This Huffington Post article puts a big spotlight on all of the money that credit card companies and banks are making by being the broker of donations to charities that support rescue and aid over in Haiti:

About 97 percent of these donations will actually make it to the designated organizations — but the other 3 percent will be skimmed off by banks and credit card companies to cover their “transaction costs.”  Thanks to this hidden fee, American banks and credit card companies are making huge profits — somewhere in the neighborhood of $250 million a year — off of people’s charitable donations, according to a Huffington Post analysis.

Oh, please.  Spare me.

First of all, $250 million per year isn’t that much.  This is only about one-half of one percent of the total processing fees collected from credit card transactions (if the number on TrueCostOfCredit.com is to be believed).  This does not include all of the other fees that can be collected from the consumer side, like late fees and interest fees.  So, calling $250 million “huge profits” is stretching it.

Next, these fees aren’t “hidden.”  They’re well-known to every merchant (and most charities) that accept payments by credit card.  If consumers don’t know about these fees, then it’s probably because it doesn’t affect them directly.  In fact, merchant account agreements typically forbid merchants from refusing credit card transactions or tacking on “service fees” for the transaction, as it is a cost to be borne by the merchant, not the consumer.  The consumer need not care about it.

Next, the only reason that people can put their donations to a particular charity on a credit card is because the charity agreed to accept donations by credit card.  Furthermore, the charities are very wise to do so: according to the article, Oxfam and Operation USA pull in over 85% of their donations by credit cards.  Some of those donations could have been paid by check, but some of them just wouldn’t have been made at all.  Additionally, just as people are likely to buy more if they have a credit card as opposed to cash or check, people are likely to donate more if they donate with a credit card.

Charities aren’t profit-seeking like businesses are, of course, but there is competition among charities for a finite pool of money from donors.  Anything that makes it easier for people to donate makes it easier to tap into that scarce resource, and if there are costs associated with doing that, well, that’s the way things work.

Why should credit card companies and banks be compelled to do all of this for free? If I make a donation of $100 and put it on my credit card, it carries exactly the same risk to the credit card company as if I had bought $100 worth of groceries.  The issuing bank paid my donation to the charity almost immediately, and now they’re left with collecting it from me, which I could choose to not pay (granted, at my own peril).  Yet, that’s exactly what was done:  the credit card companies have bowed to pressure and will waive transaction fees for donations to selected charities for a few months.

If businesses want to contribute to rescue, repair, and aid efforts, that’s great.  You rock!  But if not, hey, you’ve counted the cost, and it’s your business.  I don’t fault airlines for profiting from transporting aid workers to and from Haiti.  I don’t fault oil refiners for profiting from selling jet fuel to the airlines.  I don’t fault companies selling first-aid kits, blankets, water, whatever, to charities to distribute to those affected.  And I don’t fault credit card companies for charging charities to make the donation process smoother so all of this great rescue can happen more quickly, and probably on a grander scale, than without it.

This objection to merchant fee profits is just another day in the credit card provider witch hunt that got the CARD Act through in the name of protecting consumers.  This will actually hurt us all in the long run.  Now a few more tens of millions of dollars have been shamed away from the credit card providers at a moment of opportunity.

If these transaction costs bother you (they might) the solution is pretty easy:  Write a check, mail it in, and bear all of the transaction costs yourself.  (Which actually isn’t true either:  workers have to open your envelope, record the check, take it to the bank, etc.)  Or charge it to a credit card that’s currently waiving its fees for donations to your chosen charity.

Got tweet? I do!

This article on MSN Money misses a bit in the title:

Banks punish perfect customers

The article is another one on how credit card companies are hitting otherwise conscientious users with annual fees.  The users that are being targeted now are those who pay their bills on time and don’t carry a balance.

These are not perfect customers as far as the bank is concerned.  They are close to the worst, actually: just one step above those customers that declare bankruptcy and discharge their debts.  Convenience users are not very profitable for the credit card companies, and could well cost the companies money.

Who are the best customers?  Customers that pay the minimum balance each month for years and years.  Even better are ones that do so while going over their credit limit and occasionally are slightly late on a payment, triggering more fees.  They’re the profitable ones for the banks.  If it weren’t for the profitable customers, the credit card companies couldn’t afford to hold onto the unprofitable ones.  But what’s happening now is that the CARD Act is clamping down on a number of these very profitable practices, and everyone suffers.

