Comptrax

Read the fine print to avoid credit card woes

alcazars — Mon, 06 Oct 2008 15:46:51 +0000

Synopsis:

In yet another case of banks tightening their credit lines to customers, credit card limits shall now be under scrutiny – and lowered, if need be, to minimize the risk for issuing banks.

Read more to find out why and how your credit card might not let you spend as much, anymore.

Full article:

10 Sep, 2008, ET Bureau

As big banks continue to post multimillion-dollar write downs to cover mortgage loan losses and other bad investments, credit-card holders are increasingly getting squeezed.

Card issuers such as American Express have started taking a closer look at the math that determines how much credit is available to each customer, and some are cutting their credit lines to keep more money in house. Card issuers want to keep default rates as low as possible to protect their profits.

Credit-card companies retain the right to change the terms of their agreements, particularly if a customer defaults. By law, issuers must inform cardholders of any changes to their account. The problem is that while most consumers receive notices as part of their monthly statement, many cardholders focus on the payment portion and either ignore or discard the message inside.

Consumer advocates recommend consumers read all the fine print in their statements and in letters from credit-card companies. They also argue that the issuers’ seemingly abrupt credit limitations can unnecessarily cut off consumers’ spending power. And, by changing those terms without looking at the customer’s circumstances, credit-card companies are freezing customers’ access to credit they had been awarded.

In order to prevent credit limit being reduced, consumers should pay the credit-card bill on time. Always pay more than the minimum requirement. Although it seems like easy free money, credit cards are actually short-term loans that often have steep monthly interest charges.

Repay as much as you can quickly to get that loan off your books. Also, cardholders should never use more than 50% of their available credit, even when money is tight. These days, appearing fiscally irresponsible can lower your credit limit.

Corporation bank launches prepaid travel card

alcazars — Mon, 06 Oct 2008 15:45:55 +0000

Synopsis:

Prepaid travel cards can be a huge untapped opportunity owing to the fact that travel and tourism is a growing industry. However, like with every new product launched, it will take time to get popular amongst travelers.

On the brighter side, the cards will be a blessing in disguise to travelers since it will minimize risks of carrying cash or cards in a foreign land. Read further to find out more…

Sep 10 2008, Mint

Full article:

Bangalore: Mangalore-based Corporation Bank has launched a prepaid travel card in collaboration with JPMorgan Chase & Co and Visa. Corporation Bank is the second public sector bank in the country after the State Bank of India (SBI) to launch such a card.

SBI and Visa International had launched a prepaid travel card in 2004. The card from Corporation Bank is currently available for US dollars and would enable a customer to make purchases, withdraw cash in local currency (currently US dollars) at ATMs while traveling abroad.

“The card helps travelers avoid the risk of carrying foreign currency, credit or debit cards and traveler cheques,” said B.R. Bhat, general manager, Corporation Bank.

Last year, nearly 8 million Indians traveled abroad. The bank expects to sell 25,000 such cards over the next one year. It will soon launch such cards for currencies in euros and pounds and later for yuan also.

Corporation Bank did not divulge the revenue sharing model amongst the three partners. Bhat says that the advantage of using the travel cards is that there is no transaction cost involved, unlike credit cards.

The minimum loading amount for these cards is $200 and maximum $9,000 at any single instance.

Social networking, personal finance make online connect

alcazars — Mon, 06 Oct 2008 15:42:15 +0000

Synopsis:

Yet another story from the consumer-centric business model; what’s even better, is that it’s online!

This one encapsulates India-specific personal finance information into one site: Zibika.

Banks going slow on credit card hardsell

alcazars — Mon, 06 Oct 2008 15:39:51 +0000

Synopsis:

Banks are now red alert on credit defaulters; as inflations rises and disposable income shrinks, card usage soars higher in the recent months. Read more to find out what banks have to say…

Full article:

6 Oct, 2008, Paramita Chatterjee, ET Bureau

NEW DELHI: Amid fears of default rates going up in the wake of high inflation and global slowdown, banks and card issuers in India are going slow in issuing credit cards. Industry insiders indicate that the annual growth rate in the industry could slip to 20-25% by the end of FY09 from 30-35% being recorded over the last few years.

“Banks are becoming careful about unsecured lending at this critical juncture when the economy is slowing down and prices are moving northwards,” said Standard Chartered general manager & head cards & personal loans RL Prasad. He added that the credit card division of StanChart will not be impacted as it caters primarily to the high and premium income group.

American Express vice-president (marketing) Amit Dutta said: “We cater to the affluent segment whose annual income is above Rs 8 lakh per annum. Repayment is generally a problem with those in the lower-income group.”

