Reuters Money

Will retailers give debit cards a new life?

As an expert on the credit industry, John Ulzheimer spends his days thinking about credit cards, debit cards and credit scores. So imagine his surprise when he picked up lunch at a restaurant near his house in Atlanta, then later went on a beer run, and was directly confronted with the consumer fallout from the hot-button issue of the day in his profession: new fees for debit card purchases imposed by government regulations.

“The liquor store has an entirely new pricing structure – the cash/debit card price was 5 percent less. And, at the restaurant, for the first time ever, they asked me if I was paying by cash or debit card or credit card, even before I ordered my meal,” he said, and sent along picture at right from the liquor store.

Since the start of October, the credit industry has been focused in on debit cards, as the Durbin Amendment kicked in federal limits on how much card issuers could charge merchants per transaction, and which last week translated into some major banks imposing monthly fees on users for using their debit cards for purchases. Bankrate.com also released a new study that showed reward offers for debit card usage declined 30 percent in the past year.

It seemed as if the industry was conspiring to turn those cards from a popular payment method back into a piece of plastic you only use to get cash from the ATM. And some said good riddance. “There’s absolutely no reason that consumers need to use a debit card. And I was in that camp before this legislation,” said Odysseas Papadimitriou, CEO of credit card comparison site Cardhub.com, which just released its own study on how the new fee limits will affect consumers.

But the end of debit cards as we know them may be forestalled by retailers, as Ulzheimer noticed in his real-world forays. (Bankrate’s senior financial analyst Greg McBride noted also that smaller community banks and credit unions will also keep debit cards afloat, as they are not affected by the Durbin fee structure changes.)

Some merchants are already willing to pass to along to consumer their newfound savings in fees from the bank. Others will not, but may participate in merchant-funded reward programs, which seem to be taking prevalence in the dwindling space overall of reward programs for debit cards.

“It’s a noticeable shift,” said McBride. “We see that 29 percent of offers are now merchant-funded, versus 13 percent last year. It’s a shift you expect not just to hold, but also to continue.”

Why U.S. credit cards fail overseas

For comedian Dan Nainan, who has traveled to 10 countries already this year, trying to use his U.S. credit cards to buy train tickets in Hong Kong or rent a bike in Toronto was no laughing matter. Each time he swiped his card, the transaction could not be processed.

“The machine has no idea that any country would be so stupid as not to have the same kind of credit card the rest of the world does,” he says. “It’s really, really frustrating.”

Having a credit card when you were traveling outside the U.S. used to mean you’d be able to get something you needed, no matter where you were. Sure, you might face steep transaction fees, or find a mysterious exchange rate. Now it’s a crapshoot whether your card will get accepted.

That’s because the rest of the world has moved away from the magnetic strip which provides the guts of most U.S. cards to a technology dubbed chip-and-PIN. Those magnetic strips rely on the information carried through a network to authorize the sale. Not so with the chip-and-PIN smart cards, which uses a microchip embedded in the card containing all the relevant information for a purchase and are generally used with a PIN, which has reduced fraud significantly.

Magnetic stripe cardholders have the biggest problems when they are traveling outside major cities and when there is an automated machine to accept payments, rather than a person who can use one of the older processors, the credit card industry backed Smart Card Alliance says.

Sally Treadwell of Boone, North Carolina, was in England in December when she swung by a mobile phone store to buy new sim cards (to avoid international roaming charges) when the sales person looked blankly at her credit card.

“This was a business expense and I ended up using my personal cash,” Treadwell says. “I felt a little embarrassed that we are so behind the rest of the world in terms of credit card security. And I’m still kind of mad that my credit card companies have never made any attempt to inform me of potential problems or give me the opportunity to acquire a chip-and-pin for overseas trips.”

New credit score tool offers insight into getting the best credit card

There’s a certain mystery about applying for a credit card: Is your credit score good enough for the best card and rate? Just how much credit might you get  if you are approved? What does everyone else get?

Now there are answers to these questions. With a new tool from CreditKarma.com, you can use information from a long list of credit card companies to find the best card for you, and figure out the one that you’re most likely to get approved for.

