I tried to go about this series in a professional manner, contacting all parties to get their reaction.

Budget Rent A Car Gives Out Your Credit Card Number To Scammers
More On Negative Option Billing and Preaquired Account Marketing
Budget Has No Clue Which Credit Card They Are Giving Out To Scammers
The Sad Truth About The Budget Trilegiant Scam

I asked Professor Ben Edelman if he ever heard back from American Express or any of the other credit card companies he wrote to.    Professor Edelman was kind enough to reply:

Thanks for the note.  I read through your four-part post and enjoyed it.  My best suggestion on strategy: Keep pushing Budget and Amex…

As you saw, I wrote to the big three card networks.  But I haven’t received any substantial response.  I received a superficial response (roughly: “we received your letter and are appreciate your interest”) form one of the three, and no response from the other two.

My contact at American Express as willing to offer this comment:

Jason – I completely understand your concerns, and we share those concerns, which is why as I mentioned we’re looking at our policies and these companies’ disclosures. As I mentioned, I have shared your experience, blog posts and the issue with Trilegient with our internal teams to review this circumstance closely.

While American Express fails to explain how Budget and Trilegiant have been flagrantly violating their cardmember agreement for years, at least they agreed to look into it.

Budget’s only reply was:

Thanks for the email. We have referred your inquiry to Trilegiant.

I hold no illusion that I was going to bring down Trilegiant/Affinion when Senator Rockefeller and Professors Edelman and Cox haven’t been able to.    I am just one more voice speaking out against this.

American Express, Visa, and Mastercard could enforce their existing cardmember agreements tomorrow, ending this practice, but I see no evidence that they are prepared to do that.

Ultimately, it will take congressional action to prohibit these practices.   As we have seen with the CARD act, credit card reform comes once in a generation, so I will not hold my breath.

This is Part Four in my series on the Budget/Trilegiant Scam that I have been investigating.

In part one, I told you about the solicitation I received, in the form of a check, from Trilegiant, to join a specious “membership club” in which they would charge my credit card “on file with Budget”.     In part two, we learned more about Negative Option Billing and Pre-aquired Account Marketing.    Since then, I have been trying to verify which credit card Budget has on file for me.    In Part Three, I discovered that Budget representatives have no way of determining what credit card they give out to the Trilegiant/Affinion scammers.

The Big Picture Emerges

I would like to think that such obvious scams as negative option billing and pre-acquired account marketing would be illegal, but they are not.  I would also like to believe that supposedly reputable merchants, such as Budget Rent A Car would not give your credit card out to scammers, but they do.     It would also be nice to imagine that credit card companies would prohibit their merchants from giving your billing information out to scammers, but that is where this story gets strange.

I have been corresponding with a representative from American Express, as it was my American Express card that I used for my last Budget rental.    I pointed out to her that their publicly available Merchant Guide seems to prohibit exactly what Budget and Trilegiant are doing.  The most relevant statements I found were the following:

In section “3.3, Prohibited uses of the Card”

Merchants must not accept the Card for any of the following:

illegal activities and/or fraudulent business transactions,

sales made by third parties or Entities conducting business in other industries

Section 3.4 states:

Merchants generally must not disclose Cardmember Information, nor use nor store it, other than to facilitate Transactions in accordance with the Agreement.

Finally, Section 8.3 states:

Merchants must, and they must cause their Covered Parties, to:

store Cardmember Information only to facilitate Transactions in accordance with, and as required by, the Agreement

What Does This Mean?

For a non-lawyer, I am pretty good at interpreting legalese, and this seems pretty clear cut to me.    These companies are blatantly  violating their merchant agreement with American Express and other credit card processors, and they have been doing so for a long time.  According to Mark Ashley of the blog Upgrade Travel Better, this has been going on since at least 2005.

My contact at American Express informed me that this issue had been addressed in a recent Senate hearing.   At that hearing, Professor Prentiss Cox, the author of the report on pre-acquired in the Harvard Journal on Legislation presented the case against pre-acquired account marketing.    You can read his testimony here, which is very similar to his journal article that I summarized in Part Two of this series.     Another witness was Ben Edelman, an assistant professor at the Harvard Business School in the Negotiation, Organizations & Markets unit.    You can read his statement for the record and refer to his website has a wealth of information about this subject.

