Card Act Challenged - Stay-at-Home Mom Income

Discussion in 'General Discussion | Miles/Points' started by rdraper, May 20, 2012.  |  Print Topic

  1. rdraper

    rdraper Silver Member

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    http://www.dailyfinance.com/2012/05/16/stay-at-home-mom-fights-new-credit-card-rule/

    I was wondering when this was going to happen. The regulations requiring credit card issuers to consider individual income from applicants instead of household income is very impactful to stay at home moms. And it is of particular interest to those of us who look to double the churn by having both spouses apply independently and are in a situation where one spouse stays at home. I'm very interested in seeing how this turns out. Not a lot of history behind the CFPB yet so we'll see how they decide to deal with this.
     
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  2. jbcarioca
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    jbcarioca Gold Member

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    There is less confusion that might seem to be. This is one more of the many reasons why churning is a particularly bad idea today and will become more so in the coming couple of years. It will take some time to evolve implementation rules, but any person applying now will be more likely to be required to show proof of income than they have been before. until recently it was fairly rare for that to be required, but tighter regulations and increased loss rates are forcing steadily more rigorous credit standards to be applied. Thus, stay-at-home-moms will more probably be required to show proof of income now themselves.

    This is just the tip of the iceberg. Debit card rewards are disappearing due to the Durbin amendment, and the combination of Basel II and Basel III among other things, will severely curtail rich signup bonuses, high rewards and churning in general, not to mention agent referrals.

    We still see many bloggers insisting these things are not true. They are not observing reality very clearly.
     
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  3. gleff
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    gleff Co-founder

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    The Durbin amendment has clearly been killing off debit card rewards. Except that, strangely enough, Suntrust has gotten back into the debit card rewards game with Delta including signup bonuses. All I can imagine is it's a rush for depositors in light of being on of the few banks to fail the most recent stress tests, and they're one of the banks that went in for a second round of TARP funding a few years back.

    I do think that banks are currently overpaying to acquire customers in the current environment, and if I'm right that'll mean lower credit card rewards in the future or rather lower signup bonuses. This blogger doesn't disagree with that, though could certainly prove wrong.

    And depending on the how the politics of the Durbin amendment play out over time, and depending on the outcome of the next election in the U.S., we could see increasing pressure on interchange fees (oddly Visa is the usual target though Amex's fees are higher) and that has the potential to curb rewards entirely.

    But we're not there yet, we need to see how that'll play out, and it's precisely the risk that this is a short-term opportunity for big miles which is why I want to take advantage of it to the greatest extent possible in the near-term.

    At the same time, I also have long-term banking relationships. I have a Chase card that's been in my wallet for 14 years. I've had my SPG Amex in my wallet for 11 years. And so what if I wear out my welcome with these issuers or Citibank or Bank of America or Barclays? If rewards do disappear then it'll be just fine to do business with regional banks.. ;)
     
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  4. jbcarioca
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    jbcarioca Gold Member

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    I have disagreed with nothing you've said on these subjects thus far, and rather doubt that i will anytime soon. The Suntrust situation is indeed unusual, and I am confident that your explanation about why is correct. They have had unusually severe conditions in their primary markets after decades of good luck, so they're grasping at staws, or so it appears.

    As for pressure on interchange it is intriguing that the EU has openly said they want credit interchange to reach parity with debit interchange, just now averaging roughly 12 bp there. The focus is certainly on MC and V because fo their volumes, even though AEXP is higher everywhere. Of course nobody much cares about travel and entertainment discount rates or interchange but they care a lot about fuel, department stores, supermarkets and WalMart. That, after all, is where the political power is concentrated and the populist story most easily told.

    The US has successfully resisted a call for reduced interchange and I would be surprised were it to drop quickly. There is such a diversity of merchant acquirers and such an established industry supplying political will that I think it will be slower in the US, as it has been with EMV. In Europe and most of the rest of the world there are fewer acquirers and most of those that exist are banks themselves. They're easier to pressure than is the less concentrated US market.

    Still, I think it will be the rising capital requirements and increasing attention on risk management tools (the capital is now being allocated more nearly based on accuracy of risk prediction than it was, thus casting the remaining tiny vestiges of FICO logic to the scrapheap. Not too long ago rank ordering risk was enough, variance was often ignored. Now there are many more screening criteria in place and much more refined and sector specific stochastic models too. Thus the old "my Fico" pie chart of risk model components, which never was true except for the scores sold to consumers, is completely false today.

    Interestingly there has been quite a rush to acquire new high spending customers while everyone waited for the Basel III shoes to drop.

    Poor logic on their part, but it certainly feeds the churners for the moment. The poor churners are probably not understanding that the credit report files last twelve years and that once a major bank bans a customer it is often a ban for life. Quite a few Delta former cardholders have found out about that, among others.

    We may be a bit OT, and are far too detailed for the MP fora, possibly.
     
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  5. gleff
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    gleff Co-founder

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    If Republicans retake the Senate, nothing will happen on interchange. If Democrats retake the House then I'm not predicting that anything will happen but it will re-emerge as an issue, to shake loose a lot of campaign cash from the financial services industry. There will be congressional hearings that'll serve as payback for the Wall Street firms that supported Obama as a candidate in 2008 but that are not doing so in 2012. Lots of posturing, always worth remembering that politics is rarely about policy (or in my extreme take, all politics is fake).

    I'm not sure how off-topic we are, really, at least in the sense that we're talking about financial reform legislation and its impact on consumers and on mileage accumulation.

