Thursday, July 26, 2007

On credit cards and debit cards...

Kilpinger's got a couple interesting articles. This one on credit disclosure reform greatly interested me because I'd been waiting to hear some updates on this particular topic. Here's the official press release from the Federal Reserve. The skinny is that regulators want more information on credit card statements and applications.

Some I am pleased with, others seem like a waste. Forcing them to give 45 days notice, instead of the current 15, before making term changes is pretty important in my opinion. For anyone who carries a balance, 15 days (where the changes would likely take effect the next billing cycle basically) isn't much time to reject the changes and move their debt somewhere else. Disclosing the amount it could cost you if you make only minimum payments (check out the proposed formats here and here) seem a little overboard. I suppose it is necessary for some people, but I want my statement (and my terms) to be simpler and easier to read, not more complex.

Taking out the fictitious "fixed rate" I can get on board with! Okay, give the consumer a penalty rate if they are late or don't pay the minimum. But please, a fixed rate should not be able to be changed just because I start putting smiley faces on the checks I write to you. They can change the rate for any reason, usually determined by some computer that figures out who might show indications of giving them less money (like they did to me, for paying off all my balances). What I also want to see is FULL DISCLOSURE of all terms, especially rewards terms. None of this "further terms will be mailed to you after you have received your card" garbage.

On debit cards, I'm a big fan. I use debit almost exclusively from cash (though I don't spend much because I'm broke). I'm not a fan of the new rewards debit cards because as far as I can see, just about all rewards cards are a complete joke. Their terms are ridiculous and complex and it's usually not worth my time trying to figure out how to maximize them.

Finally, they mention interchange fees. Did you know the fees the merchant is charged is lower if you use debit (pin) rather than credit? I disagree with this:

PIN or pen? Debit-card users are caught in the crossfire between merchants and card companies...From your point of view, it generally boils down to personal preference. To get cash back, you must punch in a PIN.

No, interchange fees are indirectly paid by us, the consumers. If we as consumers use debit more instead of credit, the merchant makes more profit and can lower its prices. See? It's not personal preference, it is better to use debit to purchase goods. Rewards and purchase protections aside, of course.


Klifts said...

Thats a good point on the interchange fees, I work with on some of this and its amazing how much money the credit card companies make off these hidden fees that most consumers aren't even aware of. The can really take a large chunk of profits away from small business who are definitely forced to raise prices to make up the loss sometimes. So in that way your right on it hitting consumers too - but I think the credit card companies are trying to raise it for debit cards now too though. Any news on that?

Beyond the Consumer said...

Klifts, thanks for writing. I wasn't aware of any changes to debit card fees. I'm going to keep an eye open for it now, though.

klifts said...

Definitely do, there has been some press on it recently so you should be able to find something recent pretty easily, but let me know if you can't and I'll see what I can find. The big problem with these interchange fees etc. is that they don't show up on your bill or your statement. Businesses know about them because they pay them directly - we pay them when small business are forced to raise prices because of them.