Credit Crunch Research
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0 ! 50 Fun Facts About Credit Cards Historical Nuggets ($ In the beginning, credit cards were just charge accounts, offered by individual stores and only usable at those stores. The first credit card that could be used at multiple locations was offered by The Diner’s Club in 1950. (full story) )$ Diners Club issued that first card to only two hundred customers and it could only be used at twenty seven restaurants in New York City. American Express History *$ American Express started off as a shipping company in 1850, shipping products across the United States and capitalizing on the limited reach and slow speed of the United States Postal Service. Their main customers were banks and they shipped various financial instruments like stock certificates and other notes. They began selling money orders and traveler’s checks in 1882 and issued its first credit card in 1958. (full history) +$ In 1984, American Express billed their Platinum Card as extremely exclusive and it had an annual fee of $250 ($484.84 in 2006 dollars). Today, the extremely exclusive card for American Express is their black Centurion card with a $2,500 annual fee! (and requirement to spend $250,000 a year) MasterCard & Visa History ,$ MasterCard and Visa are networks of banks and financial institutions. American Express is its own company and Discover Card is a subsidiary Morgan Stanley (who is spinning off the business). -$ Visa was originally called BankAmericard, a card offered by Bank of America in 1958 in California. By 1970, they had created an association, called the National BankAmericard, Inc., of all the US Banks that issued the BankAmericard. It wasn’t renamed to Visa until 1976. (full history) .$ Visa actually stands Visa International Service Association. /$ The Visa logo colors were chosen because the blue represented the sky and the gold represented color of the hills in California where Bank of America was founded. (from Wikipedia).
Originally formed under the name Interbank Card Association and they acquired the MasterCharge brand and logo in 1969. MasterCharge was originally formed by four California banks in 1967, who joined together to form the Western States Bankcard Association to battle the BankAmericard of Bank of America. MasterCharge was renamed MasterCard in 1979. In 1984, MasterCard was the first to use a hologram on its cards to deter fraud. Discover Card History Discover Card was introduced by Sears in 1985 and gained notoriety because it charged no annual fee. At the time, Sears also owned the brokerage Dean Witter Reynolds Organization and the Discover brand was integrated into that organization. When Dean Witter merged with Morgan Stanley in 1997, Discover went along for the ride. Useful Things That Make You Go Hmmmm… Wonder why minimum payments are so low? It allows consumer to carry more debt while keeping to the same low minimum payment. You can give someone with the ability to pay $100 per month a credit limit as high as $5,000 if they only had to pay 2% a month. If the minimum payment were 5%, they could only have a credit limit of $2,000. The lower the minimum payment, the deeper in debt someone could be in. It is against the merchant agreements of MC, Visa, and AMEX, for a vendor to require you to provide your phone number, home address, or other personal information for credit card transactions. In fact, some states make it illegal for them to require it. (It’s not illegal to ask, but it is if they refuse to process the transaction without that information) Under the merchant agreements of MC, Visa, Discover Card and AMEX, you do not need to present a driver’s license in order to complete a credit card transaction. Under the merchant agreements of MC, Visa, and Discover Card, vendors may not require a minimum purchase amount. Under AMEX, it’s more of a hint that the vendor shouldn’t put up any barriers to use but AMEX also has a discrimination rule, so if there is no minimum amount for MC/Visa, there cannot be a minimum amount for AMEX. (Consumerist has all the relevant merchant agreements consolidated) Under the merchant agreements of MC, Visa, and Discover Card, vendors may not charge a surcharge for using the card (the anti-discrimination rules still apply for AMEX). In some states, it is actually illegal to charge a surcharge for credit card purchases. This rule does not apply to government agencies. On the flip side, offering a discount for cash payment (over credit card payment) is permitted by all of the card companies (looooophole!). A merchant may, on taking a personal check, require that you offer a credit card number. It is against merchant agreements to charge a credit card in the event of a
bounced check (and it’s also very dangerous to have all that juicy information on one little slip of paper, plus this may also be illegal in your state). You can lower your interest rate with a phone call. Credit card companies are like cell phone and cable companies, they’re afraid you’ll leave and join with one of their competitors. Use this to your advantage by comparing offers from other credit cards and bringing this information to your credit company. When you use your card, you agree to the cardholder agreement, you don’t have to sign anything. If you get an update to the agreement, you also agree to the updates once you use your card. A fixed interest rate on a credit card can change with only 15 days of notice. Fixed is not fixed in the sense that a mortgage loan is fixed, it’s fixed in the sense that the credit card company can change it with only 15 days notice! If you have multiple balances with different interest rates on one card, payments are generally applied to the balance with the lower interest rate. You will have no choice in the matter and you cannot request it be made to the higher balance. So if you have a $100 balance at 19.99% and a $5,000 balance at 4.99%, your payments apply to the $5,000 at 4.99% first. A note about this will be in your agreement. The credit card sale process works as follows: The vendor sends an authorization request for the value of the sale. The credit card company checks the card limit and reduces the credit limit by that amount (it puts a “hold” or a “block”) and sends the vendor electronic confirmation that the card is good. The vendor sends a deposit transaction or a sale transaction. The credit card company sends the money. This process is usually quick and painless… with the following exceptions: Hotels and rental car agencies usually send an authorization request for the estimated cost of your stay or rental and they keep this “block” on your card for 10 to 15 days (independent of how long you actually stay there) even if you pay with something else. When you use a credit card at a gas pump, the pump authorizes the purchase for something in the neighborhood of $50 first. So if you have less than $50 left on your limit, the pump will reject your purchase attempt. Restaurants typically will authorize a credit card purchase for the amount of the bill plus 25% (for gratuity), so again, if your limit can’t handle the extra 25%, the purchase transaction will be rejected. Technobabbliciousness Ever notice all your credit cards are of uniform shape and size? Their dimensions are governed by the ISO 7810 standard, an international standard for identification cards. Banking cards, as well as driver’s licenses and retail cards, follow ID-1 (passports follow ID-3). If your card has a smart chip, it follows ISO 7816, and if it has RFID, it follows ISO 14443.
