It seems credit card companies are now charging a transaction fee -- that goes unnoticed and can be undetectable as it is often embedded in the exchange rate -- for using your card overseas. Having just returned from some travel abroad, I am now in the process of trying to figure out how extensive is this new practice of hidden travel transaction fees [while in Cuba in June I was not able to use a US credit card, of course, only a Canadian…so fewer fees for me, I guess :) ]
On a related note, banks now charge a transaction fee every time a debit card is used if you use your PIN to authorize the transaction…but you are NOT warned of this transaction fee, which is normally the case when using an ATM card. There is no fee charged -- yet as far as I know -- if consumers use a debit card like a credit card and sign their name.
caveat emptor!
Diane
Michael wrote:
Here are some snippits from a Wall Street Journal about bank & credit card fees. Does anybody attempt to take account of such things in measuring the CPI or income distribution?
Pacelle, Mitchell. 2004. "Late Payers and Big Borrowers Are Becoming Cash Cows." Wall Street Journal (6 July): p. A 1. "For consumers who pay off their credit-card balances each month, shop aggressively for interest rates as low as 0%, and take advantage of generous credit-card rewards programs, consumer credit has never been cheaper. But for others like Ms. Reid, who went into debt so she could move to a better job in Florida from South Carolina, the trend is in the other direction." "Card users, consumer advocates and some industry experts complain that banks are attempting to squeeze more and more revenue from consumers struggling to make ends meet. Instead of cutting these people off as bad credit risks, banks are letting them spend -- and then hitting them with larger and larger penalties for running up their credit, going over their credit limits, paying late and getting cash advances from their credit cards. The fees are also piling up for bounced checks and overdrawn accounts." ""People think they are being swindled," says industry consultant Duncan MacDonald, formerly a lawyer for the credit-card division of Citigroup Inc. Penalty fees aren't new, but they are becoming more important to the industry's bottom line and are being borne by the people who can least afford to pay them, he contends." "Cardweb.com, a consulting group that tracks the card industry, says credit-card fees, including those from retailers, rose to 33.4% of total credit-card revenue in 2003. That was up from 27.9% in 2000 and just 16.1% in 1996. The average monthly late fee hit $32.01 in May, up from $30.29 a year earlier and $13.30 in May 1996, the company said. In 2003, the credit-card industry reaped $11.7 billion from penalty fees, up 9% from $10.7 billion a year earlier, according to Robert Hammer, an industry consultant." "As competitive pressure builds on the front-end pricing, it has pushed a lot of the profit streams to the back end of the card -- to these fees," says Robert McKinley, chief executive of CardWeb .com. Over the past two years, he said, "it's become much more aggressive." At industry conferences, he notes, talk often turns to "what the market will bear." "Banks say that penalties and fees are a necessary component of new models for pricing financial services. Gone are the days when banks collected hefty annual fees on all credit cards and charged fat interest rates to all customers. Now, the banks say, they must rely on risk-based pricing models under which customers with the shakiest finances pay higher rates and more fees." "Until the early 1990s, most banks offered one main credit-card product. It typically carried an annual interest rate of about 18% and an annual fee of $25. Cardholders who paid late or strayed over their credit limit were charged modest fees. Profits from good customers covered losses from those who defaulted." "By the late 1990s, banks were attracting consumers with low introductory rates, then subjecting some of them to a myriad of "risk-related fees," such as late fees and over-limit fees. A 2001 survey by the Federal Reserve showed that 30% of general-purpose credit-card holders had paid a late fee in the prior year." "In a survey of 140 credit cards this year, the advocacy group Consumer Action said 85% of the banks make it a practice to raise interest rates for customers who pay late -- often after a single late payment. Nearly half raise rates if they find out that a customer is in arrears with another creditor."
Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901