On his website, he reaches the same conclusion that these companies are violating their merchant agreement with American Express:

American Express’s Merchant Reference Guide prohibits the automatic transfer of customers’ card numbers. American Express rules provide that “Merchants … must not disclose Cardmember Information… other than to facilitate Transactions in accordance with the Agreement” (p.7) (emphasis added). No provision of the agreement authorizes a merchant to transfer a customer’s card number to another merchant. Furthermore, for a card-not-present charge, a merchant “must … ask the Cardmember to provide: … Card Number” (p.12) (emphasis added). No provision authorizes a merchant to obtain a customer’s card number in any way other than by asking the customer to provide such number. Thus, post-transaction marketers violate American Express policies when they obtain customer card numbers by making copies from other merchants.

I never received a direct answer addressing how corporations can get away with violating their merchant agreement, but perhaps Professor Edelman will.    He wrote a letter to American Express’s Executive Vice President and General Council, stating, in part;

“American Express need not sit idly by the wayside while its rules are flouted, to consumers’ detriment and to the detriment of the trust and reputation of the American Express network. I look forward to American Express taking action to protect customers from these important problems.”

If  Professor Edelman of Harvard University cannot receive a response from American Express, perhaps Senator John D. Rockefeller of Virgina, the chairman of the Senate Commerce Committee can.   He sent a letter to the CEO of Amex in an effort to get some answers as to why they allow this practice, one that is actually prohibited by their merchant agreement.    He also tried to determine how much money Amex is making off of the merchant fees it receives from these types of transactions.

To be fair, Visa and Mastercard also have similar rules in their merchant agreements, yet they inexplicably continue to allow this practice to continue.   They too received similar letters from Professor Edelman and Senator Rockefeller.

Conclusions

Until such time as these practices are outlawed, there are three legs that must be held up to make this deceptive trade practice feasible.   In addition to the original recipient of the consumer’s credit card information, and the “membership club” operator which charges the consumer, the credit card company itself must permit this kind of transfer of credit card information.

Like Professors Edelman and Cox, I feel it is time for American Express, MasterCard, and Visa to put an end to these outrageous practices.    So long as they continue to allow pre-acquired account marketing, they share a healthy dose of the blame.

There are millions of victims of these scams, which have stolen billions from hard working Americans.  Until the major credit card companies decide to enforce their existing merchant agreements, I can only conclude that they are willing accomplices.

Yesterday, I had the great pleasure of interviewing Jeff from www.deliverawaydebt.com. I wanted to interview him because I found out that to get rid of his debt, he actually took a second job as a pizza delivery person and is on track to pay off his debt in about 2 years! And that is about $100,000 we’re talking about. Then during the show, he even mentioned that for the first 9 months as a pizza delivery person, he did not make a single dent on his debt. Hence, if he had gotten it right from the get go, it would have taken him over slightly over a year!

In this show, he also talked about how he used a “online envelop” system to track his budget with an ING account (actually making use of many sub accounts).

This is one of the most fascinating interviews I’ve had. If you want to find out how you could reduce $100,000 of debt in less than 2 years and how an online envelop budgeting system works, then get a cup of coffee and listen to this show.

Last fall, I wrote about a fantastic sign up bonus from Frontier Airlines.    The promotion was 20,000 miles when you got the card, and 20,000 more miles after you spent $750 before February 28th.    Considering Frontier offers a domestic award ticket for 20,000 miles, that was a fantastic deal.  My wife and I jumped on it, and immediately received the first 20,000 miles.      We then dutifully devoted $750 of our spending to the card, but never received the second 20,000 miles.   February 28th came and went with no bonus.

Calling Makes It Worse

I then called Barclay Bank, the issuer of the Mastercard to inquire as to when we could expect our promised bonus miles.   Their response astounded me.    The first person I spoke with disavowed all knowledge of the promotion!     I read the terms to him verbatim, and I was told point blank that the promotion did not exist!   I asked to speak with a supervisor, and I was told that none was available.    I then politely asked for the representative’s name, and I was hung up on.

On my second call, I immediately lodged a complaint against the representative I had previously spoken to, and was assisted by a more experienced and professional representative.   Despite her best efforts, it was clear that she had no information about the promotion either.    She even took the time consuming step of contacting Frontier Airlines to confirm the program exists and that Barclay Bank was responsible for awarding the miles.    Nevertheless, all she could do was to create a “case for executive review”, with the promise that someone would contact me in regards to this matter.

My next step, as a journalist and consumer advocate was to reach out to their public relations department to try to find answers.    I was assured that the promotion did exist, despite the best knowledge of their call center, and that the bonus miles would appear with my next statement following the end of the promotional period on February 28th.     The bank had no comment has to why the call center did not know of the existence of the promotion.

Finally, Here Are My Miles!