The expiration date on the card is “fake.” You can still use the card after its expiration date because the card number on your replacement will be the same. The reason why cards do expire varies from company to company but mostly it’s because the credit cards take a lot of abuse and just need replacing (they estimate the magnetic strip is good for only about three or four years of swiping). Interested to know what’s on the magnetic stripe? Check out this breakdown of the three tracks on Wikipedia (the rest of the page explains other magnetic stripes). There are generally two types of magnetic strips, high-coercivity and lowcoercivity, with the high-coercivity being stronger and more durable (also requiring more expensive equipment to handle). (from Wikipedia) Higher-coercivity are usually black and low-coercivity strips are a dark brown, but there are special cases such as American Express’ patented silver colored magnetic strip. Hotel keys and other low-coercivity stripped cards are susceptible to being scrambled by a weak magnetic force, including cell phones. Credit card numbers conform to the Luhn algorithm, which is just a simple checksum test on the number. What you do is start from the right and double each second digit (1111 becomes 2121), then add them all together, and you should end with a number evenly divisible by ten. If it doesn’t, it’s not a valid credit card number. The first digit of the number is the Major Industry Identifier. 1/2 are for airlines, 3 is for travel/entertainment, 4/5 for banking and financial, 6 for merchandizing and financial, 7 for petroleum, 8 for telecommunications. 0 and 9 are for other assignments but you’ll likely never see them. If you look at an American Express card, you’ll see it starts with a 3, a throwback to their travel/entertainment roots. The first six digits will correspond to the issuer, including the major industry identifier. 34xxxx/37xxxx are for American Express, 4xxxxx is for Visa, 5155xxxx is for MasterCard, and 6011xx is for Discover. The rest of the digits (except the last one, which is a checksum digit) is your account number. Legal Ways You’ve Been Hosed & Un-Hosed Minors, those under the age of 18, are not obligated to pay back any charges to their credit cards (unless a parent co-signs, but then its the parent who is on the hook) because they are not allowed to enter into a binding contract. If there are unauthorized charges on your card, you’re on the hook for $50 each, maximum (unless your agreement says you are responsible for less, you cannot be responsible for more). If you report your card missing and an unauthorized charge appears after you’ve reported it, you are liable for $0. By law, you are only allowed to dispute charges for “unsatisfactory goods or services” if you made the purchase in your home state or within 100 miles of your billing address and the purchase was for more than $50. (and if you’ve made a
good faith attempt to resolve it with the vendor) While a credit card company may not hold you to this, they are protected by the law for purchases outside your home state/100 mile radius. $! Credit card companies are prohibited by law from sending you a card that you didn’t ask for, unless it’s a renewal or a substitute card. If you get a credit card you didn’t apply for, contact the Federal Trade Commission and file a complaint. $" A common clause in most user/member agreements is that the cardholder waives their right to sue the credit card company. The cardholder must instead go through a binding arbitration hearing with the credit card company and cannot take the company to court or participate in a class action suit. $# Before 1996 and the Supreme Court case Smiley vs. Citibank (517 U.S. 735, Thanks j), there were restrictions on how much a credit card company could charge for a late payment. The ruling in Smiley vs. Citibank lifted that restriction and fees that were once around $5-$10 jumped to $30 or more today. $$ There is no federal law regulating the rate of interest a credit card company can charge! The federal government use to regulate but repealed those laws during the Great Depression and never put them back in place, they now rely on the states to handle usury. $% In the Supreme Court case Marquette National Bank v. First of Omaha Service Corp (439 U.S. 299, Thanks j) in 1978, the Court decided that national banks only need to follow the usury laws of the state they are headquartered in, not the state in which their customer resides. $& Credit card companies are all headquartered in states with high or no cap on interest rates. American Express is located in Utah (no cap), Bank of America is in Arizona (36%), Citibank is in South Dakota (no cap), Capital One is in Virginia (no cap), Providian is in New Hampshire (no cap), and JP Morgan Chase, MBNA (now Bank of America), Morgan Stanley/Discover, and HSBC are all located in Delaware (no cap). Department of Holy Crap They Make A Ton of $$$$$ $' Each American household receives approximately 6 offers a month. The typical response rate is .33% (one third of one percent). You can opt out of these mailings via OptOutPrescreen. $( Each direct mailing acquisition costs approximately $80, according to R.K. Hammer, bank card advisory firm. $) Credit card companies earned $90.1B in interest in 2006, up from $89.4B the year before (according to R.K. Hammer). % Credit card companies earned $55.2B in fees in 2006, up from $54.8B the year before (according to R.K. Hammer).
