Jews getting "Usurious" under new US Credit Card Law

[CrackSmokeRepublican]

Typical Jews practicing their Talmudic Code ...
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Rich Getting Richer Rewards as Credit-Card Law Refutes Bankers


By Alexis Leondis and Peter Eichenbaum

Feb. 16 (Bloomberg) -- Walt Serafin, a manager for a biotechnology company in Kansas City, Kansas, is getting an iPhone as a reward from American Express Co.

That's not what U.S. card issuers and their lobbyists predicted could happen when they opposed legislation limiting abrupt contract changes such as interest rate increases. The American Bankers Association, a Washington-based trade group, said the law would penalize cardholders with high credit scores, making them subsidize losses from lower-scoring consumers.

The bill was passed by Congress anyway and signed by President Barack Obama in May. Most of its provisions go into effect Feb. 22. Instead of being punished, Serafin and others with credit scores above 750 continue to receive rewards and promotional offers as banks battle to retain premium customers, said Ben Woolsey, director of marketing and consumer research at CreditCards.com, an online resource for cardholders based in Austin, Texas.

"These are the customers the banks are vying for," said Woolsey. "They've come through unscathed."

Credit-card write-offs, or loans deemed uncollectible, jumped 59 percent to $89 billion last year from $56 billion a year earlier, according to R.K. Hammer Investment Bankers, a Thousand Oaks, California-based adviser to card issuers. Banks may lose $5.5 billion in interest income because of the legislation this year and $11 billion in 2011, based on estimates by R.K. Hammer.

'Precious' Rewards

While lenders will need to find ways to make up the lost income, they won't reduce affluent cardholders' "precious" rewards, said Samir Kothari, co-founder of BillShrink.com, a company in Redwood City, California, that compares pricing and terms offered to consumers for about 170 credit cards. Issuers may introduce charges such as inactivity fees for customers who don't use their cards, he said.

"It's a real high-wire act: charge enough to restore severely sagging profits, while at the same time not chasing off the customers you need to grow," said Robert Hammer, chief executive officer of R.K. Hammer.

For people with lower scores, it's a different picture. They're finding it harder to get credit as banks scaled back lending amid the deepest U.S. recession since the 1930s. The Federal Reserve's quarterly survey of loan officers released Nov. 9 showed 58 percent of banks planned to reduce credit limits for borrowers with lower credit scores before the legislation took effect. Fifty-three percent of banks said they planned to increase the minimum required scores for borrowers with lower credit ratings, according to the Fed study.

JPMorgan Loss

Some banks preemptively raised interest rates on new accounts for cardholders ahead of the legislation, or switched to variable rates, according to an October report by the Pew Charitable Trusts, a nonprofit organization in Philadelphia.

The card-services units of Charlotte, North Carolina-based Bank of America Corp., the largest U.S. lender, and New York- based JPMorgan Chase & Co., the biggest U.S. credit-card issuer, posted combined losses in 2009 of $7.78 billion. U.S. credit- card write-offs remained above 10 percent in December for the eighth straight month, as measured by Moody's Investors Service. Write-offs typically track the U.S. unemployment rate, which fell in January to 9.7 percent.

JPMorgan expects net income in its credit-card unit to fall by as much as $750 million a year as a result of the legislative changes, the bank said Jan. 15 when it reported earnings.

CARD Act

The provisions of the Credit Card Accountability Responsibility and Disclosure Act that take effect Feb. 22 prohibit interest rate increases during the first year an account is opened with limited exceptions. The law forces issuers to apply payments above the monthly minimum to balances carrying the highest rates first and bans fees for exceeding credit limits unless customers opt in. People under 21 will need a co-signer to get a card in most cases.

"The CARD Act is leading all issuers to the top of the credit food chain, and more competition is never a good thing in any industry, regardless of the product, but particularly in the relatively homogenized card space," said Jason Arnold, an analyst at RBC Capital Markets in San Francisco.

The competition may squeeze profit at New York-based AmEx as card issuers fight for wealthy customers with the best credit scores. The company dominates the market for affluent users, with individual card purchases averaging $9,342 in 2008 compared with $2,672 for San Francisco-based Visa Inc. and $2,300 for Purchase, New York-based MasterCard Inc., AmEx said in a Feb. 3 presentation for analysts, citing company reports. Its cardholders have average credit scores of 754 compared with 722 for the rest of the industry, the presentation said.

