Amex offers prepaid gift card for closing cards

As credit card market deteriorates, American Express is offering selected cardholders a $300 Amex prepaid gift card if they pay off their balances and close their accounts. Selected retail credit-card holders began receiving letters with the voluntary offer earlier February. Customers who received the offer have until Feb. 28 to respond.

There is growing concern that credit-card defaults will soar into the stratosphere as have been happening with mortgage. Consumer credit card delinquencies jumped to a record 5.6 percent in the fourth quarter 2008 from 4.8 percent in the third quarter. As the economic crisis widens and unemployment climbs, the concern about growing default ascends. Unemployment rate rose to 7.2 percent in December 2008, the highest level in 16 years.

As soon as eligible Amex customers sign up for the offer, their card and reward points accumulated while they were customers will be immediately canceled. Members have from March 1 to April 30 to pay off their balances and receive the prepaid card. During that time, the balance is subject to the same interest rates and fees that it would be if they chose to keep their card. If customers don’t pay off their balance by April 30, they will not get the gift card and their accounts will still be closed, says Ms. Faust.

Closing a credit card generally hurts customer credit scores, even if the customers do it themselves.

New credit card rules end unfair treatment to consumers

Federal regulators on Thursday approved sweeping new rules for the credit card industry that will protect consumers from increases in interest rates on existing account balances. The rules, which take effect in July 2010, will allow credit card companies to raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.

The changes mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.

The new rules also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. Credit card lenders will be required to apply any payment above the minimum to the part of the balance with the highest interest rate.

In addition, consumers will have to be given 45 days notice before any changes are made to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late. Under current rules, companies in most cases give 15 days notice before making certain changes to the terms of an account.

The rules cap upfront fee of sub-prime cards at 50 percent of the credit limit and allow the cardholder to pay off the initial balance over a year, not immediately. The sub-prime cards for people with low credit scores typically have no more than a $500 credit limit but require a large upfront fee. The changes could also make it more difficult for millions of people with bad credit to get the sub-prime card carrying higher interest rates.

• The new rules prohibit:
• Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.
• Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.
• Unfairly computing balances in a computing tactic known as double-cycle billing.
• Unfairly adding security deposits and fees for issuing credit or making it available.
• Making deceptive offers of credit.

Credit card debt held by U.S. consumers is about $850 billion, some four times what it was in 1990, according to an estimate by the Consumer Federation.

In the U.S. approximately 16,000 companies issue credit cards. The largest lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.

Visa and MasterCard settled antitrust lawsuit by Discover

Card networks Visa Inc and MasterCard Inc and Discover Financial Services Inc, the fourth-biggest U.S. credit card company, have settled an antitrust lawsuit, a court official said and confirmed by MasterCard on Tuesday.

Discover had filed a lawsuit against MasterCard and Visa in 2004,  seeking roughly $6 billion in damages, as it contended the card networks had harmed its business by preventing their member banks from issuing credit cards for Discover’s network.

U.S. courts have ruled that efforts by Visa and MasterCard, the world’s two biggest credit card companies, to restrict banks from working with rivals was anti-competitive and broke antitrust law.

A similar lawsuit by American Express Co against Visa and MasterCard had already agreed to settle for about $3.9 billion.