    These are complicated issues that very much do not hew to the simple narratives of rich vs. poor ("poor paying with cash subsidizing the rewards of the well off") or pro-consumer ("consumers pay higher prices to cover the cost of interchange"). Nor does the model really work that says that Visa and other payment networks tax transactions without providing value.

    There's real value in electronic payment networks. There's value to merchants, consumers buy more/higher spend, there's better financial information, more efficient markets through data mining. Merchants pay interchange fees and certainly do experience chargebacks but save money on bounced checks, have lower risk of loss to employees handling cash, and are better off with quicker deposits than the longer float time involved with physical deposits and holds on checks.

    In some ways credit card customers are lower cost to service and are more lucrative despite interchange fees. Although that's not true of all customers everywhere, or of all businesses. And businesses are certainly free not to accept credit cards at all, or to accept only some but not all cards. My favorite Vietnamese Pho restaurant is cash only. My dry cleaners takes Visa/Mastercard and not Amex.

    I suspect in the long run that it will be new payment networks and new technologies that compete down the cost of interchange, rather than legislation, at least in the U.S.

    Either way, if interchange rates fall then it will be worth less to incentivize individual transactions. It won't make economic sense for card issuers to encourage consumers to use their cards in order to sop up interchange fees by buying miles in buik at deep discount and rewarding consumers with rebates in the form of miles. Or in the form of cash back, either.

    My hunch is that over the long run credit card transactions will be less rewarding to consumers. Fewer miles.

    And certainly we've seen financial reform legislation already head down that road -- the end of most debit card rewards (indeed, the addition of fees for debit card use in some cases to make up for lost per-transaction fees). And we've seen the ability for folks with varying income between spouses limited in their quest for bonus miles for credit card signups. Although I also don't think that it's especially clear much of the time in credit card applications that the request is for individual vs household income. And I haven't heard many reports of pushback from folks who (quite innocently) list household income.

    More broadly, this is a concern for the financial independence especially of women who aren't in the workforce or aren't earning as much as their husbands, who cannot get credit on their own even if they'd be entitled to half of marital assets in a community property state. It does worry me when legislation is passed that turns back the clock to make women financially dependent on men (although the incentive could well work the other way, encouraging more women to be financially independent rather than reliant on men in the first place, so ultimately an empirical question).

    Personally I just want to be able to get as many signup bonuses for my wife as possible, while the getting is good!
     
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  6. Gargoyle
    Original Member

    Gargoyle Milepoint Guide

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    With or without legislation the bonus signup offers are going to slow down; there has been a glut of them in an attempt to gain business and market share during a period when customers were reluctant to spend, but they are costly to the companies; as they analyze and evaluate the cost of acquiring customers there will be a natural retrenching.

     
  7. marcwint55

    marcwint55 Gold Member

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    I would advise people to be careful when opening the suntrust account. I was told that it could be opened with a credit card, and then after not being warned, I received a notice of cash advance on my card thereby incurring fees. When I contacted Suntrust, they reviewed the recorded conversation and stated I was correct about no warning. They told me to dispute the charge as they could not reverse it, which I did. I will be sending them money as opposed to the credit card.
     
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  8. marcwint55

    marcwint55 Gold Member

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    For stay at homes mothers whose husband is salaried, there is not much help. If the husband has his own business or derives income from investments such as rental income, stock dividends or bond interest, a joint return will possibly suffice as proof of the wife's income.
     
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  9. kyunbit
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    kyunbit Silver Member

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    I think we will see a lot more of prepaid cards.. perfect solution for stay at home moms probably. not good for getting sign up bonuses though
     
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  10. LizzyDragon84
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    LizzyDragon84 Gold Member

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    Or maybe more banks pushing working spouses to make the stay-at-home spouse an authorized user rather then approving a second credit line.
     
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  11. jbcarioca
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    jbcarioca Gold Member

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    That is happening now, and will happen more, no doubt.
     
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  12. sargenet
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    sargenet Silver Member

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    So far I guess I have been lucky! I haven't worked in 8+ years and I haven't been turned down yet on an application I have done online. I did run into a problem wanting to re-open a Hyatt card. Turns out it had been over 3 months and I had to re-apply. The Chase phone rep taking the info stopped the application when I got to the part where I had no income. So I went online and did the application. Went to review...but only because I had other Chase cards. Was able to get the reconsideration line to open the card...no problem.

    I also just opened new Am Ex accounts, but I have been a customer with them for many years.

    Last year I opened cards with BofA, Citibank, Cap One and a US Airways card.

    Right now I am holding off on any churns. I hit it hard last year and this year need to cancel a number of cards I won't be using (Alaska, Hawaiian, US Airways). I am keeping all my Chase and Am Ex products with the exception of my Chase Sapphire Preferred. My husband has one so I am going to just transfer any Freedom points I earn over to him....

    I guess I will see what happens in 2013!! Makes me wonder if I will get turned down! The only card I plan to apply for is an AA card...
     
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  13. jbcarioca
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    jbcarioca Gold Member

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    Most of this is coming in 2013 and 2014. For Citi you'll maybe skate though if you've had a perfect payment record on your Citi accounts.
     
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  14. LizzyDragon84
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    LizzyDragon84 Gold Member

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    You may want to consider moving your credit lines onto one card if you have multiple cards with a bank before closing the cards. This gives you something to bargain with in the future since some banks like Chase may be willing to lower a limit on one card to open another.
     
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  15. jbcarioca
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    jbcarioca Gold Member

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    That is a good idea, especially if you think you might need the credit
     

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