Friday, May 16
Posted 2 p.m.

How much did card issuers make last year?

I just got the latest issue of a credit card industry magazine called Cards & Payments in which they show the revenues for the credit card issuers and where those revenues came from. The total revenues for 2007 were $117.76 billion, up from $114.99 billion in 2006. Here's how that breaks down:

• Interest: 64.1 percent
• Interchange: 20 percent
• Penalty fees: 6.4 percent
• Cash-advance fees: 4.8 percent
• Annual fees: 3.9 percent
• Enhancements (such as credit insurance): 0.8 percent
  

Expenses were $89.94 billion, 31.3 percent of which were charge-offs, or uncollected debts. Not surprisingly, charge-offs will probably be even greater in 2008, given the tough economy.

New rules from the Fed

Two weeks ago, the Federal Reserve issued some guidelines to stop abusive practices in the credit card biz. They cited the practices that have come under the most criticism and hurt the average card holder. Banks would not be allowed to:

• Increase interest rate and apply to existing balances.
• Apply payments to the highest interest rate balances first.
• Use a "two-cycle" billing method.

Card issuers would also have to give card holders a reasonable amount of time to pay their bills.

While I've been skeptical that the House or Senate could get any legislation passed to curb credit card abuses, I think the Fed rules will go into effect. Public comments are being accepted for the next 60 or 75 days, and you can post a comment or read others' comments at the link above.

Comments? Questions? E-mail plastic_rap@bankrate.com.

Friday, May 9
Posted 11 a.m.

Rebate? Pay down credit cards!

A few weeks ago in our e-newsletters, we asked readers to tell us what they were going to do with their tax rebate money, and many, I'm happy to report, are paying down credit card debt. While there has been a lot of discussion about this "spending" not helping the economy, a reader named Katharine from Oswego, Ill., had a good explanation for how paying down credit card debt really will help the economy. Here's what she wrote to us:

I am planning on using the money we (husband and I -- no kids) get to pay off one credit card completely and use the rest to help accelerate another credit card balance's (early demise) payoff.

I don't think it matters what you do with the check -- except for feeding it to the dog or burying it in the yard for said dog to find. After all, even if you use it "wrongly" to pay off cc debt, you're pumping money into the micro-economy of that credit card company so they can turn around and lend it to someone else. All credit card transactions require humans to process them completely, whether they are manning a customer service desk or supervising those CS employees. Thus, your payment to ABC credit card company allows ABC to hire workers who will redirect their salaries into the economy.

I like that thinking -- because you know I'm always telling people to pay off their credit cards. If you can't pay off a card completely now, you might still try to find one with a lower interest rate, although as I've written recently, many of the card issuers are raising interest rates because of the credit crunch, regardless of the cardholder's creditworthiness.

Bankrate has introduced a new credit card search engine, which we think you'll find very useful. You can now search for cards by issuer, type of card (rewards, gas, etc.), and credit needed. Take it for a spin.

I'm flying up to the credit card capital of the world -- Wilmington, Del. -- this afternoon, not to beat on the doors of the card companies but to celebrate the birthdays of my nephew Greg, his 3-year-old son Henry, and the christening of his new daughter, Lucy. Even at family gatherings, though, everyone asks me about credit cards. Just like family, you can't live without them, so you need to learn to live with them. Have a great weekend!

Comments? Questions? E-mail plastic_rap@bankrate.com.

Wednesday, May 7
Posted 2 p.m.

Who pays for charitable donation?

I just read a press release about something called CharityChex, a credit card processing system that allows a payer to donate to a specific charity through a retailer at the point of sale. The customer also get a tax receipt right then too. The CEO of CharityChex, Scott Talbot, describes it this way:

"CharityChex combines charity and retail establishments together for the first time to create a win-win situation for customers and businesses who want to contribute to society in a simple, no hassle way."

CharityChex doesn't seem to be used by anyone yet, so I can't tell you who will pay the interchange fee for the transaction -- the cardholder or the merchant. The retailers, of course, are still waging their war against the credit card issuers like Visa and MasterCard for lower fees. In March, Rep. John Conyers, D-Mich., and Rep. Chris Cannon, R-Utah, introduced a bill that would force the card issuers to negotiate the fees with merchants.

The retailers say they have to pass these fees on to consumers ($350 annually per family, they say), and they infer they'll reduce prices if they get the card issuers to lower the interchange fees. As I've written previously, an agreement such as this was put in place in Australia a half-dozen years ago and -- guess what? -- prices haven't come down for the consumer.

Comments? Questions? E-mail plastic_rap@bankrate.com.

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