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Alarming Credit-Card Tricks CREDIT-CARD COMPANIES ARE finding creative new ways to separate you from your money. According to the 2005 Credit Card Survey, released Thursday by Consumer Action, a San Francisco-based advocacy group, some of the new tricks are among the most aggressive yet. Companies have begun increasing borrowers' interest rates to 30% or more simply because they've applied for a mortgage or car loan, or because the company has decided the borrower has too much available credit. Consumer advocates warn of other trends like socking people with overseas fees even when their purchases are made with U.S. dollars, and penalizing them for not using their credit cards. "It's like a trip wire," says Curtis Arnold, publisher of Cardratings.com, a credit-card information web site. "If you're not a very diligent, savvy consumer, you're more than likely to get tripped at some point." Not surprisingly, consumers are spitting mad. The Better Business Bureau received 17,060 complaints against credit-card issuers in 2004, compared with 15,700 in 2002 and a scant 4,900 in 1999. Gripes about credit-card companies now rank third in terms of the volume of complaints the BBB receives. Five years ago, the industry came in at No. 12. Here are five of the sneakiest tricks that credit-card companies are pulling on unsuspecting customers. 1. Applying for a Mortgage? We'll Bump Up Your APR. Creditors often increase your interest rate when they notice negative activity — say, a late payment or an over-the-limit fee — on any of the accounts that show up on your credit report. This practice, known as "universal default," has become increasingly prevalent during the past few years. Today, 45% of credit-card providers engage in this practice, according to Consumer Action, compared with 39% in 2003. But while universal default has existed for some time, Consumer Action's 2005 survey found an alarming new trend: You no longer need to do something wrong to be hit with a universal default rate. According to the survey, 43% of creditors who practice universal default would enforce it if they deemed that a cardholder had too much overall debt. And 33% would do it if they thought the consumer had too much available credit. Even things like getting a new credit
card (33%) and an inquiry related to a car loan or mortgage (24%) can trigger universal default. "It seems the banks are peering a little too closely into our credit reports and picking on things that we feel are pretty insignificant and could happen to anybody," says Linda Sherry, a spokeswoman for Consumer Action. It makes sense to treat as high-risk someone who has repetitively been late with payments and has gone over credit limits, she says. "But a person going out shopping for a car loan or a new mortgage? Those are things that anybody does." The highest default APR — 35% — is now offered by Merrick Bank, a Utah-based issuer that serves more than 555,000 cardholders. Runners up were Citibank (C), Bank of America (BAC) and Providian Financial (PVN), with 29.99%. (At a congressional hearing this May, Citibank said it now notifies consumers before increasing their interest rate, and allows them to opt out of the increase and continue using the card at the old rate until the card expires.) 2. Beware Two-Cycle Billing Two-cycle billing is a sneaky and complicated practice. It affects people who usually pay off their balance in full each month, but end up in a situation where they have to carry a balance for one or more months. (This is a likely scenario around the holidays, for example, when Christmas presents add up and people find themselves unable to pay the whole bill at once.) A cardholder in this situation will end up paying more in interest than with a credit card that doesn't have a two-cycle billing. How does it work? Banks usually calculate monthly interest charges for each billing period based on the average daily balance. So let's assume that your billing cycle goes from the first to the 30th of the month, and that you had a balance of zero for the previous month or months. On July 10, you made a $1,000 purchase, your only purchase for that month. Your average daily balance for July, then, would be $666.66 ($1,000 times 20, divided by 30, since you carried that balance 20 days out of your 30-day cycle). A card with an average daily billing cycle method of computing finance charges wouldn't charge you any interest on that amount for July, since you started the period with a $0 balance. But a card with two-cycle billing would, since it calculates your average daily balance for the last two billing cycles. In effect, a two-cycle billing card will assess interest for the 20 days in July after you made the purchase, namely on $666.66. Just how much interest you'll pay depends on your interest rate and purchase amounts. In our example, if we assume your annual percentage rate is 18% (meaning you're charged 1.5% a month), your interest charges for January would be an extra $10. But what if your purchase was $10,000 — say you paid a medical bill or bought new furniture? Two-cycle billing would cost you an extra $100. "That's where it gets you," says Gerri Detweiler, author of "The Ultimate Credit Handbook" and founder of DebtConsolidationRX.com. "It affects consumers in a limited number of circumstances, but it can be expensive." Her advice: Avoid credit cards with two-cycle billing. Last year, only two providers — Discover and Bank One, which consequently merged with J.P. Morgan Chase (JPM) — used two-cycle billing, according to Consumer
Action. This year, the number has grown to five: Chase, Discover, Providian, National City Bank, and First National Bank of Omaha.
