Is Chase really this desperate for new fees

Chase-sucks.com recently posted a letter sent to them regarding a Chase customer that had a very strange experience when buying New York State Lottery tickets on their credit card.  Instead of a normal charge, Chase, under the guise of classifying the purchase as for illegal gambling, classified the purchase under a cash advance and added a $10 fee an an interest charge.  when contacted, Chase claimed that the mistake was the fault of the New York State Lottery, but when the customer contacted the Lottery, the Lottery confirmed that it was Chase that was responsible, and was using a loophole created by a new law in effect in June 2010 that allowed them to do this.

So basically they are using this loophole to bilk customers out of extra fees.

The schizophrenic credit card industry

An article in today’s Wall Street Journal provides some interesting insight into the past, present, and future of the credit card industry, including our good friends Chase.

The past can best be described on an industry the indulged in risky practices and bilking customers.  I specifically say bilking because the fees and charges that fueled profits mostly on the backs of sub prime borrowers were due to credit card programs designed specifically to do just that – make people break the myriad of small print rules that would cause them to rack up tons of fees.  See the Secret History of the Credit Card by Frontline for more information on this.

Of course, we all know what happened, sub prime borrowers crashed, causing huge defaults, and public sentiment against the deceptive and unfair practices of the credit card industry resulted in new rules from the Credit Card Act of 2009 that has cut off a bunch of the industry’s fee income.

So now, companies are scrambling to make up for the list income and trying to find a new model that will allow them to return to the unrealistic profits of days gone by.  According to the WSJ article, experts predict that credit card companies will only be able to recoup about 25% of the fee income they have lost due to the new regulation, mostly through various new tricks.

That brings us to the schizophrenic present.  Take Chase for instance.  On the one hand, it says that it has been pulling back from its riskiest and least profitable customers.  Unfortunately, those classifications are not mutually exclusive.  The least risky customers are also the least profitable ones, although this mostly holds true in good times.

Take myself for instance; I pay my credit cards off every month in full, making me a classic “least profitable” customer and I’ve been told so in not-so-many words by at least one of my credit card companies.  But I am also very cost conscious and will happily dump a bank if I can find a better deal elsewhere.  When banks finally realize that they have the best chance of making money over the long term buy finding and keeping reliable, albeit boring, customers, they might find it a strategy that is hard to succeed at, as the WSJ also reports that consumers are showing less loyalty to their credit card companies with just 22% of consumers reporting they definitely wouldn’t change their primary credit card company in the next 12 months. Good luck with that.

So what is Chase’s strategy?  The WSJ reports that Chase has been running ads in upscale ski resorts and Hawaiian retreats, and is focusing on affluent consumers with good credit histories.  Yes, but these are also among the least profitable customers clearly contradicting their other statements.  Meanwhile, Bank of America is focusing on customers it has other (banking) relationships with and Citigroup is wading back into the sub prime market.  No-one seems to know exactly what is going to succeed.

I’ll help them out a little.  Here is what I think will ultimately work:

• Focus on getting and keeping good reliable customers that pay their bills on time, preferably maintaining a zero or small outstanding balance.  These customers will allow you to make some reasonable money over the long term.  Chase, this means getting your head out of your ass and providing actual customer service.
• Change the design of your credit card programs so that it encourages people to be responsible for their credit.  Stop giving more cards to people that have too many.  Stop allowing people to pay so little that their debt continues to grow.  Stop raising interest rates so high that people can’t possibly afford to pay.
• Show some loyalty to your existing customers and work with them to help them get out of trouble.  See the second point above.

If this sounds vaguely familiar, it is a return to what banks used to be, respectable institutions that valued customer relationships enough to treat their customers well.  Boring but predictable.  If big banks don’t figure this out, small banks and credit unions that DO treat their customers well will continue to siphon off customers.

Jamie Dimon quote of the day

This from back in July in reference to new laws that limit fees banks can charge.

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” James Dimon, the CEO and chairman of JPMorgan Chase, told analysts in mid-July. “My guess is over time, it will all be repriced into the business.”

Watch out for new bank tricks

With the passing of the Credit Card Act of 2009, and the new protections it offers customers, some people may think they can rest on their laurels because banks are finally being forced to do the right thing.  Not so, says the Seattle times, and common sense.

According to the Seattle Times, some bank customers are already seeing the following:

• Increased or new annual fees.
• Increased interest rates.
• Increased late-payment fees.
• Shortened billing cycles to require faster payments (minimum is now 21 days).
• Added fees for not using the card or not charging a minimum amount.
• Higher fees for using the card outside of the country.

The point is that banks have increasingly gotten the mentality that customers are endless sources of nickel-and-dime fee income, rather than seeing their business as providing a good service for a reasonable fee.