The tone of the article is interesting, in that it suggests that credit card companies exist to make the lives of responsible people easier.  That’s just not true.  They exist to make money.  They don’t make money by letting people like me get three weeks’ use of their money, interest-free, and a rebate to boot.  They tolerate people like me because I might fall on hard times, carry a balance, and then they’ll make money off of me.  They’ve kept me around only because I’ll go elsewhere if they make life too difficult for me.  (Perhaps they already want me to go elsewhere.  I don’t really know.)

If most people are responsible with credit and pay their bills in full, then we’ll mostly be convenience users and will have no choice but to pay fees.   But the convenience users are starting to pay fees now because banks are needing to look for sources of income, as it’s been made clear that credit card users shouldn’t have to face the full consequences of their misdeeds.

Thanks to Canadian Finance Blog for including this post in the Carnival of Personal Finance.

Got tweet? I do!

Caught this in a tweet from Wise Bread:

Latest bank fee is for paying off credit card on time every month

The target of new fees for credit card issuers is people who haven’t paid them yet, among others. I mean, why should people who carry a balance, miss payments, or go over their limit have all the fee-paying fun?

The CARD act hurts just about everyone with regard to the price they pay for credit, including people who use it responsibly.  The extra regulations restrict how credit card issuers conduct business, and add non-productive cost to doing business.  This raises the cost that issuers must bear, meaning that consumers, on average, get less of a good deal than they did before.

The article mentions that people with good credit have the opportunity to negotiate with the issuer, as well as to look for greener pastures.  Canceling the newly-non-free card could hurt that person’s credit rating though, as it affects the extent of credit history.

Though I don’t like that I, and others, could end up paying for credit even without carrying a balance, I can’t say that I really blame the issuers.  People who don’t carry balances are the least profitable for the credit card companies. They get a free ride, and the merchant’s fees that are triggered by the purchases they make probably barely cover the administrative costs.  It’s difficult to argue that convenience users of credit cards, after having gotten the convenience for free for so long, should continue to get the convenience for free as the issuers’ costs rise.

I haven’t been notified yet of any new fee action on my account, but at least I won’t be as shocked if it happens.

Got tweet? I do!

At lunch yesterday I saw this:  Now even God takes credit cards!  The article lists a number of new (or relatively new) places that have come to accept plastic for payment, and number 2 on the list was churches.  Some churches now have debit- and credit-card kiosks for charging a donation.  (Closely related to this is number 7:  Salvation Army kettles.)

This could end up being a giant can of worms, but I’m young enough that it makes sense to at least think it through a little bit, since I may be placed in a position later where I’ll have the option of doing this.

Organizations (commercial or otherwise) accept credit cards because they anticipate getting more money by accepting payment through them.  This is for a number of reasons.  First, it may make the difference between a sale or not.  If the would-be customer doesn’t have any cash, but has a credit card, they can still complete the transaction.  Secondly, there’s enough emotional distance for many people between credit and actual cash, so average purchase amounts tend to be higher.

What about for churches?  Presumably a church would accept credit cards (or perhaps just debit cards) in order to bring in more donations or larger donations from the congregation (or perhaps one-time visitors).

But should they? That’s a very complicated question!  Here are a few thoughts:

• It could tempt congregants to shortchange God. Let’s say God laid it on someone’s heart that they were to give $100 per week for tithes and offerings.  Each week they write a check for $100 and put it in the offering plate.  Now add credit cards to the mix.  Let’s say it’s a rebate card.  The congregant now charges $100 per week, and gets a kickback of $1 in rebates from the credit card company.  That part may be fine, but the church had to pay more than that — let’s say $2 — to process that $100 charge!  As a result, the church only saw $98 of what was a $100 offering before the credit cards came around, and the congregant might be tempted into thinking that they gave $100 for the price of $99.
• It could tempt congregants to live beyond their means. Checks bounce if the funds aren’t there.  One could say that debit cards are the same way.  Charges to credit cards don’t bounce, unless the charger is really close to his limit.  I could see some faithful givers run on hard times and, fully wanting to put God first, charge a tithe because the option was there, even if it meant that they’d pay interest on that offering.  Screening possible “problem” charger-tithers and not allowing them to use the card is against the merchant account rules, so it can’t be done while maintaining the account.
• It could make the church an indirect accessory to usury. The church isn’t charging the interest, of course, but if a donation comes in, the cardholder pays interest on that donation, and something happens that causes the cardholder’s rate to go to the default rate (or even before that), this could be usury.
• It could rob regular givers of the joy of giving. If credit cards come online, then recurring credit card payments follow soon after.  The action of putting a check in the offering plate each week is an act of worship, which is something that is lost with a recurring charge to the credit card.