David Ciani
Exposing the Credit-Card Fine Print - TIME http://www.time.com/time/magazine/article/0,9171,1715293,00.html Banks moniter all borrowing behavior Can trigger universal default The reason the card industry is free to raise prices on existing customers at any time and for any reason is tied to deregulation, which began in banking in the 1970s and effectively eliminated caps both on interest and fees. "Delinquency and default are nearly always due to loss of job or a 'life event' such as health problems (and medical bills), death or divorce," wrote analyst Chris Brendler of Stifel Nicolaus in a January report. Ruth Owens, 57, understands this first hand. She was living on social security disability when Discover Bank sued her for breach of contract for failing to pay $5,564 in fees and interest on a $1,900 debt. In 2004, a Cleveland, Ohio municipal judge not only barred Discover from collecting any more money from Owens, but scolded Discover for its "unreasonable, unconscionable and unjust business practice."
USATODAY.com - Here's a map for dissecting credit card fine print http://www.usatoday.com/money/perfi/credit/2006-03-02-credit-card_x.htm Increasingly, different interest rates apply to purchases, cash advances and balance transfers. On top of that, there are penalty rates that can kick in if you're an hour late paying your bill or you exceed your credit limit or your credit score drops. Want to pay off the highest-rate balance first? You can't. In their card holder agreements, most issuers state that payments will go toward the lowest-rate balance before making a dent on the higher-rate one. That keeps revolvers — customers who carry a balance — in debt longer.
Also, you could have, say, a March 1 date to pay your balance in full without incurring interest charges, but a later date — say, March 15 — to pay the minimum to avoid late charges. So even if you paid the balance by March 15, you could face interest charges, says Robert Manning, finance professor at Rochester Institute of Technology. If you refuse the changes, some issuers will let you pay off your balance on the old terms but won't let you make any new purchases. Others will let you keep the old terms and continue charging on the card until it expires. Card holders can get back in Discover's good graces, but it'll take more than one on-time payment: You must pay on time for nine consecutive billing periods before Discover will consider reducing the rate on the existing balance, the amended card holder agreement says. Nearly half the banks that issue credit cards require you to give up your right to sue and instead go through arbitration to resolve a complaint, according to a 2005 Consumer Action survey. One perk of paying with plastic is that if you're not satisfied with the merchandise, you can ask your bank to dispute the charge. Pay with cash and you'll have to rely on the merchant's goodwill to get your money back.
Consequences of ignoring credit card debt http://www.bankrate.com/brm/news/debt/20051007a1.asp Make it harder for you to get a job or promotion. Many employers check credit reports before making hiring or promotion decisions. A negative mark on your credit report, issued by your creditor for nonpayment, will raise questions and concerns that may result in you being a less-attractive employee.
Raise your interest rates. Many credit card issuers have a penalty interest rate of 25 percent to 30 percent. If you default, you'll qualify for it and your bills will look like you invited a hungry relative for dinner. Under a policy called "universal default," if you are overdue on one card, all other cards will raise your rates. Your credit score will drop, and a lower credit score means new loans and credit will cost you more.
Raise your insurance rates. Many insurance companies use the data in your credit report to generate an "insurance score." Badcredit risks pay more for insurance or may fall outside of underwriting guidelines and may not be offered renewals.
Keep you from getting the apartment you want. Landlords often check credit before renting. Bad credit can keep you out of the good places that would impress prospective girlfriends.
Call you till the cows come home. Expect that if you owe enough, your account will be turned over to collectors, lawyers or be sold to professional debt buyers. Interest will accrue and fees will be charged. Your phone will begin to ring more often and you will never want to talk with the person on the other end of the phone. Although the Fair Debt Collection Practices Act protects you from abusive collectors, it does not prevent legitimate collection procedures, which, even within the law, can ruin an otherwise nice day.
Garnish your wages. You entered a contract with your creditor and said you would uphold your end of the agreement by making payments on your account as set forth in the agreement. If you choose to breach the contract by not paying, the creditor has the right to sue you in civil court to recover the money it is owed. This includes liens on assets and attaching your wages through a process called garnishment. The latter is not a plus with your employer either.
The Simple Dollar » Explaining Simple Interest, Compound Interest, APR, and APY http://www.thesimpledollar.com/2006/11/28/explaining-simple-interest-compoundinterest-apr-and-apy/ So how else is interest calculated? Many organizations (such as banks and credit card companies) use compound interest to calculate how large your finance charges are and how much interest you get. Compound interest is interest which is added back to the original amount. Organizations do this on a regular basis and use a method that is most effective for their business, allowing them to report an interest rate to consumers that doesn’t actually describe the full situation of the payments. For example, most organizations use compounded interest, compounded monthly. This is in line with how most credit cards and many banks calculate interest. Let’s look again at that $1,000 over a year at 5% interest. If we use simple interest, the total is just $1,050, as we saw above. But if we compound the interest each month, our calculation is a bit trickier, as we have to figure the balance at the end of each month.
