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Capital One increasing our hassles
Old 05-22-2009, 02:01 AM   #1
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Capital One increasing our hassles

Got a "change of terms" notice from Capital One today (we have the so-called "no hassle" card with them). Effective July 2, 2009 they are calling our current purchase/balance transfer rate (currently 13.9% APR) a "promotional rate." Effective April 10, 2010, they will be changing our purchase/balance transfer rate to 13-something% plus prime, which at today's prime rate will be 17.9%. Plus, they are making this a VARIABLE rate, so it will change as the Prime rate changes.

We have great credit and rarely carry a balance on this card. They are making the changes "based on your credit scores, your history of using the credit on this card, and the current economic situation." Uh-huh, and I'll guess that these "considerations" are not equally weighted.
Nice, eh?

We've gotten a couple of other term changes like this from other credit card companies we have cards with, but this is the first variable-rate warning we've had a year in advance. My guess is that the credit-card practices reform bill that Obama's signing tomorrow (?) had a lot to do with it. I'm thinking we'll be dumping this card come next April.

Anyone else seen anything like this in their mailboxes?
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Old 05-22-2009, 02:10 AM   #2
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No, but I live in Canuckistan.

If you pay the balance every month, why do you care about the interest charges/changes. It's still free so look at the other benefits (if there are any). Yes, it's a bit insulting, but is it in your best interest to ignore it? If not, dump'em.
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Old 05-22-2009, 08:02 AM   #3
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We got a similar letter from Bank of America. We're not going to carry even a small balance anymore. They can now call us "freeloaders" or "deadbeats" or one of the other cute names they have for people who pay off in full.

If not for the hassles involved with car rentals and some other issues, we'd go strictly debit card.
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Old 05-22-2009, 10:48 AM   #4
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Looks like Obama's new bill to protect you from the evil credit card companies might have some unintended consequences. Like CC companies figuring out how to structure the agreements to maximize profit in spite of the new regulations. Consumers, consider yourselves "protected"!
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Old 05-22-2009, 01:48 PM   #5
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Got a letter today from American Express relative to changes they are making to our card in order to continue to offer "no annual fee". One of the big changes is they are reducing the cash back on gasoline purchases from 5% to 3% (as long as the gas station is not a warehouse club). We still get 5% back on office supplies and our cell phone bill and 1% on all other purchases. The 5% back of gasoline purchases is what prompted me to get this card in the first place. Actually , I replaced my Delta Skyline Miles AMEX card with this small business card. All of this is no big deal to me and I will keep this card as it has a $15k limit. This limit compared to the balance I carry helps the credit score. Also today, I called and got the credit limit raised on a GE Money card from $8k to $10k just for asking. I pay off all cards in full every month and never pay interest.
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Old 05-22-2009, 01:49 PM   #6
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AFAIAC, they can assign any interest rate they want, as long as I get the float and cash back and accept an automatic payment from my checking account.

I read an article today that seemed to imply ( the wording was not precise) that AmEx makes 80% of their profits on cards from the transaction fees. So I doubt that people like me, who charge almost every purchase to the card, have much to worry about. Seems like worse case they would cut the rewards $ rate by 20% and be just fine. That wouldn't be enough for me to stop using the card, but I hope they keep the rates where they are.

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Old 05-22-2009, 01:53 PM   #7
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I read an article today that seemed to imply ( the wording was not precise) that AmEx makes 80% of their profits on cards from the transaction fees. So I doubt that people like me, who charge almost every purchase to the card, have much to worry about. Seems like worse case they would cut the rewards $ rate by 20% and be just fine. That wouldn't be enough for me to stop using the card, but I hope they keep the rates where they are.
Same here. If they have to water down the rewards program a little bit, I can live with that as long as I still have the float and no annual fee. I mostly use my Schwab Visa giving me 2% cash back, and if they knocked it down to 1% or 1.5%, not the end of the world as it's still essentially "free money" if there's no annual fee or interest payments.
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Old 05-22-2009, 02:07 PM   #8
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I got the same notice as the OP..."variable rate, determined by adding 14.65% to the Prime rate...beginning January 2010."

