Monday, June 2, 2008

What's in your wallet?

Not that any of this is a surprise to me, but Consumer Reports just came out with a new report about credit card reward programs. Not only does Consumer Reports conclude that we spend more with rewards cards, but also that complicated rules and restrictions makes most cards pretty troublesome. Consumer Reports also found that many of these cards also carry annual fees and higher interest rates. So why do consumers like them anyways? It must be the lure of getting something for free. Or, at least thinking it is free. Of course, one must ask whether the airline miles or charitable donation are worth the potential interest if you carry a balance. It might be easier just to make a donation and take the tax deduction!

While not tackling this particular problem, the Federal Reserve has announced plans to alter Regulation Z’s provisions regarding: (1) bank increases of rates on pre-existing balances; (2) bank practices of applying payments in ways to maximize interest charges; (3) certain practices that impose interest charges using the “two-cycle” method to increase the amount of interest due; and (4) the amount of time consumers have to make payments. Of course, the banks have not welcomed these changes by the Federal Reserve. While I give the Federal Reserve kudos for beginning to tackle the complex credit card fee issues, it would seem that this should only the beginning. In addition to fees associated with carrying a balance on a card, the fees associated with using credit cards are far from clear (see Good Results For Visa). I hate to be a cynic, but I would guess that the final result after wrangling with the credit card industry will be a watered down version of some modest consumer protections.

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