CreditKarma, which has been providing users with their credit scores for free for the past few years, is now offering anyone the opportunity to look at real-world data to see what credit scores it takes to get approved for hundreds of different credit cards. And there’s a whole lot more you can do, including sort cards by average household income of those approved, sort by the amount of credit extended and even a cardholder’s age. It’s a handy tool for anyone who might want to see where the lines are drawn before applying for a credit card.

“Credit card companies generally know everything about you before you apply and you don’t know much about them,” CreditKarma CEO and founder Ken Lin says.

The reason this data is now available is that CreditKarma is looking to expand its audience and keep people coming back for more, since Lin says the site gets more of its revenue from advertising. The site operates by paying TransUnion to for access to the credit scores it then provides to its users free of charge, and in turn, CreditKarma gets to harvest the data from its more than three million users. While advertisers don’t get preferential treatment in the sorting, but they do get featured positions in other parts of the site.

Some highlights from the site about the most widely-held cards:

• Chase leads the pack with an average credit score of 728 (based on nearly 305,000 cards issued to CreditKarma users).
• American Express has the highest average amount of credit extended at $9,766
• American Express also tops the list with an average household income of approved applicants of about $89,000.

The best credit cards to get travel rewards

If you want to turn your credit card spending into free flights and hotel stays, it pays to do some homework. Not all cards are created equal.

The consumer review website NextAdvisor.com looked at a stack of credit cards that offer points that can be applied to free travel. Their findings?

The Starwood Preferred Guest American Express card delivered the most hotel bang for the buck. Starwood hotels include Sheraton, The Westin, W, Le Meridien and the St. Regis.

Southwest Airline’s Rapid Rewards Visa was rated tops for building up points for free flights.

“Our reviews of the hotel and airline rewards credit cards are very popular with consumers, and one of the most common questions we get is, ‘How much are the points in each program worth?’ So we decided it was time to perform a detailed analysis to answer that question,” Erik Larson, NextAdvisor.com’s president said in releasing the analysis. “Consumers can use our analysis to make better decisions about which reward program to join or for which reward credit card they should apply.”

NextAdvisor broke down the value per point, factoring in how much it would take to actually get a free flight or free hotel room. Points were given a monetary value, with Starwood’s worth a bit over two cents  per point for hotel nights and Southwest’s worth about the same for flights on that airline. That translates to about 10,000 points for $200 worth of rewards.

On the other end was the Hilton Honors Visa, which only translated to about half a cent per point. But NextAdvisor noted that when the money was spent at Hilton properties, card holders got six points per dollar — a very high rate.

from Business Traveller:

Ten best credit cards for business travel

By Grace Nasri at FindTheBest

Any business traveller, or anyone for that matter, wants to have a credit card that offers the best perks, the lowest APR and no – or low – annual fees, yet nobody has the time to comb through the pages of fine print detailing the sometimes shocking terms of agreement.

Everyone wants to find “the perfect card”, but the best card ultimately depends on the specific person’s needs. For the typical cardholder, analytics from FindTheBest’s Credit Cards Comparison shows that the two most important factors when selecting a credit card are annual fee and ongoing purchase APR rate; 36 percent of users sort by annual fee and 21 percent sort by ongoing purchase APR, while other key factors, including balance transfer APR and rewards type, are only sorted on by less than 10 percent of users. But the typical card user has different needs than the business traveller.

For the road warrior, there are several criteria that time and time again have proven useful during long business trips away from home. For those whose jobs require frequent travel, business-related perks can save money, provide help during emergency situations and can insure access to cash whenever and wherever.

FindTheBest has identified a list of the Top 10 credit cards for the business traveller based on 10 key factors:

A silver lining: Credit cards buffered from rate hikes

With the downward plunge of the stock markets and the potential for interest-rate hikes following the downgrade of U.S. debt, consumers are understandably worried about their own interest-rates going up. But one bit of good news in all this volatility is that credit cards are somewhat insulated, for right now.

That’s “somewhat” because the protections are for what you’ve already spent and not what you’re going to spend going forward.

