition, lenders are trying to pass on part of the cost of reward programs to merchants by offering joint promotions that could bring new businesses and customers to battered retailers.

Not only have rewards been cut back—it has become more difficult to cash them in.

Still, losing a few rewards may be the easy part. Other credit card companies are raising interest rates and increasing fees, or simply closing down accounts entirely.

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But this strategy could backfire: Higher costs and fewer rewards could frighten clients away, reducing the risk of default but also cutting into card company revenue.

“The people who have better credit quality have more offers, and if you raise their rates too much they will in fact leave you for somebody else.”

Edit by DAF

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Full article:
http://www.cnbc.com/id/29637583 

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Even credit card companies are tightening up …

March 13, 2009

Excerpted from WSJ, “Credit Cards Are the Next Credit Crunch”, Whitney, March 10, 2009

Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon.

(That compares to total mortgage debt of over $10.5 trillion)

I believe that there will be at least a 57% contraction in credit-card lines. Of the $5 trillion, over $2 trillion of credit-card lines is likely to be cut in 2009, and $2.7 trillion by the end of 2010.

As we return to more realistic underwriting standards, certain borrowers will no longer appear worth the risk, and therefore lines will continue to be pulled from those borrowers.

Lenders have reduced credit lines based upon “zip codes,” or where home price depreciation has been most acute. Such a strategy carries the obvious hazard of putting good customers in more vulnerable liquidity positions simply because they live in a higher risk zip code.

Currently five lenders dominate two thirds of the market. Credit-card lenders are currently playing a game of “hot potato,” in which no one wants to be the last one holding an open credit-card line to an individual or business. While a mortgage loan is largely a “monogamous” relationship between borrower and lender, an individual has multiple relationships with credit-card providers. Thus, as lines are cut, risk exposure increases to the remaining lender with the biggest line outstanding.

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Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool.

For example, 90% of credit-card users revolve a balance (i.e., don’t pay it off in full) at least once a year, and over 45% of credit-card users revolve every month.

A relatively small portion of U.S. consumers have actually maxed out their credit cards, and most currently have ample room to spare on their unused credit lines. For example, the industry credit line utilization rate (or percentage of total credit lines outstanding drawn upon) was just 17% at the end of 2008.

Full article:
http://online.wsj.com/article/SB123664459331878113.html

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