Credit card payments for tithes are already here. This post wasn’t about whether you can tithe on your credit card, but whether you should.  I think credit card donations in church will become more widespread, but I don’t like where it can lead.

Is there a flip side to all of this?  I see the bad, but what about the good?

Got tweet? I do!

(This is a guest post from Mr Credit Card of Ask Mr. Credit Card.  If you like his style, you can subscribe to his feed.)

Firstly, I would like to thank John for the opportunity to guest post here and also for giving me the opportunity to host the Carnival of Debt Reduction on numerous occasions. Being a bargain hunter myself, I would like to highlight a few ways where you can actually make use of your credit cards to squeeze even more out of your bargain hunting efforts. For this post, I’ll specifically focus on frequent flier miles and reward points.

Lots has been written in the personal finance blogosphere about using cash back cards and rewards cards and just either earning rebates or points. Most of the advice revolves around this – pay your bills in full, and since you are going to spend that money anyway, you might as well earn rebates or points. This is sound advice, but the real deals are available only if you keep up with your reward program’s newsletters. And if you have not been keeping up, you are really missing out on gems. Today, I will highlight some extra tips to help you earn more miles or points (and in the processing save you money):

Get Free Bonus Miles with reward cards – Many reward cards, especially airline credit cards offer substantial sign up bonuses in the form of air miles or reward points just to apply for the card. Very often, they give away enough miles to get a free domestic economy class airline ticket. If you are planning a vacation, it is a good idea to sign up with one of these cards to get these miles.

Double Stacking – Better yet, do a double stack. For example, you can get your spouse to sign up for the same card under his or her name. This way you get double the bonus miles. By doing so, you could potentially get 50,000 miles and get 2 free airline tickets. These tactics have to be used carefully. Your credit score will get hurt if you apply for too much credit in a short period of time. Do not do this when you are looking for a new auto loan or a mortgage.

Transfer Frequent Flier Miles – If you are a member of a frequent flier program, you should always subscribe to their newsletters, read their blogs for the latest alerts. For example, right now between 1st August 2009 until the end of September, Delta Skymiles members can transfer miles to families and friends and the person that is receiving the miles can get 40% more miles. So if you have 25,000 delta skymiles that you have earned from your Delta Skymiles Credit Card, you can transfer them to your spouse and she will get 35,000 skymiles in her account! Now, just imagine that she also has miles and transfer to you!

Transfer Points for Miles – Another way to get more bang for the buck is to transfer miles from another program. You can only do it for certain programs. For example, the starwood preferred guest program gives you 5,000 bonus miles if you transfer 20,000 starwood points to your frequent flier program. Because Starwood has over 30 airline partners (mostly with 1 to 1 transfer ratio), this is a great program to do so.

Right now, you can transfer american express membership reward points to Delta Skymiles and get 20% bonus miles. In fact, you can transfer the points into miles and take further advantage by transferring to another family member (triple stack!).

The lesson here is that if you have an Amex Card or a reward program with a few frequent flier partnerships, there is a strategic time to transfer miles and get more miles in the process.

Buy Frequent Flier Miles – Frequent Flier programs also allow you to buy miles. Very often, it is not really worth it. But sometimes it makes sense depending on how you want to use the miles (more like where you want to travel) and whether they give bonuses fro buying miles. For example, right now, US Airways Dividend Miles is offering double miles (up to 50,000 miles) if you buy miles from them! So buy 20,000 miles and you get 40,000 miles.

Earn More Miles or Save Money Shopping Online with Credit Cards – Most frequent flier programs have partnered up with many online retailers. The way the partnership works is as follows. You login into your frequent flier account. From there, you go to their shopping portal and go to their online merchant partners. When you make a purchase, you have to use your airline credit card, but you can earn double miles (or more) in the process. This is another way to increase your miles earnings.

But if you are not into airlines, credit cards these days offer shopping portals as well. Most credit card issuers have massively scaled by on their cash rewards in their cash back credit cards. Too many people who pay in full have taken advantage of it. They have got smarter and now, the trend is towards offering rewards that let you earn rebates when you shop online with your card. Issuers like Discover have always had this feature. Recently, Citicard also introduced a similar feature called extra cash for some of their cards as well. How does this work? Well, kind of similar to airline frequent flier programs.

