Are Banks Using Business Cards to Pay for Loss of Consumer Card Fees?

I’ve already chronicled the many “unintended” consequences of the CARD Act of 2009 that affect consumers, but it looks like there’s a new one that affects business owners.

Since the CARD Act eliminates many of the fees and interest payments banks traditionally use to offset other expenses and because the CARD Act only regulates consumer credit cards, banks are paying for other services like free checking and general business costs on the backs of business card holders.

That may not sound like a big deal to many, especially with the “business is the bad-guy” mentally that seems so prevalent over the past few years, but it’s not companies like GE we’re talking about – it’s largely small, independent businesses.

Many of these are people who have lost their full time jobs as employees and decided to make a go of it on their own.

The biggest concern for most business card holders is a hike in interest rates on existing balances. This could mean thousands in extra payments a year for anyone carrying a large balance. That’s significant for many home-based or startup businesses.

To make matters worse, some unscrupulous credit card issuers have begun marketing business cards to individual consumers:

“A study released Wednesday by the Pew Charitable Trust’s Safe Credit Card Project says that consumers are still vulnerable to these practices, because more than 10 million offers for business cards are sent to U.S. households each month.”

Consumers may not even be aware that the CARD Act doesn’t pertain to business cards. It looks like credit card rates and fees that were once difficult to maneuver have just become more so. Be careful out there people.

Read more.

Related Posts:

• Banks React to the CARD Act.
• How The Credit CARD Act Of 2009 Might Be A Bad Deal.
• New Game, Same Old Credit Card Tricks And Traps.
• How The Credit CARD Act of 2009 May Be Affecting Your Rewards.
• 10 Credit Card Tips for 2010 and Beyond.

Banks React to the CARD Act.

It seems like only last year that the consumers were going to get some justice, and the banks would pay a price for all their sneaky tactics. Well, actually it was 2 years ago when the CARD act was passed into law and we are now seeing what only politicians who supported the bill could claim as “unintended” consequences.

Namely, Banks are looking at increased costs of doing business and a loss of revenue. Anytime ANY business see an increase in the cost of doing business – be it from increased taxes, or increased costs of raw materials – those costs get passed along to the consumer.

Here are 3 ways banks are passing along the costs of all that wonderful new regulation…

Higher ATM fees

JP Morgan Chase and HSBC are two of the mega-banks that have opted to charge non-customers who use their ATMs a fee. In the case of Chase, it’s only in Illinois and Texas and the fees are $5 and $4 respectively. It’s a trial to see if they can raise enough revenue to justify the new fee nationwide.

When you consider that most people use ATMs for quick cash, in $20 denominations you’re looking at what amounts to a 12.5-25% fee for a $20-40 withdrawal! And that’s on top of anything the non-customer’s own bank charges for out of network ATM use!!

Meanwhile, HSBC is imposing a $3 fee nationwide to non-customers who use their ATM network.

The end of free checking

Bank of America, Wells Fargo, Citi and Chase are all ending free checking as we know it. Some will continue to offer “free” checking, while others will simply discontinue the practice altogether.

BofA will be adding checking fees over a two year period, starting with new customers. Bank of America is going to start charging fees of $9 – $25 for customers who don’t maintain a certain minimum balance level. I’m not sure what that level is.

Wells Fargo is planning to start charging $5 a month for new checking, and its CEO has warned that more costs will be passed along to customers in the near future.

Citi bank is going to start charging customers who make less than 5 debit card purchases per month an $8 fee for checking.

And Chase has started charging customers who don’t maintain a minimum balance a $10 per month fee on the West cost, and $12 everywhere else. Again, no mention of what that minimum balance is.

Maximum limit on debit card purchases

Finally, due to a limitation on interchange fees (what banks charge stores for every swipe of your card) many banks are considering a limit on debit card purchases.

Since the government regulation seeks to cap the amount banks can charge stores for the transaction, and banks don’t want to lose revenue they are thinking of limiting the amount you can purchase on your debit card, thus minimizing their losses and maximizing the number of transactions.

This is a great case of where a regulation that seeks to limit excessive fees results in the exact opposite and adds further inefficiencies to boot!

JP Morgan Chase is considering a $50 -100 limit. If that becomes reality, a lot of people are going to have a hard time filing up at the pump soon!

Final thoughts

Anytime the government mandates or regulates, costs go up. Sometimes consumption goes down as a result, but usually consumers just end up poorer. This is an excellent case in point. The CARD Act of 2009 is going to cost consumers and set banking back a decade or more.

