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How Presidential Election Could Affect the Credit Card Industry

Last year, Democratic senators started investigating the practices of the credit card industry. This month, the"Credit Cardholders Bill of Rights Act of 2008" was introduced in the House of Representatives. Democratic Senators and Presidential candidates Barack Obama andHillary Clinton are also using this issue to appeal to voters. Both candidates propose strong, but similar, changes to the industry.

In December, Obama helped introduce a five-star ratings system for credit cards so that consumers can easily understand the rates and fees associated with the card.Cards will be awarded stars on a point system. For example,card issuers that change their rate or fees for any time, for any reason, will receive a one-star rating. Those giving 90-day advance notice will receive more stars. "Under this rating system, they predict that most cards will currentlyreceive only one or two stars," says Bill Hardekopf, CEO of LowCards.com.

Obama proposes his own credit card "bill of rights" while Clinton proposes Fair Credit for Families, but both wouldmake many of the same changes:
* Prevent Universal Default.
* Require issuers to first apply payments to the credit cardbalance with the highest rate of interest.
* Apply interest rate increases only to future debt, notcurrent debt.
* Only charge interest on the loan. Stop charging intereston the fees.

In addition to these changes, Clinton would cap interest rates at 30%, require lenders to get cardholder written consent before they increase the rate or change the terms, end double-cycle billing, and establish uniform payment deadlines.

She would also create a Financial Product Safety Commissionto monitor financial products.
"Getting tough on credit card issuers is an easy platform point, especially during this time of credit crisis and economic struggles when issuers are raising rates. It iseasy to villanize this industry and demand changes for the average household," says Hardekopf. "Many of the changes are supported by both candidates, and would be good for consumers. However, these changes that are good for consumers will significantly cut interest and fee revenuefor the banks that issue these credit cards."

While the momentum is building for changes to be made, thecredit card industry is warning about the consequences. Theysay that changes and new regulations can impact how credit cards will be priced and affect their ability to offer low rate alternatives. "If these changes go through, we can expect the credit card issuers to react and find ways to maintain their revenue," says Hardekopf. "One way may be to raise the standard rates for everyone, not just those inpoor and average credit categories."

Republican candidate John McCain has not released his position with the credit card industry.

Confusing Credit Card Terms Still Exist

Almost everything about credit cards can be confusing forconsumers. Congress is attempting to create legislation thatwill make the terms and conditions easier to understand. However, it is not just the interest rates and fine print that are difficult to understand. Getting a correct, clear answer from a customer service agent can be just as difficult and frustrating.

A story by the Jane J. Kim in the Feb. 5 edition of the Wall Street Journal said, "American Express, which raised its late fees last year, plans in May to change the minimum payments calculation across its consumer credit cards, which
is likely to increase the minimum amounts due for some cardholders."

Since this could increase payments for some consumers, staff members at Lowcards.com made four phone calls to American Express to find further information about the minimum payment increase. We received four different answers.

Representative #1 said that the minimum payment will increase to 5% effective in May. She stated the current minimum payment is 2.5%.

Representative #2 said that there will not be an increase. If there is ever a change like this, they will let cardholders know.

Representative #3 said there will be an increase to 5% for those who have paid only the minimum balance for the past six months, or who have been late on any payment during this time period.

Finally, an American Express spokeswoman said that there will be an increase for those who have made only the minimum payment for six consecutive months. She said that American Express sent a letter last fall about this to cardholders, explaining the changes that will go into effect six months later, on the April or May monthly statement. The increase will be based on the following "easy-to-understand" formula:

"To calculate the minimum amount due, we first determine the
greatest of:

* 2% of the balance (excluding any over-limit amount and any late fees or over-limit fees);

* the lesser of either:
Current billed finance charges plus 1% of the balance
(excluding from the balance any over-limit amount, any late
fees or overlimit fees, and finance charges); or 4% of the
balance; or $15.

"We then take the greatest value above and add to it any
over- limit fees, any late fees, 1/24th of any over-limit
amount, and any amount past due."

"This is incredibly complex and another example of the confusion the credit card issuers create with their product. Consumers have a lot at risk financially with their credit cards, and issuers must do their part to make all terms clear and easy for cardholders to understand. These shouldn't be a puzzle where you need a PhD in math to calculate what your minimum payment might be," says Bill
Hardekopf, CEO of LowCards.com.

"There are many cardholders who are going to be quite surprised and confused by a higher minimum payment in April or May.

"We are supportive of the higher minimums because this forces consumers to pay off more of their balance and saves them money in the long run by decreasing the interest
payments. We applaud American Express for this move, but are very concerned that consumers don't know what their minimum payments will be with this very complex formula."

