Finance Matters

Archive for February 20th, 2010

From Susan Dominus at The New York Times:

…Thursday evening, as I headed downtown staring at my iPhone, the city right outside the window suddenly had voice, personality, opinion. Notes started pouring in, bite-size songs of praise about people and places in neighborhoods I was whizzing by or those a little farther off. Someone at the Bruckner Bar & Grill in the South Bronx was “doing wonderful homework at this awesome neighborhood bar.”

A Jeremy F. urged me to try the whiting sandwich at A Taste of Seafood on 125th Street. If I was looking for West African artifacts, Bim S. confided, Bola International Boutique was the best place to go. A man somewhere else in the Bronx was at pains to admit that, although his shirt stains came back intact, he still loved his dry cleaner, a wonderful man.

Bim S., Jeremy F. and I were all using Foursquare, the application that’s frequently described as the next big thing in social media. (What, you thought you could rest once you figured out Twitter?) Users leave tips for their friends — or anyone open to their opinion: try these fritters here, check out the generous barkeep there.

Read the whole thing at the NYT >

See Also: Wait, What Does Foursquare Do?  Here’s A Demo

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See Also:

• New York Times Jumps On The Foursquare Bandwagon
• Catch Up On Foursquare, The New York Startup Everyone’s Talking About
• Check-In With New York’s Hot New Startup Threesome

Before you get too excited about the new federal rules on nasty credit card practices going into effect Monday, consider this: there are still plenty of ways to get screwed. 

Nine months ago, President Obama signed the Credit CARD Act, which ended practices like “any time for any reason” increases on existing balances or late bill mailings, Sunday due dates, and other tricks that result in late payment penalties, for example, according to Americans for Fairness in Lending.

That’s great, but credit card companies have found all sorts of new ways to make up for the lost revenue (at least $12 billion a year, according to Morrison & Foerster as noted today in the Wall Street Journal).

“The CARD Act has some very significant benefits for credit cardholders. The restrictions on interest rate hikes and the ban on over-the-limit fees are tremendous. Consumers have cried out for these protections for years and they are finally about to take effect,” says Bill Hardekopf, CEO of LowCards.com. “However, there are a number of unintended consequences that have resulted from the CARD Act. These changes might affect more credit card consumers than the law helped.”

What are those unintended consequences? LowCards.com has the rundown:

• Since issuers will be unable to raise interest rates on new accounts for twelve months, they simply raised the advertised APR before February 22 so it affected everyone shopping for a new credit card account. According to the LowCards.com, the advertised Annual Percentage Rates for credit cards averaged 13.46% last week. Six months ago, the average was 12.11%. One year ago, the average was 11.51%.
• People under 21 will find it harder to build up their credit score. If they do not have a job with enough income, they must get an adult to co-sign. Many young adults will not take this extra step, losing out on the opportunity to build up a good credit history throughout college. Without a positive credit history, they may not receive as good an interest rate on their first house or car loan.
• Fees, fees and more fees. Issuers are introducing more cards with annual fees, increasing existing fees, and putting new fees on accounts. Last October, Bank of America notified a small percentage of their customers that it is adding an annual fee of $29 to $99 on their accounts beginning in February. Balance transfer fees, which have been at 3% for most issuers, have now been increased to 5% by Chase and Discover. Fifth Third Bancorp recently added a $19 inactivity fee if your card is unused for a twelve month period.
• The scarcity of fixed rate credit cards. Most issuers switched their fixed rate cards to variable rates, since the CARD Act allows APR increases in variable rate cards if the index used to on calculate that variable rate increases. As an example, if the index for a variable rate card is tied to the prime rate and the prime rate increases by 1%, the APR on that card can increase 1%. Many issuers switched their fixed rate cards to variable rate cards so they could maintain their margins once the CARD Act was instituted.
• Since any amount above the minimum monthly payment goes toward the balance with the highest APR, some issuers raised the minimum payment up to 5% on a number of accounts.
• A decrease in the amount of credit card rewards or cash rebates. Reduced rewards could come in several different forms: (1) a cutback in the payouts of cash back cards; (2) more miles or points needed for that free airline trip or hotel stay; or (3) higher tiers required for consumers to receive the same level of rewards.
• A decrease in the number of credit cards awarded by retail stores. Providing proof of income when applying for a credit card will make it significantly harder for consumers to instantly qualify for a credit card. This will certainly impact the marketing efforts of the 10-15% discount on a purchase if you sign up for a store’s credit card. Retailers rely on this marketing strategy to increase purchases and to build their mailing list of customers used for offering future coupons or early-bird discounts.

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See Also:

• 10 Ways Credit Card Companies Are Still Screwing You
• Capital One’s Credit Card Charge-Offs And Delinquencies Jumped Again In January
• Oops! Bankers Love The New Credit Card Rules

Just a quick reminder.

EU leaders announced a deal to bail out Greece on February 11.

Today is February 20.

The latest according to Bloomberg (via CR) is that there is no deal yet.

Just sayin’.

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See Also:

• The Euro Isn’t Going To Dissolve, It’s Just Got A Long, Long Way To Fall
• Dennis Gartman: Germany And Greece Are Just A Couple Of Five-Year Olds
• Yow! Greece May Have $75 Billion More Of Debt Hidden Off Its Books

Is the Fed Getting Ready to Tighten?

Officials say no. But there’s a lot of speculation that the rise in the discount rate presages further action. Let’s hope that this is wrong.

It’s worth noting that after the 2001 recession, the Fed waited almost three years before it began to tighten…

Continue reading at the New York Times >

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See Also:

• This Week, Bernanke Will Remind Congress That He’s Not Independent, And Won’t Do Anything Do Jeopardize All Their Spending
• Man Bulldozes House Before It Gets Foreclosed
• Here’s The Story Of How One Country Brought Itself To Ruin

This past week, Ben Bernanke introduced the Fed’s first move towards a tightening normalization of credit conditions, when the discount rate was raised by 25 bps.

But have no fear!

This week Bernanke talks to Congress, and the expectation from the likes of Bloomberg and others, is that he’ll promise them that no “real” rate hikes are in the cards anytime soon.

Despite the ostensibly independent (ha!) nature of the Fed, this week will see its chief promise Congress that he won’t do anything to counteract their monster spending ambitions, and will continue to make money available to everyone at low cost.

Should be good news for markets… unless he even utters the words “exit strategy,” at which point you should really be careful.

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See Also:

• Richard Bernstein: Find Me One Tightening Cycle Where The Fed Didn’t Start By Calling It A "Normalization"
• Gold Laughs In Bernanke’s Face, Shorts Freaking Out
• The Markets Are So Addicted To Cheap Money, You’re No Longer Even Allowed To Utter The Words "Exit Strategy"