I read an article that said all the credit card companies were rushing to get rate changes and make other term changes before the new law takes effect, and that every credit card holder will be affected in one way or another (i.e., fewer rewards, more blackout dates, higher rates, whatever) as the CC companies struggle to keep their high profits.
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Old 05-22-2009, 02:13 PM   #9
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The trend seems to be to continually water down rewards programs. I use to get 5% back on gas, groceries (incl. superwalmart and similar), and drugstores. Then it went to only 1% on superwalmart and supertarget type places. Then they dropped the gas/grocery/drugstore to only 3% rewards. At some point they also watered down the rewards you could get: a $50 gift card originally "cost" 5000 points, then they increased the cost to 6000 points, thereby deflating the value of your points by 17%. I dropped the card after this since I found a better card offering same 3% on more stuff and more flexible.

Similar with airline rewards points - used to be you could get a reasonable ticket whereever in continental US for 25,000 in most programs. Now it is nearly impossible in some programs to do that, where a "premium" ticket is required for 50,000 pts to do what used to cost 25,000. And you may pay $40-70 to book that "free" ticket too. Hidden inflation...
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Old 05-22-2009, 02:17 PM   #10
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Similar with airline rewards points - used to be you could get a reasonable ticket whereever in continental US for 25,000 in most programs. Now it is nearly impossible in some programs to do that, where a "premium" ticket is required for 50,000 pts to do what used to cost 25,000. And you may pay $40-70 to book that "free" ticket too. Hidden inflation...
And the "premium" tickets seem to be defined to include any flight which departs after 8 AM and arrives before 9 PM.

Want to use the "discounted" award at 25,000 miles? Be prepared to depart at 6 AM or arrive at midnight.
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Old 05-22-2009, 02:20 PM   #11
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And the "premium" tickets seem to be defined to include any flight which departs after 8 AM and arrives before 9 PM.

Want to use the "discounted" award at 25,000 miles? Be prepared to depart at 6 AM or arrive at midnight.
Yes - premium doesn't equal first or business class, but rather a flight with under 4 layovers and not overnight for a 500 mile trip.
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Old 05-22-2009, 02:21 PM   #12
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I'm an engineer and don't understand accounting terminology, so I've not been able to get my arms around the term "double cycle billing". I've seen this term bantered around in the news and the newspapers but neither has gone into detail as to what it means. OK, all you accountants out there, what the hell is double cycle billing and how could it affect me relative to credit cards, billings and payments?
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Old 05-22-2009, 05:24 PM   #13
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Double cycle billing only matters if you carry a balance.

When calculating your finance charges, they use both the balance for the most recent month AND the balance for the previous month. Even if you've paid it down.

Yes, it's as lame as it sounds.
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Old 05-22-2009, 07:00 PM   #14
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Fortunately, double cycle billing will be eliminated in the new cc law -- in 2010.
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Old 05-22-2009, 08:17 PM   #15
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Fortunately, double cycle billing will be eliminated in the new cc law -- in 2010.
Why do you say it is fortunate?

I do believe that contracts that are in common use for the 'common man' should be simple and transparent enough to easily understand (and I'd agree that most CC contracts are far too obtuse), but I don't think the govt should be involved in deciding the terms. And, if there is a free market, the companies with the simple offers and best terms ought to get the most business.

If a person wants to borrow money, it should be at whatever rate/conditions the lender offers. If those are not acceptable, don't borrow, or go elsewhere.

Why do I want the govt deciding for me what terms are acceptable? Do I want the govt to tell me "Don't buy that $20 bottle of wine, the $8 bottle is good enough for you"?

Borrowing money is just another purchase decision. Let the free market reign.

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Old 05-22-2009, 08:45 PM   #16
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Why do you say it is fortunate?