What Do Airline Mergers Mean For Credit Card Users?

Yesterday, Delta Airlines and Northwest Airlines announced their proposed merger.

Since both have their own credit card reward programs with separate banks, one of these programs will likely change. Delta has a strong relationship with American Express, and the Northwest Airlines WorldPerks card is offered by US
Bank.

"Even though it may take a while to determine the fate of the Delta and Northwest credit cards, we can assume that there will likely only be one card and one issuer for the new company. Either way, some cardholders will probably be left with a cancelled card and will have to make a change," says Bill Hardekopf, CEO of LowCards.com.

"Since Northwest is merging with Delta and the new company will be called Delta, more than likely, American Express will be the credit card issuer for the merged airlines."

If you currently have a WorldPerks card, you should start to consider what card you would want to replace that one. The natural choice would be one of the American Express Cards that award miles on the Delta Frequent Flyer program.

"Some airline industry analysts anticipate at least one or two more mergers in the immediate future. The next one may very well be United and Continental. In this case, both airlines use Chase for their credit card reward programs so
there should not be that much of a problem. Continental also has an agreement with the American Express Membership rewards program. That agreement may not survive a merger."

If you have an airline reward card, this may be a good time to evaluate your card and compare it with other reward cards. Airline reward cards typically have higher interest rates and some charge an annual fee.

"If the airlines reward card is your only reward card, you may consider getting another type of reward card. Booking a flight with frequent flyer miles is frustrating right now. With fewer carriers and less competition, it may be even more difficult to use your miles to book a flight. A great number of miles doesn't help you if you can't get the flight that you want." says Hardekopf. "You may save just as much money with a good hotel rewards card and hotel rooms are usually easier to book. You also can't beat straight cash from a cash back credit card."

Some airline reward cards like Citi PremierPass or CapitalOne No Hassle Miles are not tied to a specific carrier, so you can use them on most airlines. You also have
the flexibility to use the miles for other rewards.

Another good choice is the American Express Starwood Preferred Guest Credit Card. It allows you to get 25,000 miles for every $20,000 you spend and you can deposit those
miles into a number of different airline frequent flyer programs.

If you carry a balance, you should not have an airline reward card. The miles are not worth the extra you pay in interest.

Also take this time to review the miles you have accumulated in your frequent flyer accounts. Miles may expire within 18 months if there has been no activity in your account. The merged airlines may also change their policies and adapt to
the more restrictive policy of the two airlines.

Do the Fed's Proposed Changes in Credit Cards Go Far Enough?

The Federal Reserve released its proposal for prohibiting unfairpractices by credit card issuers. The provisions include:

* Prohibiting banks from applying payments above the minimum in a way that maximizes interest charges.

*Prohibiting banks from increasing the annual percentage rate on an outstanding balance unless certain circumstances apply,

* Consumers must be allowed to pay off the balance over a reasonable period of time.

* Prohibiting banks from imposing interest charges using the "two-cycle" method.

* Limiting the fees charged by subprime cards that reduce the available credit.

"These changes are very positive for credit card consumers. Some of these practices were unfairly penalizing consumers that carry a balance on their account," says Bill Hardekopf, CEO of LowCards.com.

"While this is a tremendous step in the right direction, there are three additional changes that could be made which would also benefit consumers.First, credit card Terms and Conditions need to be written in a way that most people can understand. Second, consumers need to be clearly informed of any proposed changes to their credit card rates and feeswith 45 days notice. Third, issuers should be prohibited from charging interest rates on fees.

"It will be interesting to see which of these provisions survive the process to become regulations that are passed by the Federal Reserve. The banks are likely to strongly protest the changes and try to dilute them or remove them altogether," says Hardekopf.

"Many of these provisions are the focus of both the Federal Reserve and Congress. This means there is a good chance tha tsome of these suggested changes will actually stick. This is also an election year, and right now cardholders have the attention of the Federal Reserve and Congress. This is a good time for consumers to contact both to give their opinion about these proposals. However, even with this scrutiny of credit cards and attention to unfair practices, don't expect immediate changes. The process takes a long time and it may be at least a year before consumers actually see these changes take effect on their account."

Articles provided by Lowcards.com

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How Presidential Election Could Affect the Credit Card Industry

Do the Fed's Proposed Changes in Credit Cards Go Far Enough?

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How Presidential Election Could Affect the Credit Card Industry

Do the Fed's Proposed Changes in Credit Cards Go Far Enough?

$6,000 Unsecured Gold Merchandise Credit Line
No credit checks or credit turndowns
No employment verifications
Credit Limit Increases Available
*See website for terms & conditions