Card Issuers

Are high credit card fees pricing plastic out of the market? Some businesses are putting the kibosh on credit cards to avoid paying processing fees that run about 2% of the transaction amount. In other words, every time you buy something for $100 with plastic, it costs the merchant nearly $2 in processing fees. Multiply that by hundreds or even thousands of daily transactions, and that can add up to some serious coin. Typically, those costs are passed along to customers in the form of higher prices.

MasterCard Inc., the second-biggest payments network, said it's investigating a potential breach of account data and that card issuers and law enforcement have been notified. Data may have been targeted at a "U.S.-based entity," and MasterCard's own systems "have not been compromised in any manner," the Purchase, New York-based company said today in an e-mailed statement. It didn't specify how many accounts may have been affected. "The incident is currently the subject of an ongoing forensic review by an independent data-security organization," it said.

Frank Cavestani and his wife fell behind on their Capital One credit card payments about a decade ago. Their accounts were subsequently closed by the lender, which wrote off about $2,000 in debt they couldn't pay. So it was more than a little strange when the Hollywood couple received a pair of bills from Cap One the other day for a combined $5,195.07 in debt and interest. Stranger still, when Cavestani contacted Cap One, he said a service rep told him the resurrecting of old loans is accommodated by recent credit card regulations approved by the Federal Reserve ?

If there's an upside to these seemingly endless economic doldrums, it's that consumers have gotten a whole lot savvier about managing their money. Case in point: We're carrying less debt. The New York Federal Reserve reported this week that consumer debt had dropped by $60 billion in the most recent quarter as households "deleverage" to cope with tough times. So how are some banks responding? They're making it easier for people to run up balances on their credit cards. In other words, they're trying to get people to once again bury themselves in debt.

Mark Huba is one of numerous Capital One cardholders nationwide who pays his bills on time and hasn't missed any payments -- yet has just been notified that his interest rate is soaring to almost 18%. Cap One's rate hikes are the latest example of how the credit card industry is turning the screws on customers even as many of those same lenders receive billions of dollars in taxpayer-funded bailouts. Huba, 38, is an account manager for DS Waters of America Inc.

Dear Liz : Could you please write about the way credit card companies are trashing their frequent flier programs? I have plenty of points from vendors but now find them worthless. Answer: Credit card rewards programs usually get watered down over time, but that trend seems to be accelerating as card issuers look for new ways to contain costs and boost profits. Typically, a card issuer will announce a generous new program and eventually tweak the rules to make miles, points or rebates harder to earn.

Re: David Lazarus' consumer column, "Reversing the charges," April 24: Consumers are outraged that banks received billions in bailout dollars at prime rate while they continue to raise consumer credit card interest rates. We have personally seen rate hikes of 9-10% at a time. In this economy, card issuers are making it impossible for the average person or small business to make substantial enough payments to reduce consumer debt. How high do rates have to get to constitute usury?

A service fee that Visa places on its largest debit-card issuers that essentially deterred them from moving their business to a competitor is unlawful, a judge has ruled. Credit card network operator and Visa rival MasterCard Inc. said U.S. District Judge Barbara S. Jones ruled against Visa's fee, which was imposed after a lawsuit was settled in 2003.

Credit card companies are starting to make sloppy users pay dearly for their mistakes. After years of leniency for fear of losing customers, banks and other card issuers are now driven by a different motive: thirst for fee income. They are boosting rates for tardy payers and raising penalty fees for spenders who exceed credit limits. Credit card experts and cardholder groups are critical of the new fees, saying they are exorbitant.

Pushed by rising interest rates in the economy and higher losses from delinquencies, credit card interest rates nationwide are beginning to rise, portending higher bills for consumers. Two of the nation's largest bank card marketers, Chase Manhattan Corp. and MNC Financial Corp., recently raised rates to be applied selectively to borrowers with poor payment histories. Chase's rise totaled more than 2 percentage points, to 19.8% from 17.5%, while MNC's went to 18.9% from 17.9%.

Are high credit card fees pricing plastic out of the market? Some businesses are putting the kibosh on credit cards to avoid paying processing fees that run about 2% of the transaction amount. In other words, every time you buy something for $100 with plastic, it costs the merchant nearly $2 in processing fees. Multiply that by hundreds or even thousands of daily transactions, and that can add up to some serious coin. Typically, those costs are passed along to customers in the form of higher prices.