On March 10th, the miles finally did appear.    So the promotion appeared in November, I signed up for the card in December, made the qualifying purchases in January, and waited patiently until march to receive the bonus miles.    While this timetable is par for the course when it comes to credit card promotions, the information provided by Barclays was inexcusably poor.     Is it too much to ask to give some information to representatives about their own offer?    Could they not tell me the date in which the bonus miles will be credited?

Lessons Learned

From the moment the first representative I spoke with refused to acknowledge the existence of this promotion, I immediately regretted not taking screen shots of the entire offer.    Capturing a screen image on your computer is actually fairly easy.    For Windows users, just click on Alt-Print Screen, then open up the Paint program and press Control-V or choose Edit, Paste.     Finally, save the file as a .jpg file so it doesn’t take up much space.

Lacking a screenshot, I did have copies of articles in which myself and others wrote about the terms of this offer.     By themselves, those articles would not have been much good if I chose to go the legal route in small claims court, but it might have helped to convince someone that the promotion existed and that I complied with it’s terms.

In the future, I vow to never sign up for any credit card or promotion without saving the terms of the offer to my computer.     Even though Barclay Bank and Frontier eventually came through, I would prefer to play it safe.    Any time I accept an offer, I am going to create a file on my computer with all the information necessary for a fight.    In reality, I do not ever expect to have to take an airline or a credit card company to court, if only because having the promotion documented assures that the other party will always make good on the deal, rather allowing a case to proceed.

Some teenagers and young adults view credit cards not just as an alternative to cash, but an alternative to payment itself.   Putting an expense on a card is like making it disappear.   On the opposite extreme are Dave Ramsey and his followers who believe virtually all debt is bad.     I fall much closer to Dave Ramsey, however, we part dramatically on our view of educational debt.

While Ramsey is not even in favor of school loans, while I consider education to be an appreciating asset well worth the tax deductible interest incurred in a school loan.

Don’t Use Your Credit Card!!

Just because I am in favor of school loans, doesn’t mean you charge your tuition to your credit card.   Unfortunately, that is what many students seem to be doing today.   Just today, I found this article, “College Students are Using Credit Cards for Tuition” that left me aghast.    The article points to the increasing number of students in debt, as well as some proposed solutions to the larger issues of how education is financed in this country.

There are many ways that one can finance education.    There are school loans, both subsidized and unsubsidized, savings, work, scholarships, grants,  and many other strategies that do not involve costly and crippling credit card debt.     The beauty of an educational loan is that the interest is tax deductible, much like the interest on a home that is your primary residence.   In addition, payments on educational loans are suspended until the borrower is no longer a full time student.     In theory, you could go to school full time for the rest of your life without making a payment.

Alternatively, it is difficult to imagine a worse way to finance your education then through credit cards.     For starters, you will get an extremely poor interest rate exceeded only by pay-day loans and the mob.    Your payments will be due immediately, long before you have graduated and started earning money.    To your credit card company, your college tuition is no different than a charge for a big screen TV or an expensive vacation.   When you do get around to working and earning money, you will not receive any tax deduction for the interest as you would with a school loan.    Finally, all other charges you make on your credit card will also accrue interest from the moment of the purchase until your entire credit card is paid off.    The only way to prevent that is to pay off your balance in full every month.   In that way, you are essentially getting free interest from your bank, rather than paying interest on every purchase all of the time.

Credit card debt can spiral out of control very quickly.    Once you have made large purchases that cannot be paid off quickly, like college tuition, you will see your minimum payment grow and grow.  If you fail to pay your minimum payment, you penalties and interest rate will grow, while your credit score will shrink.    A dismal credit score will even hurt your chances of employment, presumably the reason you are attending college in the first place.

As much as I value education and the advances it enables, I would have to recommend against anyone attending college if it means using credit cards as a method of finance.    If you feel that this is your only option, I strongly encourage you to postpone your education while you develop an alternative means of finance.    Many schools will allow you to defer your education for a year once you have been accepted.    Use that year to work and save, while applying for educational loans, grants, and scholarships.   The cost of education is extremely high as it is, adding credit card debt can multiply this cost exponentially, destroying much of the value of your education.

This guest post is by Revanche who writes about personal finance at A Gai Shan Life. In fact, if you have have never read her blog, I suggest you go through it like a fine comb because she really has some interesting stories to tell about her family and personal finance. I also suggest you subscribe to her blog to get updated posts from her.