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0 ! 50 Fun Facts About Credit Cards Historical Nuggets ($ In the beginning, credit cards were just charge accounts, offered by individual stores and only usable at those stores. The first credit card that could be used at multiple locations was offered by The Diner’s Club in 1950. (full story) )$ Diners Club issued that first card to only two hundred customers and it could only be used at twenty seven restaurants in New York City. American Express History *$ American Express started off as a shipping company in 1850, shipping products across the United States and capitalizing on the limited reach and slow speed of the United States Postal Service. Their main customers were banks and they shipped various financial instruments like stock certificates and other notes. They began selling money orders and traveler’s checks in 1882 and issued its first credit card in 1958. (full history) +$ In 1984, American Express billed their Platinum Card as extremely exclusive and it had an annual fee of $250 ($484.84 in 2006 dollars). Today, the extremely exclusive card for American Express is their black Centurion card with a $2,500 annual fee! (and requirement to spend $250,000 a year) MasterCard & Visa History ,$ MasterCard and Visa are networks of banks and financial institutions. American Express is its own company and Discover Card is a subsidiary Morgan Stanley (who is spinning off the business). -$ Visa was originally called BankAmericard, a card offered by Bank of America in 1958 in California. By 1970, they had created an association, called the National BankAmericard, Inc., of all the US Banks that issued the BankAmericard. It wasn’t renamed to Visa until 1976. (full history) .$ Visa actually stands Visa International Service Association. /$ The Visa logo colors were chosen because the blue represented the sky and the gold represented color of the hills in California where Bank of America was founded. (from Wikipedia).
Originally formed under the name Interbank Card Association and they acquired the MasterCharge brand and logo in 1969. MasterCharge was originally formed by four California banks in 1967, who joined together to form the Western States Bankcard Association to battle the BankAmericard of Bank of America. MasterCharge was renamed MasterCard in 1979. In 1984, MasterCard was the first to use a hologram on its cards to deter fraud. Discover Card History Discover Card was introduced by Sears in 1985 and gained notoriety because it charged no annual fee. At the time, Sears also owned the brokerage Dean Witter Reynolds Organization and the Discover brand was integrated into that organization. When Dean Witter merged with Morgan Stanley in 1997, Discover went along for the ride. Useful Things That Make You Go Hmmmm… Wonder why minimum payments are so low? It allows consumer to carry more debt while keeping to the same low minimum payment. You can give someone with the ability to pay $100 per month a credit limit as high as $5,000 if they only had to pay 2% a month. If the minimum payment were 5%, they could only have a credit limit of $2,000. The lower the minimum payment, the deeper in debt someone could be in. It is against the merchant agreements of MC, Visa, and AMEX, for a vendor to require you to provide your phone number, home address, or other personal information for credit card transactions. In fact, some states make it illegal for them to require it. (It’s not illegal to ask, but it is if they refuse to process the transaction without that information) Under the merchant agreements of MC, Visa, Discover Card and AMEX, you do not need to present a driver’s license in order to complete a credit card transaction. Under the merchant agreements of MC, Visa, and Discover Card, vendors may not require a minimum purchase amount. Under AMEX, it’s more of a hint that the vendor shouldn’t put up any barriers to use but AMEX also has a discrimination rule, so if there is no minimum amount for MC/Visa, there cannot be a minimum amount for AMEX. (Consumerist has all the relevant merchant agreements consolidated) Under the merchant agreements of MC, Visa, and Discover Card, vendors may not charge a surcharge for using the card (the anti-discrimination rules still apply for AMEX). In some states, it is actually illegal to charge a surcharge for credit card purchases. This rule does not apply to government agencies. On the flip side, offering a discount for cash payment (over credit card payment) is permitted by all of the card companies (looooophole!). A merchant may, on taking a personal check, require that you offer a credit card number. It is against merchant agreements to charge a credit card in the event of a
bounced check (and it’s also very dangerous to have all that juicy information on one little slip of paper, plus this may also be illegal in your state). You can lower your interest rate with a phone call. Credit card companies are like cell phone and cable companies, they’re afraid you’ll leave and join with one of their competitors. Use this to your advantage by comparing offers from other credit cards and bringing this information to your credit company. When you use your card, you agree to the cardholder agreement, you don’t have to sign anything. If you get an update to the agreement, you also agree to the updates once you use your card. A fixed interest rate on a credit card can change with only 15 days of notice. Fixed is not fixed in the sense that a mortgage loan is fixed, it’s fixed in the sense that the credit card company can change it with only 15 days notice! If you have multiple balances with different interest rates on one card, payments are generally applied to the balance with the lower interest rate. You will have no choice in the matter and you cannot request it be made to the higher balance. So if you have a $100 balance at 19.99% and a $5,000 balance at 4.99%, your payments apply to the $5,000 at 4.99% first. A note about this will be in your agreement. The credit card sale process works as follows: The vendor sends an authorization request for the value of the sale. The credit card company checks the card limit and reduces the credit limit by that amount (it puts a “hold” or a “block”) and sends the vendor electronic confirmation that the card is good. The vendor sends a deposit transaction or a sale transaction. The credit card company sends the money. This process is usually quick and painless… with the following exceptions: Hotels and rental car agencies usually send an authorization request for the estimated cost of your stay or rental and they keep this “block” on your card for 10 to 15 days (independent of how long you actually stay there) even if you pay with something else. When you use a credit card at a gas pump, the pump authorizes the purchase for something in the neighborhood of $50 first. So if you have less than $50 left on your limit, the pump will reject your purchase attempt. Restaurants typically will authorize a credit card purchase for the amount of the bill plus 25% (for gratuity), so again, if your limit can’t handle the extra 25%, the purchase transaction will be rejected. Technobabbliciousness Ever notice all your credit cards are of uniform shape and size? Their dimensions are governed by the ISO 7810 standard, an international standard for identification cards. Banking cards, as well as driver’s licenses and retail cards, follow ID-1 (passports follow ID-3). If your card has a smart chip, it follows ISO 7816, and if it has RFID, it follows ISO 14443.