Banks have moved most credit card holders to variable interest rates, so it would seem the impact of any rate hike would be devastating and immediate. But ”consumers have new protections against sudden rate hikes, thanks to the credit card reform law,” says Dan Ray, editor-in-chief of CreditCards.com. The good news is that consumers have some time to plan ahead in case rates do jump.

First of all, any rate hikes that would happen would not affect existing balances, only new charges, thanks to the changes in 2009. (TransUnion, the credit reporting giant, says the average credit card balance in the U.S. is about $4,700.)

Secondly, there will be some lag in rates for consumers going up because rate hikes are tied to the prime rate, which is driven by the Federal Reserve, not the markets. But there is some bad news, too, because banks have pushed their customer to variable rates, and that means that any rate hike that does kick in will hit right away for new charges. Banks can also increase the margin of how much above the prime rate they will charge you, as long as they give you 45 days warning.

So, if your finances can’t handle a rate increase, the prevailing advice from credit experts like Bill Hardekopf, founder of LowCards.com, is to stop spending so you’ll know that your existing balance is locked in at the current rate.

Ray from CreditCards.com says, “It’s important to assess and plan. If you’re carrying a large amount of card debt, use a credit card calculator and play some what-if scenarios. Could you afford the payments if rates jumped, say, 5 percentage points?”

New free credit scores: What you need to know now

There’s an irony about the new credit score disclosure rules issued by the Federal Reserve Board on July 6, and this is it: Would-be borrowers who are most likely to get their credit scores for free are still the people who may find it advantageous to buy their scores.

The borrowers who won’t get their scores may find they don’t need to buy them, either.

That’s because the rules require lenders to supply potential borrowers with their scores if they are denied credit or offered less favorable terms because of those scores. Starting on July 21, scorned applicants for credit cards, student loans and auto loans will see their scores.

But learning after you apply for a loan that there was a problem with your credit score isn’t that much help, is it? People who know that their credit reputation may be marginal will have to figure out a way to get their scores early enough that they have time to nudge them up before putting in those loan applications.

Here’s what you’ll need to consider as the new rules become effective:

If you get a score, it isn’t necessarily bad news. Some lenders may opt to send score reports to all of their applicants, because that is a less complex way to comply with the regulations, said Nessa Feddis of the American Bankers Association. So simply getting a score report won’t necessarily indicate that you received a worse deal than any other applicant.

Your credit report may be more important than your score. You already are allowed to get your credit report for free, and that’s where all the important facts of your credit history are located. The data in your credit report provides the basis for those credit scores. Everyone should regularly check their credit reports regularly, to make sure they are error-free. To do that, go to the official website, AnnualCreditReport.com. There you’ll find links to your reports at the three big credit reporting agencies: Experian, Equifax and TransUnion. If you’re getting ready to borrow big — say buy a car or refinance your home — get all three at once. If not, you may find it more useful to get one every four months, rotating, because you’re allowed one free peek a year at each one.

Data breach victims more likely to be fraud targets: Study

Victims of data breaches are far more likely to become the victims of fraud than other consumers and credit card issuers need to do more to protect their customers, a new study from the firm Javelin Strategy & Research found.

About four percent of consumers are victims of fraud, Javelin said, but if you’ve been a victim of a data breach, that risk rises to 17 percent.

The annual report from Javelin comes on the heels of a flurry of massive data breaches that exposed millions of consumers’ personal information, credit card numbers and other details and punctuates the real risks victims face. The sophistication of hackers has been particularly problematic, the company said.

Breaches of customer data from Sony customers exposed more than 100 million accounts and came following an attack on email marketing giant Epsilon. But it was the far smaller attack on Citigroup in May that really ratcheted up the pressure on banks as lawmakers started pushing hard for a data notification law.

“A new wave of hacker attacks threatens the current security model, resulting in a call to action for issuers to take a strong look at the processes in place for detection and prevention of fraud,” said Philip Blank, Javelin’s managing director of security, risk and fraud.

About $37 billion was lost last year in the U.S. to credit card fraud, Javelin said. New account fraud — when an account is created in someone else’s name after their identity is stolen — was the biggest area of loss at $17 billion.