AmEx Profit

The company said fourth-quarter profit more than doubled to $710 million amid lower expenses for future defaults and a surge in consumer spending. AmEx's write-offs for soured loans fell in December to 7.1 percent, the eighth consecutive monthly decline. Overdue payments, a signal of future losses, dipped to 3.7 percent, the lowest rate among the six largest U.S. issuers.

"Our affluent customer base is core to this performance," Kenneth I. Chenault, CEO of AmEx, said during the presentation.

The company is performing well because it targets consumers with high credit scores who spend a lot, said Scott Valentin, an analyst at FBR Capital Markets in Arlington, Virginia. These users are most profitable for issuers because they're less likely to default on loans and more likely to spend, generating fees charged to merchants to process sales, Valentin said.

'More Juice'

"They are trying to get more juice from the same orange," Chris McWilton, president of U.S. markets for MasterCard, told investors at a Feb. 10 conference in Miami, referring to card issuers. "They are contracting and condensing their business into the most profitable segment."

Serafin, the biotechnology manager, said he uses AmEx for 90 percent of his card purchases. He spent 38,000 reward points instead of the usual 60,000 points for the iPhone because of a special holiday discount.

"If AmEx cuts my rewards, I'll stop using the card," said Serafin, 58, who has a credit score of 771, according to CreditKarma.com, a Web site that gives free credit scores.

The volume of credit-card solicitations sent to consumers is increasing. Direct mail jumped 47 percent to 575 million pieces in the fourth quarter of 2009 compared with the previous quarter, the first increase in three years, according to Chicago-based Mintel Comperemedia, which tracks marketing trends. Issuers are targeting more affluent consumers, with 30 percent of offers being sent to households with incomes exceeding $100,000 compared with 18 percent in 2007, based on data provided by Mintel.

'Final Frontier'

The growing competition for wealthy consumers with the best scores is "the final frontier in the credit-card business," said Curtis Arnold, founder of CardRatings.com in North Little Rock, Arkansas.

In August, JPMorgan created the Chase Sapphire card, which targets households with incomes exceeding $120,000 and rewards holders with a point for every dollar they spend. Sapphire cardholders have been redeeming rewards for travel, and the card is meeting JPMorgan's expectations for performance, said Laura Rossi, a spokeswoman for the bank, in an e-mailed statement.

JPMorgan also offered new customers 100,000 airline miles in November for spending $2,000 on a co-branded British Airways Signature Visa card within the first three months of signing up for the card.

Premier Rewards

In October, AmEx introduced the Premier Rewards Gold Card, offering triple points on airfare purchases and double points on gasoline and groceries. The card awards 15,000 bonus points for purchases topping $30,000 in a calendar year. The $175 annual fee is waived for the first year.

New York-based Citigroup Inc. and Discover Financial Services in Riverwoods, Illinois, offer qualified customers cards with 0 percent annual interest on balance transfers for up to 12 months. Simmons First Visa Platinum and Iberia Visa offer cards charging less than 8 percent interest to borrowers with "excellent" credit, according to the banks' Web sites.

Subprime customers, or those with credit scores under 660, will be affected most by the law, said Odysseas Papadimitriou, CEO of Arlington, Virginia-based Evolution Finance Inc., operator of CardHub.com, which compares card offers.

"Over-the-limit fees is a huge revenue generator, so if card companies can't make a profit from these customers, they're not going to extend credit to them," Papadimitriou said.

Lower Credit Scores

Consumers with lower credit scores may also see membership fees introduced on their cards as a way of compensating for the risk in lending to them, he said.

Representative Carolyn Maloney, a New York Democrat who sponsored the credit-card bill, said in an e-mailed statement that the economy, not the legislation, is driving the industry restructuring.

"The new regulations will help bring clarity and transparency to the card business and reduce the tricks that some issuers have been using to squeeze more revenue from indebted customers," Maloney said. "That's a real benefit for consumers."

To contact the reporter on this story: Alexis Leondis in New York http://www.bloomberg.com/apps/news?pid= ... VIUqAWd7ik