With rise in inflation, interest rates for home loans and other consumer loans have gone up. This has shrunk the disposable income of consumers and boosted card usage in India. Plastic money usage in India has gone up significantly by as much as 15% over the last few months as consumers have shifted their cash purchases to credit cards to defer payments.

Experts caution that while average spends on credit cards is on the rise, there are fair chances of default rates going up. “The number of customers defaulting on credit card payments is likely to increase by the end of this financial year and the industry may witness some strain on repayment in certain categories in the months to come,” said Credit Card Management Consultancy (CCMC) director Vijay Mehta.

At present, the default rate for payments is around 7.5-9%, according to a CCMC data. Consumers in India spend an average of Rs 4,000 a month on their cards. That is significantly less when compared to other Asian nations such as China, Japan, Korea and Thailand.

Indians spend just 1% of their total purchases through credit cards, while the world average stands at 9%. There are currently 25 million credit cards in the country of which only 40% is active.

Banks and credit card issuers fear default rates are expected to go up in the wake of high inflation and global slowdown.

StanChart unveils single card for debit, credit transactions

alcazars — Mon, 06 Oct 2008 15:36:38 +0000

Synopsis:

If you have been shuffling between your credit and debit cards, here’s news for you: Standard Chartered introduces a new card that lets you switch between both.

LIC may launch credit card next month

alcazars — Mon, 06 Oct 2008 15:33:29 +0000

Synopsis:

Paying Insurance premiums just got easier with LIC making
arrangements to accept premiums through credit cards. LIC also is in the
process of launching its own credit card.

2^nd Sep, 2008, ET

Full article:

NAGPUR: Life
Insurance Corp (LIC) may launch its credit card in October, according to its
Senior Divisional Manager Bhausaheb Gujar.

LIC is in the process of finalising the partner and in all probablity it would
be introduced next month, he said told reporters here.

The insurance giant is also in the process of completing formalities for
accepting its premium through credit cards, Gujar said.

LIC has already roped in Corporation bank and Axis Bank for accepting premiums
from those holding accounts there.

Citi fights bid to cap credit card interest

alcazars — Mon, 06 Oct 2008 15:30:20 +0000

Synopsis

The National Consumer Disputes Redressal Commission is taking the cause of high interest rates on card outstandings to the Supreme Court.

The Commission accused Citibank under Unfair Trade Practices, for charging interest with monthly rates. Read more to find out the bank’s side of the argument…

Full article:

30 Aug, 2008, Sanjay K Singh, ET Bureau

NEW DELHI: All credit card users should make a mental note of a case that has come up before the Supreme Court. The verdict the apex court gives will decide the interest consumers have to pay on card outstandings.

Citibank NA has moved the Supreme Court, challenging an order of the National Consumer Disputes Redressal Commission, which restrained the bank from charging an interest rate of over 30 per cent a year to credit card holders who fail to make full payment on the due date.

A bench comprising Justice BN Agrawal and Justice GS Singhvi on Friday said that the matter will be heard on September 8. The court refused to hear the plea of the bank on an urgent basis.

The matter, which relates to a balancing of consumer protection and regulatory powers, assumes importance given the fierce growth of credit card use, overspending and delinquency in recent years. Notably, similar issues had resulted in new legislations in advanced markets.

In an appeal filed through counsel RS Suri, Citibank said that such capping of rates of interest on credit card payment was contrary to RBI policy. The US-based bank pointed out that the central bank in its circular of July 23, 2008 had said that banks prescribe their respective ceiling rate of interest in respect of small-value personal loans and this would apply to credit card dues as well. RBI had clearly stated that banks were free to determine rates of interest on non-priority sector personal loans without reference to the Benchmark Prime Lending Rate (BPLR) and regardless of the size of loan.

“The imposition of an upper cap of interest to a degree turned non-priority sector lending to priority sector lending,” said Citibank. Further, “the commission failed to appreciate that the market in India is still at a developing stage and the risk of default is relatively high, and legal remedy has its own costs. An emerging market like India also has a high cost of acquisition and a high cost of servicing an account as compared to other mature markets,” said Citibank.

It may be mentioned that in markets like the US, there are legislations like the Truth in Lending Act — which requires banks to state upfront all charges on the product — primarily to enable the consumer to shop around for the best deal. In the UK, the Fair Trade Commission, formed under the Consumer Credit Act, ensures that there is a fair deal between the consumer and the bank.