Even though losses per consumer are often in the thousands, fraud victims are protected from having to pay the fraudulent charges. However, the process of clearing up the charges can be extremely time consuming. Javelin said the mean amount of time for a consumer to resolve someone opening a new account in their name is 49 hours.

Why young people spend so much

With Independence Day approaching, merchants will be looking to 18-24 year olds to light up the holiday.

According to a new survey from Visa, the sought after demographic will spend an average of $379 on fireworks, entertainment, food, beverages and other celebratory items related to the Fourth of July holiday, compared to $218 for 35-49 year olds, and $155 for 50-64 year olds.

Evidence suggests the summer spending spree isn’t just a blip. The latest College Explorer Study from Alloy Media + Marketing indicates that college students shell out an average of $361 a month on discretionary purchases and have been increasing such spending since the recession began in 2008. “Clearly, these youthful consumers are not cutting back deeply, despite the continuation of a challenged economy,” concludes a press release on the findings.

The big question is where all this money is coming from. Many young adults are still in school. If they’re working, it’s likely they aren’t making nearly enough to justify blowing almost $400 in a single day. Another factor that should rein in spending power is an unemployment rate of 17.3 percent for those under age 25, by far the highest of any age group.

Then there’s all that debt baggage that should be miring them down. Students who take out loans to attend school owe an average of $24,000 by the time they graduate, according to the Project on Student Debt, and possibly thousands more in credit card debt.

New research may shed some light on why, despite these burdens, late teens and twentysomethings aren’t afraid to belly up to the cash register and often incur debt to do it.

According to a recently published study from Ohio State University conducted on behalf of the U.S. Bureau of Labor Statistics, young adults age 18-27 don’t view debt as a source of stress or a potential burden. In fact, researchers found that higher levels of credit card and college loan actually boost self-esteem and feelings of empowerment.

Will ING customers stay happy with CapOne accounts?

ING Direct customers seem to love their online-only bank, and reports that it may soon be taken over by Capital One Financial Corp. have a few of them worried.

The tenor of reaction comments posted on The Consumerist web site ranged from “I’m sad” and “Noooooooooo…” to unprintable epithets. ING has won a following with competitively high interest rates on savings and checking, and no-fee checking accounts. And CapOne drew complaints from some discontented customers of Bethesda, Maryland-based Chevy Chase Bank after it took over that Washington-area institution.

But some analysts suggest that they may not suffer under the deal — which hasn’t yet been confirmed and would, at any rate, take some time to conclude. “Capital One has some pretty competitive online offerings in their own right,” said Greg McBride of Bankrate.com.”They’ve been a mainstay on our top-tier awards list.”

So, no need for immediate garment rending. But here are a few things for ING cultists to watch if and when the reported acquisition moves forward.

Expect a credit card offer. ING has built a big following with young consumers, and it doesn’t even offer a credit card. Capital One has a miles card — the Venture One Rewards Card — that has proven popular with younger consumers because of the portability of its rewards. So it’s kind of a no-brainer to expect CapOne to promote its card to all those ING customers.

Rates are comparable. In the current low interest rate environment, no bank is really running away with the prize for paying consumers big bucks. A one-year CD at ING currently pays 0.75 percent at ING and 0.3 percent at Capital One, according to rates posted on Google Advisor. But the checking account rates are almost exactly opposite that: 0.75 percent for Capital One and 0.25 percent for ING. Both offer free checking; ING’s account is completely free; Capital One’s requires a $1,500 minimum balance.

It’s not just the rates, its the services. ING offers one cool service that not many banks do, reports Robert Rubin of FindABetterBank.com. Savings customers can create as many as 25 different sub-accounts. So you can save for your vacation in one account and your estimated tax payments in another and your clothing allowance in yet a third. “Then you don’t have to feel guilty about buying the expensive jeans,” says Rubin. He’s cautioning bank consumers to wait and see what Capital One does with the various services that make ING convenient as an online-only institution. “If they mess with the model too much, then ING customers should look elsewhere,” he said. After all, the next online bank is just a few clicks away.