Credit card issuers will form a network of merchant partners. What you have to do is to shop at these online stores by going through the credit card issuers website (more like you have to login into your credit card account). From their website, you could navigate to a merchant’s site and use your credit card to shop on the site. When you do that (instead of going directly to a website), the site can tracking your purchases and give you rebates. So for example, you could go directly to nike.com and make any purchase their. Alternatively, if you are a Discover Card holder, you could login into your Discover account, go to nike.com, and then make your online purchase there. By doing so this way, you could earn 5% rebates (or rather get a 5% discount – depending on how you look at it).

Essentially, this works like the numerous rebate sites that are available on the internet. For the really savvy folks, you can always do shopping comparisons between these sites and your frequent flier or credit card shopping portal.

Charge your utilities to your credit card – Since you are going to pay for your utilities anyway, you might as well, make some money out of it. The way I do it is to charge my utilities to my cash rebate card (you can do so with your frequent flier card). The reason is that I can earn a small amount of rebates every month simply by charging them to my card (you can earn extra miles by doing so). I also get a 30 day float! What I do is to set up an automatic payment so I do not have to worry about paying late.

To make all this work, you have to pay in full – To make all of the above strategies work, you have to pay in full (PIF) your credit card bills every month. If you do not, then all the savings will be wiped out by the interest that you pay on your balances. Be a responsible user of credit cards and you will find a surprising number of ways you can save money and earn more miles (which results in saving money on travel).

Got tweet? I do!

Dual Income No Kids posted this video about ongoing legislation that would work to rein in credit card companies.  You might think that because I manage a blog carnival on debt reduction that I’d be all for something like this.  After all, it would help people get out of debt faster if there were more stringent rate caps in place, more restrictive user agreement leeways, and more limited effects of universal default, right?

Well, no, sorry, I’m not all for it. There are a few reasons:

• I’m selfish. I don’t know any other way to say it.  I pay my credit card bills on time, in full.  I get free float.  I even get a little bit of kickback in the form of a credit on my bill, just for using their money for free for a few weeks.  It’s a sweet deal for me.  The credit card company loses money on me each and every month.  Why are they able to do this?  Because other credit card users are paying $35 late fees, $35 over-the-limit fees, and 28.99% APR.  That, and they’re keeping me on board just in case I run into trouble, and then I, too, will start paying $35 late fees, $35 over-the-limit fees, and 28.99% APR.  If credit card companies are only allowed to charge 15% (say), and $10 late fees, my swag goes away.  Maybe even my credit card will go away!
• The idea that consumers need to be protected doesn’t really hold water. If the rules are complicated and hard to understand, so what?  If someone signs an agreement with a credit card company, doesn’t understand it, and does something in the agreement that causes his rates to go up to 28.99%, how on Earth is that the credit card company’s fault?  The fact that he didn’t understand it doesn’t mean a darn thing except that he was careless.  Come on.
• The costs of the legislation will adversely affect people who carry balances, too. They will adversely affect everyone who carries a credit card, not just freeloaders like me.  The highest-risk customers become unprofitable, as the effective APR they can charge no longer is enough to compensate them for the average default rate of said high-risk customer.  So, they will be denied credit.  Medium-risk customers, once able to transfer balances to another company, or once able to renegotiate their rates, will be less able to do so.  Rate caps are a form of price control, which will raise the costs of credit for everyone.

Anyway, what’s your take on this?

Got tweet? I do!

Experian still does credit scoring, but you aren’t allowed to see them anymore, and that’s got some people ticked off.  Experian alleges that its hand was forced a little bit by “unreasonable” demands from Fair Isaac Corporation (FICO) in contract talks, leading to its change in service.

I don’t see this as the beginning of a credit apocalypse. Sorry.  This is nothing more than businesses (Fair Issac Corporation and Experian) doing what’s best for their business, and for the time being they can’t work together.  It’s nothing more than that.  It’s certainly nothing to write Congress about.

The credit reporting agencies certainly do good business.  They provide a service to consumers and to banks: evaluating creditworthiness against a (mostly) fair set of rules such that banks and credit unions can use them as a key metric in their lending processes.

When credit reporting agencies began letting consumers peek at “their number” it created a clientele that not only wanted to know their number, but monitor it.  Manage it.  Rehabiliate it.  Obsess over it. The number became more important for some people than the habits that resulted in their number being what it was:  paying your bills on time, building up a history, and generally being, well, creditworthy.