Frank Cavestani and his wife fell behind on their Capital One credit card payments about a decade ago. Their accounts were subsequently closed by the lender, which wrote off about $2,000 in debt they couldn't pay. So it was more than a little strange when the Hollywood couple received a pair of bills from Cap One the other day for a combined $5,195.07 in debt and interest. Stranger still, when Cavestani contacted Cap One, he said a service rep told him the resurrecting of old loans is accommodated by recent credit card regulations approved by the Federal Reserve ?

Credit card solicitations probably will be showing up with more regularity, again, in small-business owners' mailboxes. It's not that the card industry suddenly considers small businesses to be a better risk. Rather, it's because under the 2009 credit card reform legislation, cards for small businesses are excluded from some restrictions on raising interest rates, among other actions. "You are going to find a real effort on the part of card issuers to look at this as an opportunity to grow credit cards outstanding at fairly significant interest rates," said David Robertson, publisher of the Nilson Report, a newsletter based in Carpenteria, Calif.

Betzi Stein wasn't too surprised when she used her Chase ATM card at a different bank recently and was slapped with a $3 charge to withdraw some cash. Three-dollar charges for such out-of-network transactions have become the norm in the banking industry. What did surprise Stein, 65, was when she checked her next Chase statement and saw an additional $2 charge for ? well, what? "They told me it was a fee for using someone else's ATM," said Stein, who lives in the Palms area of Los Angeles.

Bank of America this week said it's reducing the value of the company by more than $10 billion because of recent financial reform that limits the amount the bank can charge to process debit-card transactions. That's because the reform requires the Federal Reserve to set processing fees at a level that's "reasonable and proportional to the cost incurred by the issuer with respect to the transaction. " Jerry Dubrowski, a bank spokesman, said BofA is required by accounting rules to value its business based on projected cash flow.

Consumers may be in for a major break on credit card purchases under an new agreement reached Monday between the U.S. Department of Justice and the nation's two biggest card companies. At issue are the merchant fees that businesses pay credit card companies such as Visa and MasterCard to process the charges. Until now, shopkeepers had been forbidden to tell consumers about the fees ? or offer discounts to customers using cards with lower merchant fees. But on Monday, Visa and MasterCard agreed to let merchants charge less to customers who use different kinds of credit cards that charge smaller fees to shopkeepers.

Credit card companies on Monday said the use of plastic surged this holiday season, and many reported double-digit percentage gains from last year's comparable period. Economists said the sharp rise in card use during the gift-buying time of year reflects rising confidence in the economy and bodes well for a recovery that accelerated in the fourth quarter. In addition to using credit cards, consumers have been taking out more loans for cars and other purchases.

Shares of credit card companies and lenders to consumers with spotty payment histories tumbled Monday after a Metris Cos. financial report raised concerns about the so-called sub-prime market. Shares of Minneapolis-based Metris, the nation's 10th-largest issuer of credit cards, tumbled $5.67 to $19.03 in New York Stock Exchange trading, a 23% decline. Larger credit card issuers also declined, with Capital One Financial Corp. down $2.83 at $60.54 and MBNA Corp. off $1.32 at $37.43.

Dear Liz : Could you please write about the way credit card companies are trashing their frequent flier programs? I have plenty of points from vendors but now find them worthless. Answer: Credit card rewards programs usually get watered down over time, but that trend seems to be accelerating as card issuers look for new ways to contain costs and boost profits. Typically, a card issuer will announce a generous new program and eventually tweak the rules to make miles, points or rebates harder to earn.

President Obama's focus, we're now told, is on jobs, jobs, jobs. That's nifty, but it doesn't bode well for other big-ticket policy goals, such as creation of a Consumer Financial Protection Agency to safeguard us from abusive bank practices. That idea, which Obama championed and leading Democratic lawmakers embraced, is now expected to be a long shot thanks to ferocious opposition by the banking industry, which says no additional regulatory oversight is needed. No? Here's an economic statistic that suggests otherwise: The number of credit card solicitations mailed to consumers rose during the last three months of 2009 for the first time in three years, according to Mintel Comperemedia, a Chicago market-research firm.