I do believe that contracts that are in common use for the 'common man' should be simple and transparent enough to easily understand (and I'd agree that most CC contracts are far too obtuse), but I don't think the govt should be involved in deciding the terms. And, if there is a free market, the companies with the simple offers and best terms ought to get the most business.
So you agree that the terms are almost impossible for average people to understand, but it's okay to let them enter these contracts with these incomprehensible terms without legal counsel who can understand them? Am I right?
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Old 05-22-2009, 08:56 PM   #17
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FWIW, I just shake my head at the new regulations government is implementing to "protect" us.

Years ago I used credit cards for some investments / business transactions that worked out extremely well. I used the credit cards as basically an unsecured loan with minimal payments / carry costs which allowed me to use the funds very effectively in my endeavers. Profit was in the mid six figure range.

The business environment isnt the same today as it was then so my strategy wouldnt work right now as it did then. But it is getting closer to being a similar market environment where it would work for me again, and I would anticipate an even greater profit potential. But because of Uncle Sam's new regulations (increasing minimum payments and the recent regulations) I wouldnt be able to do that again.

The phrase "I'm from the government and I'm here to help you" keeps coming to mind.
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Old 05-22-2009, 09:14 PM   #18
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So you agree that the terms are almost impossible for average people to understand, but it's okay to let them enter these contracts with these incomprehensible terms without legal counsel who can understand them? Am I right?
No. My views are consistent (I think - but I'm open to being proven wrong/educated).

I find that in general, if a company is successful at offering a popular product using poor/confusing terms - there is not really a 'free market' in that product. I suspect that's the case with CCs.

So, IMO, the real "solution" is breaking up the market and letting companies truly compete for business. I'd prefer to see the govt do that, than to try to micro-manage the details of individual contracts. Congress should have better things to do with their time. IOW, I believe a free market will right those wrongs in a way no Congressperson could do.

I'll give a recent free market example to illustrate - OK, some of this goes back a ways - we had cable in the 80's, and the cable company (essentially a monopoly) was horrid to deal with. DW wants cable again, and according to Consumer Reports, they recc Satellite, because (rough numbers from memory here), only 55% of customers HATE their Satellite provider, while 60% of cable customers HATE their cable provider. That tells me there is not a free market at work.

In comparison, I did get a Netflix subscription (DVDs in the mail) for DW about 6 months ago. Now Netflix is really working to compete in an open market, no one really has any big advantage here, and (IMO) it shows. Netflix also offers (included in the monthly subscription) some movies that can be watched over the internet. So here's the big difference:

When my cable company had an outage, they basically told me "tough".

Netflix emailed me the other day, to TELL ME, they had a temporary outage, and if I was affected by this, please let them know and they will credit my account for one days outage!! I didn't even know it was out. Now *that* is a company looking out for it's customers (for it's own good). I *never* get that from a monopoly/oligopoly.

Big difference I'd say.

So let the govt support a free market. My 2 cents.


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Old 05-23-2009, 02:35 AM   #19
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No. My views are consistent (I think - but I'm open to being proven wrong/educated).

I find that in general, if a company is successful at offering a popular product using poor/confusing terms - there is not really a 'free market' in that product. I suspect that's the case with CCs.

So, IMO, the real "solution" is breaking up the market and letting companies truly compete for business. ..
Netflix emailed me the other day, to TELL ME, they had a temporary outage, and if I was affected by this, please let them know and they will credit my account for one days outage!!


-ERD50
Clearly Netflix, and I'd argue Google, Costco, SouthWest Airlines, are good companies. The rare company that routinely provide better service for the same or lower prices. The presence of competition helps in this situation. But, I'd argue that there is a sincere believe at the top levels of these companies that doing the right thing for their customers will result in higher profits over the long term that is largely responsible for their good behavior rather than say the actions of Blockbuster, Yahoo, United, or Sam's Club.

I think the credit card market is actually pretty competitive according to Creditcard.com with the top 10 issuer accounting for 90% of the cards and the#1 firrm JPM Chase having just over 20%. At the transaction level it is an oligarchy between Visa, Mastercard, and American express.