Banks argue that credit card is a transnational product and the level of interaction between the bank and customer is intensive, for which the bank engages a large workforce to facilitate customer services. For example, Citibank receives 700,000 calls per month on its helplines, in addition to about 65,000 emails and 15,000 letters per month from card holders, said the appeal.

The appellant bank also picked holes in the Commission order, which had said that the penal interest can be charged only once for one period of dafault and shall not be capitalised.

“The interest accrues on the aggregate of the outstanding due amounts for the period for which it remains due and no penal interest is levied. Capitalisation of interest connotates utilisation of the principal amount of the loan towards the payment of interest which is not the scenario that applies to credit card dues. In case of credit-card dues, credit availed of and the entire amount remaining overdue is liable to the payment of interest,” said the bank.

The Commission’s findings that charging of interest with monthly rates as unfair trade practice was also arbitrary, said Citibank.

“The Commission has no jurisdiction to hold that the charging by banks of interest at monthly rests was an unfair trade practice given that credit card dues are unsecured and of indeterminate tenor, and the levying of interest at monthly rests is in any event harmonious with the monthly billing and payment cycles. When the billing and payment cycles are monthly, it is also of no benefit to the credit card user to pay accredited interest at rests that are not synchronized with the billing and payment cycles,” said Citibank. On July 7, 2008, the Commission had passed the order following a complaint by a credit card holder.

Credit card addict? Switch over to cash

alcazars — Mon, 06 Oct 2008 09:06:32 +0000

TINESH BHASIN,

Mumbai, 11 September

Synopsis:

Pre paid cards are a good option for people who cannot control their tendency of over spending. However it isn’t as convenient as a credit card as it is more expensive for certain purchases also there are no facilities like cash back, reward points, bonuses etc.

Full article:

Puneet Lakhotia signed up for an ICICI Bank credit card to book tickets online. His problem: None of the ticketing websites accepted his regular bank’s net-banking facility.

But instead of only booking tickets online, the 27-year-old bank employee started splurging. Within a year, he was in a debt trap. “Due to the convenience it offered, I used the credit card to pay bills and shop online for books, movies, music CDs and even bought a cell phone,” says Lakhotia. Having learnt the hard way, he has surrendered his credit card and keeps ItzCash, a pre-paid card for online transactions.

Credit card for convenience is a very common excuse. Many pay their restaurant and hotel bills because using a debit card involves punching the four-digit identification number. There are other advantages like cashback benefits or points that attract more expenses.

According to the data compiled by ICICI Bank, the country’s largest private sector bank, the top five expenses that consumers make through credit cards include travel and related activity (including tickets and hotel bookings), fuel refilling, consumer durables, apparel and garments and jewellery. Payment of utility bills is another area that is fast catching up.

“Around 8-12 per cent of business comes from the top five areas. At least, 10 percent of card-holders pay at least one of their utility bills every month through cards,” said banker from a private sector bank.

However, just to make a few expenses, consumers always start over-spending. For those, who cannot control the urge to splurge, using an alternative-payment mechanism is a better idea. For instance, for buying tickets online, it is better to use pre-paid cards. Three – such cards are currently available in the market — Itzcash, OxiCash and Done Cards.

These cards can be used for a host of other purchases as well. These include online shopping, insurance purchases, mobile recharge and many others.

Like credit cards, these cash cards come at a cost as well, but only for a few transactions like railway bookings and bill payments for public sector utilities. This is because government owned companies do not give any commission to cash card companies. “The charges are either a maximum of Rs 15 or 1.5 per cent of the value of these transactions, whichever is higher,” said Naveen Surya, managing director, Itzcash.

When it comes to petrol bill payments, credit card companies give bonus points and a waiver of fuel surcharge of 2.5 per cent.

Substituting them with pre-paid cards from oil companies would mean the same thing. All the three major oil companies have their own branded cards. For instance, Bharat Petroleum has a Petro Card and Hindustan Petroleum has HP-Smart 1. None of these cards attracts a surcharge and offers similar loyalty bonuses.

For apparel and consumer durables enthusiasts, most retailers today have loyalty programmes that give discounts for cash purchases. For persons, who cannot handle credit cards, it is best that they go for options that require the use of more cash. It saves them the trouble as well as a high interest payout.

SC refuses to allow high interest on credit cards

alcazars — Mon, 06 Oct 2008 09:04:32 +0000

Synopsis:

With the Supreme Court intervening by putting a stay on the requests by banks to increase the interest rate to cover their operational costs, will help credit card holders heave a sigh of relief. However for how long, will have to wait and find out

Dhananjay Mahapatra | TOI

Full article:

New Delhi: Credit card users can breathe easy for the moment, with the Supreme Court refusing to stay a national consumer forum directive that banks cannot charge more than 30% interest per annum on defaults on card payments. This will protect consumers from exorbitant charges, which are as high as 49% in some cases.