The expiration date on the card is “fake.” You can still use the card after its expiration date because the card number on your replacement will be the same. The reason why cards do expire varies from company to company but mostly it’s because the credit cards take a lot of abuse and just need replacing (they estimate the magnetic strip is good for only about three or four years of swiping). Interested to know what’s on the magnetic stripe? Check out this breakdown of the three tracks on Wikipedia (the rest of the page explains other magnetic stripes). There are generally two types of magnetic strips, high-coercivity and lowcoercivity, with the high-coercivity being stronger and more durable (also requiring more expensive equipment to handle). (from Wikipedia) Higher-coercivity are usually black and low-coercivity strips are a dark brown, but there are special cases such as American Express’ patented silver colored magnetic strip. Hotel keys and other low-coercivity stripped cards are susceptible to being scrambled by a weak magnetic force, including cell phones. Credit card numbers conform to the Luhn algorithm, which is just a simple checksum test on the number. What you do is start from the right and double each second digit (1111 becomes 2121), then add them all together, and you should end with a number evenly divisible by ten. If it doesn’t, it’s not a valid credit card number. The first digit of the number is the Major Industry Identifier. 1/2 are for airlines, 3 is for travel/entertainment, 4/5 for banking and financial, 6 for merchandizing and financial, 7 for petroleum, 8 for telecommunications. 0 and 9 are for other assignments but you’ll likely never see them. If you look at an American Express card, you’ll see it starts with a 3, a throwback to their travel/entertainment roots. The first six digits will correspond to the issuer, including the major industry identifier. 34xxxx/37xxxx are for American Express, 4xxxxx is for Visa, 5155xxxx is for MasterCard, and 6011xx is for Discover. The rest of the digits (except the last one, which is a checksum digit) is your account number. Legal Ways You’ve Been Hosed & Un-Hosed Minors, those under the age of 18, are not obligated to pay back any charges to their credit cards (unless a parent co-signs, but then its the parent who is on the hook) because they are not allowed to enter into a binding contract. If there are unauthorized charges on your card, you’re on the hook for $50 each, maximum (unless your agreement says you are responsible for less, you cannot be responsible for more). If you report your card missing and an unauthorized charge appears after you’ve reported it, you are liable for $0. By law, you are only allowed to dispute charges for “unsatisfactory goods or services” if you made the purchase in your home state or within 100 miles of your billing address and the purchase was for more than $50. (and if you’ve made a
good faith attempt to resolve it with the vendor) While a credit card company may not hold you to this, they are protected by the law for purchases outside your home state/100 mile radius. $! Credit card companies are prohibited by law from sending you a card that you didn’t ask for, unless it’s a renewal or a substitute card. If you get a credit card you didn’t apply for, contact the Federal Trade Commission and file a complaint. $" A common clause in most user/member agreements is that the cardholder waives their right to sue the credit card company. The cardholder must instead go through a binding arbitration hearing with the credit card company and cannot take the company to court or participate in a class action suit. $# Before 1996 and the Supreme Court case Smiley vs. Citibank (517 U.S. 735, Thanks j), there were restrictions on how much a credit card company could charge for a late payment. The ruling in Smiley vs. Citibank lifted that restriction and fees that were once around $5-$10 jumped to $30 or more today. $$ There is no federal law regulating the rate of interest a credit card company can charge! The federal government use to regulate but repealed those laws during the Great Depression and never put them back in place, they now rely on the states to handle usury. $% In the Supreme Court case Marquette National Bank v. First of Omaha Service Corp (439 U.S. 299, Thanks j) in 1978, the Court decided that national banks only need to follow the usury laws of the state they are headquartered in, not the state in which their customer resides. $& Credit card companies are all headquartered in states with high or no cap on interest rates. American Express is located in Utah (no cap), Bank of America is in Arizona (36%), Citibank is in South Dakota (no cap), Capital One is in Virginia (no cap), Providian is in New Hampshire (no cap), and JP Morgan Chase, MBNA (now Bank of America), Morgan Stanley/Discover, and HSBC are all located in Delaware (no cap). Department of Holy Crap They Make A Ton of $$$$$ $' Each American household receives approximately 6 offers a month. The typical response rate is .33% (one third of one percent). You can opt out of these mailings via OptOutPrescreen. $( Each direct mailing acquisition costs approximately $80, according to R.K. Hammer, bank card advisory firm. $) Credit card companies earned $90.1B in interest in 2006, up from $89.4B the year before (according to R.K. Hammer). % Credit card companies earned $55.2B in fees in 2006, up from $54.8B the year before (according to R.K. Hammer).