It is now more important than ever to read over EVERYTHING you receive from your bank very closely and challenge anything they do that you don’t like or may be against the law.  If your bank just won’t be reasonable, switch to one that is.

Use Chase blueprint, get axed?

About a month and a half ago, I wrote a piece on Chase’s new blueprint feature that allows people to schedule their credit card payments in association with what they are buying.  Chase calls it a financial management tool.  I called it a lose/lose for customers, because it urges them to spend more on a higher cost card.

Today I came across another analysis of blueprint which has one insight that I found very interesting.

But for Chase, the implications of this data in aggregate are significant. Check out Chase’s internal presentation on Blueprint, which you can download here. Here, the bank says that the purpose of Blueprint is that it “allows customers to better manage larger purchases,” and ”track their spending history by category.”

This is crucial for Chase, because it allows the bank to better understand your financial situation. Before, they merely waited around, hoping you’d pay down your balance. Now they can see your payment plans months in advance, letting them know if it’s time to tempt you with a higher-limit card, balance-transfer offer or some other promotion. (Mint.com essentially makes its money the same way, by finding offers that might appeal to someone with your financial profile.)

Did you catch that?  “it allows the bank to better understand your financial situation.”  This means that Chase will have yet another reason to ditch you as a customer, reduce your credit line, or jack your rates way up … your own attempts at managing your debt are telling them you are a risky customer, even if you are making your minimum payments on time.  Think I am wrong about this?  The analysis goes on with more useful data:

The system appears to be working, for better or worse. Chase has been fine-tuning the product in the last few weeks, increasing the low-end rate from 11.24% APR to 13.24%, even as credit card delinquencies industry-wide dropped last quarter. That could mean that Blueprint is working a little too well, allowing card-holders to take on more debt than they normally would, resulting in higher delinquencies for that specific card. Or it means that the product has become popular with a more delinquency-prone crowd. Either way, if Chase is raising rates on this card enough to shake up the entire industry’s average APR, it clearly feels it needs to insure itself against something.

I hate to say I told you so, but that is exactly what I was pointing out in my original post, that Chase had engineered the feature to get people to take on more debt, not to manage their money better, like a true financial planning tool.  Oh, and that expensive card just got more expensive as the higher APR attests to.

Consumer Reports: Don’t opt in! Ignore your bank’s plea to stay in its overdraft program

If you have ignored our repeated please to refuse to opt-in to Chase’s debit card overdraft program, perhaps you will trust a higher authority.  Consumer Reports came out with a blog post a few days ago urging consumers to refuse the overdraft program.

Under new Federal Reserve rules that become effective this Sunday, August 15, debit card purchases or ATM transactions that would exceed a current customer’s balance will not be processed unless he or she has agreed in advance to overdraft protection. If you’re currently enrolled in one of these programs you’ll automatically be opted-out; if you wish to continue you must re-enroll and provide your signature.

Previously, banks automatically signed up consumers for the service and then charged them hefty fees whenever it covered an overdraft. Those fees add up to billions in profits, so as the date looms you’re likely to see a lot of hype from your bank promising you peace of mind by enrolling in its program. Before you do, remember that there are often much cheaper ways to cover transactions that exceed your balance.

Read more …

New overdraft rules take effect today for existing accounts

Last month, banks had to stop automatically activating debit card overdraft protection for new accounts, a practice which they have been doing for years.

Today, August 15th, banks must stop providing debit card overdraft protection for existing accounts unless customers explicitly opt-in to this service.

But this doesn’t apply to every kind of transaction.  The following types of transaction can be used to take money out of your checking account:

• Writing a check.

• Authorizing an electronic transaction using your account number, or the bank’s online bill payment service.

• Setting up repeat payments with your debit account number for something like a cell phone bill or a gym membership.

• Withdrawing money from an ATM.

• Using a debit card at places like stores, restaurants and gas stations.

Only the last two, ATM withdrawls and debit card purchases are covered by the new overdraft protection rules.  If you do not opt in to overdrafts (AND YOU SHOULD NOT), then ATM and debit card purchases may be rejected and no fee will be charged.

But, importantly, the new law doesn’t affect checks or electronic transactions; fees can still be charged on those if the account has insufficient funds.

Very importantly, this means payment services like PayPal.  You can still rack up an overdraft charge if you try and pay for something with PayPal and you have insufficient funds.  Unfortunately, most people would expect that this would work just like using a debit card, but it will not.  Banks can still charge you an overdraft fee for this, so be careful.

With Chase, wire transfers are expensive

This gripe came from my mother.

With WaMu, outgoing wire transfers were free.

With Chase, outgoing wire transfers cost $45, about the steepest charge in the business.

My bank charges me $25 for sending a wire transfer.

With Chase, incoming wire transfers cost $11.

With my bank, incoming wire transfers are free.

I am unable to verify the fees because Chase does not make its fee schedule easily available (I can’t find it).