Whose Squeezing Who in Credit Card Fees?
Lots of credit card stuff in the news these days, primarily regarding those who issue cards - and the consumers who use them. XBS does not issue credit cards - nor do we set fees or make money on fees such as interest rates or late payments - charged by the banks to their credit card customers.
We are a little miffed by the loose, interchangeable, use of terms such as "credit card" companies verses "credit card" issuers, in the media and even by legislators that continue to muddy this complex industry - lets clarify.
Banks - we all know who they are. Banks issue credit cards to their customers (and those they hope will become customers). Customers/consumers must apply for the credit card and based on their credit scores and perhaps other factors - are given cards with credit limits. Charlotte's own Bank of America is the 2nd largest issuer of credit cards - with $182 billion in outstanding balances last year and more than 11 billion in charge offs - (see recent Observer story).
Credit cards are not the same as debit cards - which are attached to checking accounts. Consumers and customers who use credit cards are purchasing based on a future promise to pay - just like loans. Those who pay their balances in full - do not pay interest - those who do not - pay interest on the balances - those who pay late - pay late fees and risk (almost certainly) an increase in the interest rate of the card - even on past balances.
There was a time when we were inundated by credit card offers but times have changed. In this past year banks have closed what they consider to be risky accounts, are far more picky about those they issue cards to and many see this as a trend that will continue - especially if consumer protection laws pass - and banks lose some of their ability to raise and implement fees at will.
Visa and MasterCard - are public multinational corporations that manage the electronic payments transactions - between financial institutions (banks), merchants, government, consumers and businesses. These companies are also, like banks, often referred to as "credit card" companies, but again, they do not set interest rates or fees charged the customer by the bank. These companies make money through merchants who accept credit cards and their transactions or sales - that's another blog - and different legislation. XBS works on the merchant side of the industry - bringing electronic payment services and education to the merchant.
There are several legislative bills currently circulating in both the senate (Senator Dodd - D- Conn) and the house (Rep. Maloney, D-NY) right now (April 2009) to ensure fair credit card practices for consumers. These bills are primarily aimed at fees and practices/policies embedded in the contractual agreements (a lot of very fine print - and subject to change at the issuers whim) between the consumer and the bank - the card issuer.
Some of the policies and fees being scrutinized for legislation include -
- Increasing card interest rates based on unrelated creditor payment history/activity (universal default)
- Fees charged for phone payments
- Marketing cards to teens and young adults who are uneducated in how credit works
- Abrupt increase of interest rates - or increasing rates on past balances - for any reason, anytime
- Allocating payments to balances with lower interest rates first - before those with higher rates (unfair allocation)
Numerous industry studies point to continued growth in credit card use, and all forms of electronic payment. For those reasons and more, XBS supports legislative change that will protect consumers from usury and unscrupulous fees and contracts for credit card use (we're packing credit cards too!).
We just don't like the interchangeable use of terms like banks, "credit card" companies and "credit card" issuers. It confuses consumers, our customers and our industry.