I've been chronicling the credit-card industry at CreditMattersBlog.com for exactly ten months. It's amazing how much -- and how rapid -- the industry has changed during that time. Rising losses have prompted card issuers to raise fees, raise interest rates, and cut credit limits. The moves have affected good customers and bad. The question is: have credit-card issuers gone too far?
From Bloomberg Markets magazine:Banks need healthy credit card earnings, since they can no longer rely on profits from trading the exotic securities that brought the markets to the abyss. Now, they are squandering customer loyalty and curtailing lending, which will hurt them in the long run, says Robert Hammer, chief executive officer of Thousand Oaks, California-based credit card advisory firm R.K. Hammer Investment Bankers.
The retreat occurring in credit cards is like nothing Hammer has seen in his 30-year banking career, he says. “They are shooting themselves in both feet,” he says. “They are saying, ‘We aren’t going to take risk.’”
Initially, I figured that some of my readers were just talking a big game. "We're never using credit cards again," they'd say. "I'll never use that card again," an emailer would write. But as time goes on, I become more convinced that some of my readers will forgo credit-card use forever. Still others will use credit cards but become pay-in-full customers exclusively (a very good thing for customers; not so good for card issuers).
The past ten months has been fascinating. I'm curious to see what the next 12 months has in store for us.
You can read the rest of Bloomberg's story here.
Friday, May 1, 2009
It Depends On Meaning Of Usury As U.S. Credit Cards Average 14%
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32 comments:
Pay Back Time for Credit Card Companies
http://seekingalpha.com/article/134589-pay-back-time-for-credit-card-companies
I dont know CM, I love my plastic but I am so tired of this game. It has become too difficult to rely on your cards working the way they should, no matter if you are a good or bad customer. You dont know what to do to simply keep what you got. Some companies are slashing or closing you if you use the card too little while others are closing you down if you use it too much. Pay early and they are holding the payments, pay late and well.... you are screwed! Carry a balance or dont carry a balance an you are either getting hit with fees or higher interest. None of it makes sense and this is leading me to believe that I should just pay them all off and then close them for good. Its just too much to concentrate on right now when there are so much bigger issues to deal with right now than worrying about my credit cards. I can live without them but can they live without me??
Collins, I see your point. I had a person email me last night. She told me that one of her credit card limits got slashed by $15,000. Her other card's interest rate is getting hiked. She doesn't carry balances. She asked if she should close the cards. Just out of principle.
I told her to leave the cards open and just use them sparingly. As long as our credit scores remain important in this country, I say to keep cards open. You don't have to use them much, though.
I think you can live without cards fine, too. You'd need enough people to join you, though, to hurt the card issuers.
Put me in the group of people who are taking action of the "never use that card again" variety. I've been a user of credit cards strictly for the convenience factor, I don't carry a balance, ever, but that does not mean I won't EVER carry a balance. The fact of the matter is that American Express and Discover have both at least attempted to treat me as a valued customer, while my Visa account, issued by my bank, has ruined a relationship completely with a combination of absurd fees and rules. Not only did I go and cancel the visa account, but we're also pulling out of our current bank.
There's a 3rd way the banks could have taken - lower profits. Terrifying, but profits are profits and some is better than none.
Martin, thanks for the comment. Lower profits? Ha! Tell that to a banker and watch him or her go into convulsions.
I'm not in the "never use cards again", but I am going to be moving into the "never carry balances again" camp. All of this has been a huge wake up call for me, as I got used to carrying much larger balances than I could justify (which I didn't mind so much at a low interest rate, but once I got ratejacked, I realized it was a bad idea).
So at the very least, they won't be making any money on me in interest fees, as I'll be doing PIF as soon as I finish paying off my current balances.
Tom, congrats on choosing the PIF route. I made that transition more than 3 years ago. It was a great decision.
Anyone that is goal driven, long term thinkers, can't achieve their financial goals in a chaotic enviroment. Long term thinkers hate chaos. Credit card companies are acting chaotically with limits, fees, rates, and customer service. People want to know that if they pay on time, keep their score high, and maintain a low balance that their limit and rate will be there for them.
Will I ever trust a bank again? I guess it's really up to Obama.
Think about it. Why does anyone trust any bank? When you enter into a relationship with a bank, you make yourself vulnerable to a wide array of potential crimes, which the bank could commit against you if it wanted to.
At least since the Roosevelt administration, people have trusted banks because they have trusted the government to keep the bankers in line.
Now the trust is beginning to break down, because some bankers are cheating their customers, and getting away with it.
Chase is currently running a scam against 400,000 customers who have low fixed rates, trying to force them to refinance at a high variable rate. (See my link above). The OCC (Office of the Comptroller of the Currency) has done NOTHING to stop them. Thirteen class action suits are in progress, all over the country... but lawsuits take time.
If Obama can force the corrupt bank executives out, and create a new version of the OCC that actually works... then maybe I will start trusting banks again.
Dave, what's your blog address?
I was firmly in the PIF camp when I rejoined the market as a credit card customer a year and a half ago. I'm not finished with repair, but I've made a lot of progress. Now that I realize, on a very real level, not just academically, how important credit scores are, I'll never be without plastic.
My cards aren't PIF at the moment, but that was a financial aid snafu at school and it's a temporary state.
I'm not canceling all my cards. I'm keeping them all. BUT I know who's screwed me, so I know where to send my real business going forward. So far, it's only been GEMB on one card. But I've made a note of it, and they won't see me as a profit generating customer in the future.