Aside from outright mistakes in reporting, should anyone’s credit rating really be a surprise? Should they really be wondering why they’re paying 11% for a 30-year-fixed if they’ve missed a bunch of credit card payments and defaulted on their car loan?  If they are, then they’re more than a little naive.  Or if someone has never missed a payment or been late, should they be surpised that they have excellent credit?  I don’t think so.

The bottom line is that there are still two companies that will tell you your FICO score (TransUnion and Equifax) so if you really need to know your number, then you can get two decent ones.  Plus, you can go to AnnualCreditReport.com for your free credit file disclosure once a year.  Your credit file is not a secret.  You can see it, and you can report discrepancies on it.  That hasn’t changed.  If you are disapproved for a loan, and you really don’t have a clue why, then you can find out why.

Your credit doesn’t go down the tubes overnight, and it won’t come back overnight, either.  Each company has its own special sauce that it mixes in to arrive at your number, but the broad trends are, and will be, based on how faithfully you repay your debts.  Be concerned about that first and foremost.

(Thanks to Free Money Finance for including this post in the Carnival of Personal Finance!)

(One final note:  Even though, you can’t get Experian scores through MyFICO.com anymore, you still can get your TransUnion and Equifax FICO Scores/Reports from MyFICO.com.  Also, I’ve tracked down a 20% off coupon that works now: CPPSAVINGS.)

Got tweet? I do!

Aww man, no sooner do I post about Costco credit cards like the TrueEarnings® Business Card from Costco and American Express then I hear that the offer is being discontinued!  Bummer.

So if you were thinking about getting 5% off the cheapest gasoline in town, you’ll need to apply before this Friday, November 14th, 2008. Sorry about that!

The non-business TrueEarnings® Card from Costco and American Express, as far as I know, is still being offered.  That still gives you 3% off of qualifying gas.

Got tweet? I do!

Costco gasoline was going for $1.96 this weekend.  A couple of years ago I didn’t think we’d ever see $2 gas again, but the recession is really taking its toll on oil and gas prices.

I hadn’t been getting my gas at Costco because I could get a better deal with my Chase PerfectCard™ MasterCard® at other gas stations because the price at Costco wasn’t low enough to compensate for not being able to use my gas rewards credit card there.

Well, Costco now offers cashback rewards cards for members: the TrueEarnings® Card from Costco and American Express.  This card currently carry no annual fee as long as your Costco membership is up to date, and gives you up to 3% back on qualifying gas purchases (Costco or standalone gas stations).

If you already buy gas at Costco and pay your balances in full each month, then this credit card might be interesting to you.

Got tweet? I do!

I felt like we dodged a bullet tonight.

I was checking balances on some of my accounts and I loaded up the balance on our primary checking account.  I knew it was going to be low.  We had had a couple of big expenses (a six-month car insurance premium and a replaced central air system) that gave us a whopper of a Visa bill, which was paid in full about a week ago.

After my wife balanced the checkbook, she told me "not to go to the ATM until the end of the month," which was more or less right except that I get paid next Friday, on October 3rd.  I know she was thinking "don’t go to the ATM until you get paid again" but I can understand why she said "end of the month."

Cutting to the chase, we had $900 in automatic withdrawals set to come out at the beginning of the month, before my next paycheck came in.  Which is bad news, because we didn’t have that amount in the account.

I went into panic mode.  What cash did we have that I could get into that account Monday morning?  Well, we managed to scrape up enough from four different accounts and most of the cash we had on hand including our emergency cash (as in the cash we had if the power goes out).

Phew.  Dodged that bullet without any ill effects (i.e. bank fees or interest fees).

Now that the immediate problem was addressed, we still had to see next month’s finances through.  It actually popped in my head that we could just not pay our full credit card bill next month.  Basically, I was considering carrying a balance on my card, which frankly shocked me a little.  I’m pretty sure we can make it work without doing that, but man, that’s a dangerous road to travel.

Getting into credit card debt, of course, is way easier than getting out of it.  (Just ask around.)  Staying out of debt takes constant work, too.  I guess if I really, really get into financial trouble for a month or two it will be really nice to have the lines of credit available, but the situation has to be a lot more dire than this month, as in "my daughter needed to go to the hospital for two weeks" or "my wife needed to go to the hospital for two weeks."  Not for what we did, which was pay our six-month auto insurance policy in full and our central air unit in full to save money.

For those of you who don’t carry credit card debt:  Have you been tempted to carry a balance?  For those who have gotten out of debt:  Is it difficult to resist the old temptation of carrying a credit balance?

Got tweet? I do!