This past year was a very eventful one in the debit and credit card
industry. Here is a review of the top ten stories of 2011:
1. Debit Card Interchange Fee
The government regulation of the debit card interchange fee was the most
controversial issue of the year. The Durbin Amendment to the Dodd-Frank
financial overhaul bill went into effect on October 1. Before the legislation,
the interchange fee averaged 44 cents per transaction. Now, the reduced
fee is 21 cents plus an additional amount to cover losses from fraud. This
cost the banks billions of dollars in lost revenue. The interchange fee was
intended to resolve a bitter issue for merchants but it also ignited
unintended consequences for consumers, such as banks dropping
rewards for debit card purchases in the spring and proposing to add
fees for debit card usage in the fall.
2. Banks Add, Then Rescind, Debit Card Fees
A number of banks introduced a debit card fee of $3 to $5 each month that
the debit card was used for a purchase in order to make up for the revenue
lost from the reduced interchange fee. But the public rebelled when Bank of
America added the $5 fee in September. This fee received condemnations
from consumers, Congress, and President Obama. Some consumers even
declared a ‘Bank Transfer Day’ on November 5. Banks quickly backed
down and dropped the fee at the end of October.
3. Greater Rewards for Credit Card Consumers
After the credit crash in 2008, credit card issuers cut back on the rewards
offered to new cardholders. But in 2011, nearly every issuer ramped up the
rewards, trying to attract new customers with good or excellent credit
scores. Rewards are used to compete for new cardholders, as well as to
encourage credit card spending and regular usage.
Some cards now offer very attractive bonuses based on usage. The Chase
Freedom card began offering a $200 cash back bonus once a new cardholder
spent $500 during the first three months. Capital One Cash was introduced
during the year and offers a 50% cash back bonus on all you earn each year,
plus an additional $100 bonus for spending $500 on the card during the first
Earlier in the year, there were extremely attractive airline rewards. In
March, Capital One created a buzz with the heavily promoted “Match My Miles
Challenge” where consumers could earn up to 100,000 miles by switching and
spending on the Venture Card. Chase followed with a promotion on the British
Airways card where cardholders could receive an extra 100,000 miles by
becoming a customer and reaching a certain spending level.
4. More Attractive Balance Transfer Offers
Balance transfer offers were also strong throughout the year. Issuers used
very attractive offers to lure credit card customers to transfer their
existing balance from a competitive card. Nearly every major issuer
currently has a card where consumers can receive 0% APR for an extended
period of time–Slate from Chase for 12 months; Capital One Platinum
Prestige for 15 months; Discover More for 18 months; and Citi Platinum
Select for 21 months.
5. Mobile Payments
Google Wallet debuted in September and mobile payments became a payment
option for some smartphone users. Mobile payments allow consumers to make
purchases or transfer money with a quick application downloaded to a mobile
phone. Even though mobile payment systems are now available, plastic cards
and cash won’t vanish tomorrow. Consumers and retailers will need convincing
and incentives to make the switch. Consumers won’t save money by paying with
a mobile phone. The same fees and interest rates for consumers and
interchange fees for retailers will apply to mobile payments. Retailers are
also reluctant to spend the money to buy the equipment necessary to link
your cell phone to their cash registers.
6. Defaults and Delinquency Rates Decline
It is a much healthier environment for credit card issuers in 2011. Credit
card defaults and delinquencies declined during most months this year.
Credit cardholders and issuers both made changes over the past couple years
that brought an excessive system of credit card borrowing and lending back
under control. Many of the borrowers who could not pay off their debt had
already defaulted, while others have diligently paid down their balances and
used other forms of payment to avoid the high interest rate penalties.
Credit card issuers closed risky accounts, cut credit limits on millions of
accounts, and tightened lending standards to cut their risk of defaults and
7. Credit Card Issuers Drop Some Fees
Some banks tried to polish their tarnished image by dropping some credit
card fees. Chase is now offering a Slate card that for a limited time does
not charge a 3% fee for balances transferred during the first 30 days that
the card is open. Other issuers have eliminated the foreign transaction fee
on certain cards. Discover dropped its 2% foreign transaction fee; Chase
eliminated its 3% foreign transaction fee on the Sapphire Preferred card;
and Citi dropped its 3% fee from the ThankYou Premier and ThankYou
Prestige cards. Avoiding the foreign transaction fee is a significant savings
for travelers, but also for consumers who makes a purchase from another
country or even a purchase that is routed through a foreign bank.
8. Additional Protections for Cardholders
The Federal Reserve Board approved a rule designed to provide additional
protections for credit card consumers. The Board’s rule amended Regulation
Z (Truth in Lending) to clarify prior rules implementing the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (CARD Act).
The CARD Act required issuers to consider a consumer’s ability to make
payments before opening a new credit card account or increasing the credit
limit on an existing account. Issuers must consider the consumer’s
individual income or salary. The application can no longer request
“household income” because that term is too vague. As a result, stay-at-home
parents now find it much more difficult to be approved for a credit card.
It also clarified that promotional programs, like introductory rates that
waive interest charges for a specified period of time, must follow the same
rules as promotional programs that apply a reduced rate for a specified
period. Offers that waive interest charges during an intro period cannot
revoke the waiver and charge interest during the intro period, unless the
account becomes more than 60 days delinquent.
9. Consumer Financial Protection Bureau Opens
Credit cardholders now have a place to file a complaint against their credit
card issuer. The new Consumer Financial Protection Bureau (CFPB) was
created by Congress through the Dodd-Frank Act. While it still does not have
a director, it opened in July. It offers consumers webpage just for credit
card complaints. During its first three months of operation (July 21 through
October 21), the agency received 5,074 complaints. The most common
complaints involved billing disputes (13.4%), interest rates (11.0%), and
identity theft or fraud (10.8%). Most of the complaints (84%) were sent to
credit card issuers for review and response. Issuers reported either full or
partial resolution of 74% of the forwarded complaints, and 71 percent of
these consumers did not dispute the responses provided.
10. Government Issues Debit Cards for Tax Refunds
The U.S. Treasury started issuing debit cards (MyAccountCard Visa
Prepaid Debit Card) instead of paper checks for tax refunds to low income
individuals. The Treasury Department is converting to debit cards for
several reasons. For the government, they are less costly to mail than
checks. For the recipient, they provide a safer, faster and more convenient
way to distribute money than checks. Many low income individuals do not
have bank accounts and the cashing of these refund checks can be costly.
Ideally, these cards reach consumers six weeks earlier than a check. The
government hopes the distribution of these cards cuts down on the costly
refund anticipation loans than many low income consumers receive.
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- After Hooking Us On Debit Cards, Banks Now Want Us To Only Use Credit Cards
- Chase Introduces Attractive Airline Rewards Credit Card
- New Battle Between Retailers and Credit Cards Could Catch Consumers In The Middle
- The Beginning of the End for Debit Rewards?
- Debit Card “Reform” That Could Result In Debit Card Limits Debated In D.C.
- Wells Fargo Also Cuts Debit Card Rewards Program