Banks had appealed against the consumer court order and asked for a stay on it. Admitting appeals filed by MNC banks—HSBC, American Express, Citibank and Standard Chartered Bank—challenging the consumer forum order, a bench issued notice to the RBI and the NGO Awaz, on whose petition the limit on interest rate was imposed.

What is revealing is the banks listing as many as 27 factors why they needed to charge higher interest rates and these included calls made from service centre to seek new customers. It would appear that almost all costs involved in banking activities over telephone and internet were to be charged to the hapless credit card holder, going by the banks’ submissions to the SC.

When banks pressed for a stay on the ground that they are regulated by the RBI regulation guiding interest rates, the bench merely issued notice on their applications and sought responses within three weeks.

But the threat of a higher interest has not gone away as HSBC, American Express, Citibank and Standard Chartered have teamed up to persuade the SC of what they said were their compulsions in charging between 36% and 49% interest. Banks cite call costs for high credit card rates TIMES NEWS NETWORK

New Delhi: The July 7, 2007 order of the National Consumer Disputes Redressal Commission (NCDRC) had ruled that “charging of interest rates in excess of 30% per annum from credit card holders by banks for the former’s failure to make full payment on the due date or paying the minimum amount due, is unfair trade practice’’.

It had also said that penal interest could be levied only once for the period of default and should not be capitalised, while also terming the practice of computing interest on monthly basis as “unfair trade practice’’.

Among the factors listed by the banks justifying the exorbitant rates was the cost of calls. In other words, calls made randomly by the bank’s authorised call centres incessantly to persuade people to take a credit card, is also taken into account for realisation through charging of penal interest from a defaulting card holder.

The other notable factors listed are processing cost for setting up a new card in the operating system, cost of courier and cost of embossing the card. cost of providing phone banking service, cost of sending monthly statements, cost of providing internet banking facility, cost of waiving charges for service reasons, cost of marketing and promotional offers and cost of rewards and loyalty programme.

Fat wallets? Credit it to plastic

alcazars — Mon, 06 Oct 2008 09:02:41 +0000

Synopsis:
Credit cards – a Boon or a Bane?

8 Sep 2008, 0353 hrs IST, Avijit Ghosh, TOI

Full article:

NEW DELHI: About three years back, Madhur Mehrotra began to feel the bulge in his wallet. Ten credit cards, 12 loyalty cards and three ATM cards had created a serious weight and space problem in his pocket. The wallet was so thick that no pickpocket would have managed to pull it out. That’s when he decided to get innovative.

“Now,” says the 43-year-old executive, fishing out a cardholder from his pocket, “I keep most of my cards here.” But despite having 25 cards to shop with, Mehrotra is not stopping yet.

Mehrotra’s predicament isn’t singular. With a bevy of plastic cards sleekly tucked in, well-heeled India’s wallet is protruding like never before. As India Shining enjoys the good life, there’s a plastic for every occasion and reason.

There’s regular credit card, co-branded credit card and debit card. Many of these cards land up for free without request. Then there are loyalty cards in different avatars at petrol pumps, airlines, hotels, restaurants, golf clubs, movieplexes and retail stores. And who would believe, even DVD rental shops offer special ATM cards! There are about 20 million credit and debit card users in India, according to recent industry estimates. The number of credit and debit cards in active use in 2008 is between 25 and 40 million. And the number is still growing.

Within two years of its launch in July 2006, Deutsche Bank has over 450,000 credit card users in India. Says Shameek Bhargava, managing director and head of cards, Asia Pacific, Deutsche Bank, “Increased competition in the Indian industry and aggressive marketing by various financial institutions is leading to customers opting for multiple credit cards.”

Loyalty cards have become an integral part of corporate strategies to ensure fidelity to the brand. For example, Air India has a frequent flyer base of nearly 5,50,000 members. Every member has been issued a frequent flyer card. Similarly, Indian Oil sells Rs 12,000 crore worth of oil every year through plastic cards. This includes 11 lakh co-branded cards with Citibank and another 12 lakh pre-loaded debit cards.

“In 1951, the first bank credit card appeared in New York’s Franklin National Bank for loan customers,” write Emily Starbuck Gerson and Ben Woolsey on creditcards.com . The idea, though, had already been experimented with in various forms much before. In India, Andhra Bank was the first to introduce credit cards in 1981. But the idea of keeping multiple cards is a relatively new trend whose whispers, industry watchers say, could be first heard around the beginning of the new millennium.