The continually offers we get from credit card companies, offering lower interest rates, 0% balance transfers, better rebates, travel rewards, things like saving programs, enhanced warrenties etc, attest to the competitive nature of the industry. The problem is the industry as whole makes it money through deceptive advertising, e.g. teaser rates. Similar to the dope dealer ( probably urban legend) who offers free joint at the Jr. High School. A trend we are starting to see in the airline business.

For whatever reason a straightforward credit card offering a interest rate based on the banks cost of money, and cost based late fee say $10 to $15, are never offer other than by a few community banks and credit unions. Presumably these have proven to less profitable than the fancy cards, with the bigger fees, double billing cycle, and ability to shoot up to 30% interest rate.

Unlike delivering movies, financial products are inherently complicated, especially to a financially naive public. I am proud capitalist pig, but I don't understand the objections people have to the government stepping in and acting as referee to prevent consumers being scammed by large corporations with talented lawyers and clever marketeers.
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Old 05-23-2009, 09:10 AM   #20
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Clearly Netflix, and I'd argue Google, Costco, SouthWest Airlines, are good companies. The rare company that routinely provide better service for the same or lower prices. The presence of competition helps in this situation. But, I'd argue that there is a sincere believe at the top levels of these companies that doing the right thing for their customers will result in higher profits over the long term that is largely responsible for their good behavior....
I'd agree that it is the companies that think long term that are providing the true customer service. But w/o a competitive environment, that thinking tends to fade away fast - why worry about long term customer loyalty if your customer is "trapped"? I just don't see any examples of monopolies that act that way, and plenty of examples to the contrary (cell phone carriers, cable/satellite providers head my recent frustration list).

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I think the credit card market is actually pretty competitive according to Creditcard.com with the top 10 issuer accounting for 90% of the cards and the#1 firm JPM Chase having just over 20%. At the transaction level it is an oligarchy between Visa, Mastercard, and American express.
I suspect it is that oligarchy that causes the problems.


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Unlike delivering movies, financial products are inherently complicated, especially to a financially naive public. I am proud capitalist pig, but I don't understand the objections people have to the government stepping in and acting as referee to prevent consumers being scammed by large corporations with talented lawyers and clever marketeers.
I think you missed my point - I'm saying that if there was a true competitive environment, the govt would not need to step in and act as referee. And as long as there is no truly competitive environment, the govt will end up doing a poor job of trying to constrain the abuse. The abusers will find loopholes to work through. It's like squeezing a balloon, it just pops out somewhere else.

That is why I prefer that govt action be first directed at restoring a free market (yes, even if that sounds a little counter-intuitive), but I do think it is needed sometimes. Hah, it seems to me that most of the areas where a business lacks competition, it was the govt that had a hand in creating the problem to begin with.

But, if I were KING of the US, and I wanted to ' quick fix' this w/o changing the market itself, and just wanted to dictate some action, I would follow the KISS principle. I would:

1) Freeze changes to CC contracts.

2) Give the credit card companies 15 days to get together and submit a standardized, single page, 14 point font boilerplate document for new CC contracts. If they don't come up with something acceptable, I will, and they won't like it.

3) 15 days to come up with a standardized "Fact Sheet" that CC applicants must sign. This has to detail the Boiler Plate in easy to understand terms, and should be written like one of those tests that they want you to pass, because by passing you learned all the right answers.

4) A similar document to make the acceptance and rates transparent. Document the formula for credit scores, assets, time in job, accident record, etc - people should be able to know what they need to get credit.

I disagree that these financial products need to be all that complex. You have been approved for access to X amount of credit, pay by X date or have X fee, plus X interest rate on the balance. Interest rate can change and is determined by X.

The old rule is that if something is too complex for you to understand, you should not invest in it. So people really should not be "investing" in credit cards if they don't understand them. So they should be made simpler for the common man. Heck, I'm sure I don't understand MY CC contract, but as far as I can tell, 99.999% of that deals with what happens if I don't pay my bill in full by the due date. I always do, so I don't worry about it.

-ERD50
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