Ok, so the card companies are able to jack rates and generally jerk you around however they please according to the fine print. I get that. I guess my message for my bank would be "Just because you CAN doesn't mean you SHOULD." The shotgun approach to ratejacking doesn't sit well with me. Mistreat me once and it'll be a long time if ever before I come back. I've lived without baseball since the 1994 strike, and I'm pretty sure I won't miss Discover or BofA nearly as much.
Your question confused me ("Who the heck is Dave?") until I realized that you must mean Dave Hanson, the author of the article I've been linking to. Sorry, I am not Dave. I don't really know anything about him, except... he was smart enough to recognize this Chase action as a "bombshell" even before the angry victims started to make themselves heard. This puts him in stark contrast with the dim bulbs at the WSJ, who reported Chase's action as if it were something normal.
Sorry if I misled you about my identity... I'm not really into "blogging."
CDP, you did confuse me! I thought you were Dave. Sorry about that.
Thanks for the Dave link, though.
VERY timely... note the breaking news from WSJ this morning:
Debit-Card Use Overtakes Credit
Visa's Results Show Tilt Toward Paying It Now
Anon, I pointed to that Debit-card story yesterday:
http://www.creditmattersblog.com/2009/04/debit-card-use-overtakes-credit.html
My credit union recently announced that, antidisunirregardless of which of their five credit-card products you have, your APR will soon be based on your TransUnion FICO score. It works like this:
FICO 720 or over = 8.99%
680-719 = 10.99%
640-679 = 14.99%
600-639 = 16.99%
599 or less = 21.99%
Frankly, my credit union isn't big enough (40,000 members) or bright enough to come up with something like this on their own. So, maybe look for this scheme to come to a credit union near you?
Now, if all of you will join me in the If Irony Could Kill Department. The service bureau that handles my credit union's credit cards doesn't report to TransUnion. Ever.
Spooky, I love it (your irony comment).
I've paid down two cards and use them as pay in full cards and I'm paying off the rest of them as fast as I can. Once I'm done, I will keep my two PIF cards and my oldest card which also has my highest credit limit for super emergencies. I've built up a reserve equal to the credit line of that card so that credit card ends up being PIF in the event of an emergency. I'm not going down the credit card route again.... ever.
I doubt I'll ever even finance another car.
How is this for a goal? I am looking forward to the day when I can just close up my blog and walk away. Everyone will pay in full and I will be irrelevant!
Works for me.
And lose that MyFico revenue stream? Doesn't sound like a sound business plan to me.
But you make a false assumption. Even if everyone paid in full, that doesn't mean there won't be credit issues of all sorts out there to be discussed.
Drewbert, at some point I will have to turn the blog over to you!!
Sure, I'll just add it to the Drewbert empire. Currently 4 sites and counting.
Soon I'll have more brands than General Motors.
Drewbert, nice!
On a serious note, I do see me eventually turning this over to someone. I can't imagine that I'll be able to keep it going in the manner that people are used to.
Dear Collins and Sam, I feel the exact same as you. I think this would be like the game "monkey in the middle", where a guy in the middle tries to catch the ball and 2 people at both ends throwing the ball. Implication: are we the monkeys?? Why are we sitting here complaining about what the banks are doing, while they throw our credit and money over our heads and we try to chase them? Isn't there conceivably a better way to get the upper hand?
Hey, Spooky, im curious if i can ask you what credit union you are referring to? I'm in California, so i wonder if its here. WHat you have sounds pretty good. Banks, right now, can put any kind of APR %. However, any Bank in california has Usury laws and can only go up to 18%. Other banks that are headquartered in South Dakota, or Deleware, have different laws and so hence that permits them to give you higher percentages. If you are associated with a credit union, they can only give you the maximum apr %, 18 percentage. I have been trying to find a way to get a personal loan or line of credit, which has proven difficult. I am doing awful financially, and i need to get out, i hope to get some line of credit to pay off my credit cards, but i dont know which bank would be willing to give a LOC or loan with a low FICO score of mine which is around 630
They have gone too far, I had huge balances from grad school and was paying them down several hundred dollars a month - which would have taken me 3-5 years to do. Now I am at more like 1,000+ month paying them down, and CAN'T WAIT to get my state, fed income tax returns, (birthday money et cetera), my raise in a couple of months and my year's end bonus all for the purpose of putting it toward my credit card. I don't want anything but to end my relationship with Bank of America as soon as possible. I guess I am not a "Paid in Full" person for months to come, but I haven't used my cards in 3 weeks since I got my notices and had a terribel set of conversations with some really horrendous customer service reps. I used to put everytihing on my cards and make several transactions a day.
Marcus, don't you dare "walk away." I think there are many of us who almost are "addicted" to your site, judging by the number of repeat commenters (myself included). Lots of us will be left "twisting slowly in the wind."
~Don
Don, while I would hate to do it, I can see the day when it will be necessary. Unless -- unless! -- my readers don't mind getting one blog entry per day. Or one blog entry every other day. If they don't, then I don't think it will be necessary to walk away. But if my readers need me to blog multiple times a day, I doubt I will keep that up.
I have a loyal readership. No doubt about that. I'd miss them as much as they'd miss me.
After mine are paid off (hopefully August) I plan on only using the one that gets air miles, and then will PIF. I also don't want to ever have any debt again except a mortgage.
CM, What about opening up to allow a few guest bloggers on here? You have a few very dedicated, knowledgeable, and most likely willing readers who could throw a post or 3 a week on the blog for you.
Drewbert, I would be very open to that. If anyone is interested, shoot me an email. plastic101@gmail.com.
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