At the ‘mass’ level, the credit card as well as the loyalty card boom started early this decade. ‘‘That’s the time when the telemarketers swamped just about everyone with offers for new credit cards,’’ recalls Arvind K Singhal, chairman, Technopak Advisors, a management consulting firm. He has four credit cards and another 20 plastics, including club membership, airline and hotel membership and dining discount cards. Barely a decade ago, it was common in India to harbour fears about losing money through misuse of credit card. There was also a mental block against owing money to someone. That psyche has altered.

But there’s a method behind the card madness. Mehrotra, who works for a firm that produces energy-efficient products, says that having more credit cards increases the customer’s overall credit limit. Senior journalist Nilesh Roy (name changed) feels a sense of security in carrying more than one card, ‘‘in case one of them doesn’t work’’. He has four cards. ‘‘I got talked into buying one of them that was peddled as a special card for Stephenians’’, and three frequent flyer cards for Jet, Singapore and Air France.

Samita Bhowmick, a senior officer with the Lok Sabha secretariat, says there’s a clear division of labour between her five credit cards. ‘‘I use the Standard Chartered card to shop, the ABN card to pay for petrol, the SBI card for balance transfer and the ICCI card for net shopping. And I plan to use the Barclays card to pay my insurance EMI,’’ she says. She has two debit cards as well but doesn’t use them much. Sometimes she admits to overspending but uses balance transfer to steer clear of a debt trap.

Of course, with so many cards to juggle around, timely payment is a critical issue. Mehrotra, in fact, has turned it into high art. He maintains a handwritten diary where he puts down the transactions. He also has the payment schedule worked out on an Excel sheet. He makes payments online.

Co-branded cards have added to the complexity of the market. Such cards, where a bank ties up with another organization such as an airline, gives an opportunity to the customer to earn bonus points that may accrue some additional monetary benefit. Similarly, loyalty cards, as Shameek, says look to enhance “stickiness for the store”.

Bookstores offer discounts to loyalty cardholders. So do petrol pumps. And airlines compete with each other to woo customers. Through frequent flyer cards, mileage points can be exchanged for free flights. That apart, in-flight privileges include increased check-in baggage allowance and priority for confirmation on waitlist. Jitendra Bhargava, executive director, corporate communications, Air India, points out that offering frequent flyer membership has helped the airlines in ‘‘customer retention, acquisition of new customers and improving communications with them’’.

But do loyalty cards really ensure loyalty? They do, at least for Roy. He generally books domestic flights with Jet Airways because he holds their frequent flyer card. ‘‘It gets you seat upgrades and, lounge facilities. What more do you need while waiting for your flight?’’

Vijay Pratap Singh of Oxford Bookstore offers the view from the other side. ‘‘The loyalty card scheme has boosted sales. Almost all of our customers are repeat customers,’’ he says. Singhal says that loyalty cards also give middle-class consumers a sense of status and a belongingness to a perceived ‘exclusive club’. Hence, the burgeoning issuance of loyalty cards by a wide range of retailers. But he adds that some top performers abroad also defy the trend.

“Many Indian retailers such as Shoppers Stop still swear by the concept of loyalty cards and the size of their loyalty cardholder base. However, some of the biggest global retailers such as Wal-Mart continue to shun such cards and instead, focus on delivering on their core-promise to their customers.’’ There’s a flip side to the card rush as well. Shameek points out that multiple cards lead to some problems for customers like losing track of the different bills each month and hence falling behind on payments; sometimes the temptation of high credit limits entice customers to overspend.

Nearly 7-9% of the credit card industry turnover is becoming bad debt, says Vijay Mehta, chief consultant, Credit Card and Management Consultancy. ‘‘Banks are indiscriminately issuing cards without looking into the affordability of the customer. They are also indiscriminately increasing the credit limit of customers. The credit card has become a snake in the pocket,’’ he says.

Crime too has kept up with the plastic rush. Cops admit to an unprecedented rise in credit card frauds with international gangs of cheats being active in even Delhi and Mumbai. Says ACP Rajan Bhagat, ‘‘recently we have busted several credit card frauds. Users are advised to protect their classified information while using the card at public places.’’ In the end, it is all about being careful and wise. ‘‘Prudent management of multiple cards can give customers advantage over the pitfalls of overspending,’’ says Shameek. Bhowmick affirms. “Cards need to be used wisely.”