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Alarming Credit-Card Tricks CREDIT-CARD COMPANIES ARE finding creative new ways to separate you from your money. According to the 2005 Credit Card Survey, released Thursday by Consumer Action, a San Francisco-based advocacy group, some of the new tricks are among the most aggressive yet. Companies have begun increasing borrowers' interest rates to 30% or more simply because they've applied for a mortgage or car loan, or because the company has decided the borrower has too much available credit. Consumer advocates warn of other trends like socking people with overseas fees even when their purchases are made with U.S. dollars, and penalizing them for not using their credit cards. "It's like a trip wire," says Curtis Arnold, publisher of Cardratings.com, a credit-card information web site. "If you're not a very diligent, savvy consumer, you're more than likely to get tripped at some point." Not surprisingly, consumers are spitting mad. The Better Business Bureau received 17,060 complaints against credit-card issuers in 2004, compared with 15,700 in 2002 and a scant 4,900 in 1999. Gripes about credit-card companies now rank third in terms of the volume of complaints the BBB receives. Five years ago, the industry came in at No. 12. Here are five of the sneakiest tricks that credit-card companies are pulling on unsuspecting customers. 1. Applying for a Mortgage? We'll Bump Up Your APR. Creditors often increase your interest rate when they notice negative activity — say, a late payment or an over-the-limit fee — on any of the accounts that show up on your credit report. This practice, known as "universal default," has become increasingly prevalent during the past few years. Today, 45% of credit-card providers engage in this practice, according to Consumer Action, compared with 39% in 2003. But while universal default has existed for some time, Consumer Action's 2005 survey found an alarming new trend: You no longer need to do something wrong to be hit with a universal default rate. According to the survey, 43% of creditors who practice universal default would enforce it if they deemed that a cardholder had too much overall debt. And 33% would do it if they thought the consumer had too much available credit. Even things like getting a new credit
card (33%) and an inquiry related to a car loan or mortgage (24%) can trigger universal default. "It seems the banks are peering a little too closely into our credit reports and picking on things that we feel are pretty insignificant and could happen to anybody," says Linda Sherry, a spokeswoman for Consumer Action. It makes sense to treat as high-risk someone who has repetitively been late with payments and has gone over credit limits, she says. "But a person going out shopping for a car loan or a new mortgage? Those are things that anybody does." The highest default APR — 35% — is now offered by Merrick Bank, a Utah-based issuer that serves more than 555,000 cardholders. Runners up were Citibank (C), Bank of America (BAC) and Providian Financial (PVN), with 29.99%. (At a congressional hearing this May, Citibank said it now notifies consumers before increasing their interest rate, and allows them to opt out of the increase and continue using the card at the old rate until the card expires.) 2. Beware Two-Cycle Billing Two-cycle billing is a sneaky and complicated practice. It affects people who usually pay off their balance in full each month, but end up in a situation where they have to carry a balance for one or more months. (This is a likely scenario around the holidays, for example, when Christmas presents add up and people find themselves unable to pay the whole bill at once.) A cardholder in this situation will end up paying more in interest than with a credit card that doesn't have a two-cycle billing. How does it work? Banks usually calculate monthly interest charges for each billing period based on the average daily balance. So let's assume that your billing cycle goes from the first to the 30th of the month, and that you had a balance of zero for the previous month or months. On July 10, you made a $1,000 purchase, your only purchase for that month. Your average daily balance for July, then, would be $666.66 ($1,000 times 20, divided by 30, since you carried that balance 20 days out of your 30-day cycle). A card with an average daily billing cycle method of computing finance charges wouldn't charge you any interest on that amount for July, since you started the period with a $0 balance. But a card with two-cycle billing would, since it calculates your average daily balance for the last two billing cycles. In effect, a two-cycle billing card will assess interest for the 20 days in July after you made the purchase, namely on $666.66. Just how much interest you'll pay depends on your interest rate and purchase amounts. In our example, if we assume your annual percentage rate is 18% (meaning you're charged 1.5% a month), your interest charges for January would be an extra $10. But what if your purchase was $10,000 — say you paid a medical bill or bought new furniture? Two-cycle billing would cost you an extra $100. "That's where it gets you," says Gerri Detweiler, author of "The Ultimate Credit Handbook" and founder of DebtConsolidationRX.com. "It affects consumers in a limited number of circumstances, but it can be expensive." Her advice: Avoid credit cards with two-cycle billing. Last year, only two providers — Discover and Bank One, which consequently merged with J.P. Morgan Chase (JPM) — used two-cycle billing, according to Consumer
Action. This year, the number has grown to five: Chase, Discover, Providian, National City Bank, and First National Bank of Omaha.