We already see this with the end of free checking. It was not long ago that banks charged for basic checking, but as revenues rose, banks could offset the cost of checking and offer that as a free service to consumers. Not anymore.

How many other services do consumers take for granted, only to see them eventually eliminated or become offered to a select few for an additional charge? Time will tell.

In the meantime, the best bet for consumer is to avoid the mega banks altogether and stick to local or regional banks and credit unions.

Sources:
New ATM fees

Era of free checking is over

Debit card limits

phot by islandgal

Related Posts:

• New Debit Card Fees Got You Angry? Switch to a Local Bank.
• Are Banks Using Business Cards to Pay for Loss of Consumer Card Fees?
• How The Credit CARD Act Of 2009 Might Be A Bad Deal.
• 11 Things to Consider When Choosing an Online Bank.
• How to Find the Best Place To Put Your Savings.

New Game, Same Old Credit Card Tricks And Traps.

Looks like the Credit CARD Act of 2009 isn’t quite putting an end to all those sneaky and unfair credit card tricks. According to a recent Wall Street Journal article, credit card companies are still up to their old tricks, albeit in a different guise.

• Shortened payment periods. The CARD Act of 2009 mandates that credit card companies must allow at least 21 days between the time the bill is mailed and the payment due date, but apparently some companies aren’t adhering to that.

• Sunday due dates. The CARD Act attempts to force credit card companies not to process payments on Sundays, since there is no US Postal delivery, but some banks are saying they are open . for business regardless, and if due dates fall on a Sunday, they fall on a Sunday.

• Low-limit cards. Since the CARD Act prohibits issuers from charging the outsized fees for charging over the limit on low-limit cards, some issuers are creating new processing and overdraft fees.

• Fake inactivity fees. It’s being called an annual fee that is waived when the cardholder spends a certain minimum amount, but that sounds an awful lot like an inactivity fee.

• Rebate offers. Some card companies are offering to refund finance charges when users pay on time, but such offers can quickly – and unexpectedly – be revoked, only to leave the cardholder holding a much larger charge than he anticipated.

Avoiding these traps and pitfalls is simple, but not easy. It’s for reasons like these that you should avoid carrying a balance at all costs. If you can’t do that, then it may not be a bad idea to cut up the card altogether. Just don’t cancel the account.

Related Posts:

• Is 25 Credit Cards Too Many?
• Are Banks Using Business Cards to Pay for Loss of Consumer Card Fees?
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• How Your Identity Gets Stolen (and What to Do About it).
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How The Credit CARD Act of 2009 May Be Affecting Your Rewards.

When Congress passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, it sought to put an end to unfair credit card practices. Those practices were largely centered around fees, interest rate hikes, and billing practices, but unintended consequences of the act are now being seen.

The CARD act has put the breaks on many fees and interest rate increases, but the act doesn’t prevent credit card issuers from creating new fees or cutting other perks. Credit card companies are making up the lost money by reigning in their reward programs. According to industry analysts, reward programs cost the credit card industry billions of dollars per year and those issuers are now saying they can no longer offset those losses with fees and higher rates due to the CARD Act.

Here’s what some credit card companies are doing with their rewards programs:

• Charging “redemption fees” on frequent flyer miles and hotel stays. Reward points may accrue the same as always, but it will cost you to trade them in.

• Raising the level of points required for certain rewards above the true cost of the item. For example, HSBC Premier offers a $50 gift card for California Pizza Kitchen for 6,000 points. This works out to $60 of spending, which is $10 over the price of the gift card!

• Slashing cash-back rewards. Both American Express and Chase have done this. For example, you may have previous earned 1.5% cash back for all purchases, and now you earn 1.25%.

• Adding annual fees to offset rewards.

While the Credit Card Accountability Responsibility and Disclosure Act may have led to some much needed reforms in what the Federal Reserve has called “unfair and deceptive” practices of credit card companies, it does come at a cost and credit card issuers are passing that cost on to the cardholders.

Unfortunately, there isn’t much the cardholder can do about this except shop around for a better deal or perhaps a reward program that better suits their spending. Credit card users should also keep a sharp eye on their terms and watch for changes to their existing rewards programs.

Related Posts:

• Are Banks Using Business Cards to Pay for Loss of Consumer Card Fees?
• New Game, Same Old Credit Card Tricks And Traps.
• How The Credit CARD Act Of 2009 Might Be A Bad Deal.
• 10 Credit Card Tips for 2010 and Beyond.
• The Credit Card Accountability Responsibility And Disclosure Act Of 2009 And Gift Cards.