David Ciani
Exposing the Credit-Card Fine Print - TIME http://www.time.com/time/magazine/article/0,9171,1715293,00.html Banks moniter all borrowing behavior Can trigger universal default The reason the card industry is free to raise prices on existing customers at any time and for any reason is tied to deregulation, which began in banking in the 1970s and effectively eliminated caps both on interest and fees. "Delinquency and default are nearly always due to loss of job or a 'life event' such as health problems (and medical bills), death or divorce," wrote analyst Chris Brendler of Stifel Nicolaus in a January report. Ruth Owens, 57, understands this first hand. She was living on social security disability when Discover Bank sued her for breach of contract for failing to pay $5,564 in fees and interest on a $1,900 debt. In 2004, a Cleveland, Ohio municipal judge not only barred Discover from collecting any more money from Owens, but scolded Discover for its "unreasonable, unconscionable and unjust business practice."
USATODAY.com - Here's a map for dissecting credit card fine print http://www.usatoday.com/money/perfi/credit/2006-03-02-credit-card_x.htm Increasingly, different interest rates apply to purchases, cash advances and balance transfers. On top of that, there are penalty rates that can kick in if you're an hour late paying your bill or you exceed your credit limit or your credit score drops. Want to pay off the highest-rate balance first? You can't. In their card holder agreements, most issuers state that payments will go toward the lowest-rate balance before making a dent on the higher-rate one. That keeps revolvers — customers who carry a balance — in debt longer.
Also, you could have, say, a March 1 date to pay your balance in full without incurring interest charges, but a later date — say, March 15 — to pay the minimum to avoid late charges. So even if you paid the balance by March 15, you could face interest charges, says Robert Manning, finance professor at Rochester Institute of Technology. If you refuse the changes, some issuers will let you pay off your balance on the old terms but won't let you make any new purchases. Others will let you keep the old terms and continue charging on the card until it expires. Card holders can get back in Discover's good graces, but it'll take more than one on-time payment: You must pay on time for nine consecutive billing periods before Discover will consider reducing the rate on the existing balance, the amended card holder agreement says. Nearly half the banks that issue credit cards require you to give up your right to sue and instead go through arbitration to resolve a complaint, according to a 2005 Consumer Action survey. One perk of paying with plastic is that if you're not satisfied with the merchandise, you can ask your bank to dispute the charge. Pay with cash and you'll have to rely on the merchant's goodwill to get your money back.
Consequences of ignoring credit card debt http://www.bankrate.com/brm/news/debt/20051007a1.asp Make it harder for you to get a job or promotion. Many employers check credit reports before making hiring or promotion decisions. A negative mark on your credit report, issued by your creditor for nonpayment, will raise questions and concerns that may result in you being a less-attractive employee.
Raise your interest rates. Many credit card issuers have a penalty interest rate of 25 percent to 30 percent. If you default, you'll qualify for it and your bills will look like you invited a hungry relative for dinner. Under a policy called "universal default," if you are overdue on one card, all other cards will raise your rates. Your credit score will drop, and a lower credit score means new loans and credit will cost you more.
Raise your insurance rates. Many insurance companies use the data in your credit report to generate an "insurance score." Badcredit risks pay more for insurance or may fall outside of underwriting guidelines and may not be offered renewals.
Keep you from getting the apartment you want. Landlords often check credit before renting. Bad credit can keep you out of the good places that would impress prospective girlfriends.
Call you till the cows come home. Expect that if you owe enough, your account will be turned over to collectors, lawyers or be sold to professional debt buyers. Interest will accrue and fees will be charged. Your phone will begin to ring more often and you will never want to talk with the person on the other end of the phone. Although the Fair Debt Collection Practices Act protects you from abusive collectors, it does not prevent legitimate collection procedures, which, even within the law, can ruin an otherwise nice day.
Garnish your wages. You entered a contract with your creditor and said you would uphold your end of the agreement by making payments on your account as set forth in the agreement. If you choose to breach the contract by not paying, the creditor has the right to sue you in civil court to recover the money it is owed. This includes liens on assets and attaching your wages through a process called garnishment. The latter is not a plus with your employer either.
The Simple Dollar » Explaining Simple Interest, Compound Interest, APR, and APY http://www.thesimpledollar.com/2006/11/28/explaining-simple-interest-compoundinterest-apr-and-apy/ So how else is interest calculated? Many organizations (such as banks and credit card companies) use compound interest to calculate how large your finance charges are and how much interest you get. Compound interest is interest which is added back to the original amount. Organizations do this on a regular basis and use a method that is most effective for their business, allowing them to report an interest rate to consumers that doesn’t actually describe the full situation of the payments. For example, most organizations use compounded interest, compounded monthly. This is in line with how most credit cards and many banks calculate interest. Let’s look again at that $1,000 over a year at 5% interest. If we use simple interest, the total is just $1,050, as we saw above. But if we compound the interest each month, our calculation is a bit trickier, as we have to figure the balance at the end of each month.
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