In what now seems like the Golden Days of Easy Credit in the early part of the ’00s (and isn’t that weird to say?), my parents faced an overwhelming mountain of credit card debt. It wasn’t just that the balance itself was enormous, but they had carried a balance for long enough that they couldn’t do more than keep up with a little more than the minimum payments. The interest was just hammering them, month after month, and there didn’t seem to be any way to get on top of the mess.

As a freshman in college, I’d just opened my first bank account and opened my first credit card to pay for school, paid with the proceeds from my first real job. [The Census didn’t really count as it was temporary.] I had begun reading financial forums and discovered amazing things about credit cards. Not only did you not pay interest when you paid your cards in full every month, which was easy as I only charged tuition and school supplies, you could earn reward points. I was all over that. And not only that, you could also apply for credit cards with a 0% interest balance transfer for up to 12 months fee-free. That caught my attention.

I applied for three cards, carefully using household income as per the form requested, and was approved for two of them with a decent amount of credit line on each. I sat down with my mom and worked out a plan where I would transfer $9000 of their credit card debt to these two cards. At payments of $750 per month, we could pay off $9000 of their debt within 12 months with all the money going directly to the principal and not a penny lost to interest!

It didn’t work out exactly as planned. Because there were hiccups in their income, I had to take over the payment plan (thankfully I had the opportunity to work enough overtime to supplement) and we did this again with two more card offers as soon as the balances on the existing cards were low enough. All told, we paid off at least $20,000 in credit card debt over the span of 20 months without losing ground to late payments, over-credit-limit fees, or interest.

After that was paid down, I continued to apply for balance transfer cards to make some money from the high interest savings accounts on the side, but stopped when the savings rates were too low and fees were instituted on balance transfers.

In today’s tightened credit environment, this strategy isn’t as cheap as it once was, but if one can secure a balance transfer card with a cap on the fee, and one is disciplined enough to stick to the savings plan, it could be a valuable tool in paying down debt. Again, the latter caveat is the most important: this plan only worked because I was absolutely determined to pay down their debt without spending a cent on interest, and because I had my own income to pick up where their income faltered. They basically had access to my credit and my income to implement my strategy; without both of those, they would have ended up paying interest on the entire 12-month term. As it was, they saved on compounding interest of more than 20% over the period of nearly two years.

As always, only use credit cards if you can do so responsibly!

I don’t have anything against debit cards, per se, but it always amazes me how many extras are included with credit cards.

Case In Point, Amex Purchase Protection

Over at Barganeering, there is a story of a person who got a stain on an expensive ski jacket, only to have it replaced by Amex’s purchase protection program.   The limit is $1,000 per purchase and $50,000 per year, so it would be hard to meet those limits unless you are a really big spender.

Truth be told, I have never taken advantage of one of those purchase protection policies.    I think that they exist because most people don’t know about them, and that those who do, never remember to use them when they are eligible.    Like many credit card offers, the winners are the ones who play the system correctly to take advantage of these offers when eligible.

Purchase Publicity?

Just when people are starting to get over the Twitter craze, there is a service called Blippy that broadcasts your credit card purchases to everyone.    I don’t know where to begin.   Yes, I am not exactly Mr. Social Media, so maybe I just don’t “get it”, but for the life of me, I can’t figure out why anyone would want to tell everyone about all of their purchases.   Does anyone really care that I got gas, ate lunch, and bought beer yesterday?   Do I really want to tell people that I am purchasing things away from home why I am out of town?   Maybe this is just a service targeted at teenagers who want to brag about the music they listen to and where they shop for clothes.    Either way, count me out.

Air Tran Airways just became a partner with American Express OPEN. With this partnership, cardholders of American Express Business Credit Cards from OPEN are can get a 5% discount when they book an Air Tran airline ticket with their card.

But if you have a business and fly Air Tran frequently, I would suggest getting the either the Business Green Rewards Card from American Express OPEN, The Gold Card from American Express OPEN or The Business Platinum Card® from American Express OPEN because Membership Rewards allows you to transfer points to Air Tran Miles. While Starwood is a card and program we highly recommend here, Air Tran (at present) is not one of their airline partners.

Also, if you spend more than $25,000 a year on business flights, OPEN has a program called OPEN Travel (which you can enroll) and you can earn double reward points with your card and also get lower rates on airfares, hotels and car rentals. A Harrell Associates Study was conducted in May 2005, analyzed 440 itineraries for 110 top Small Business Travel routes (100 domestic and 10 international). Amex was found to have on average 12% lower fares.

The CARD act has only been in effect for a couple weeks, and we are still trying to digest it’s implications.    In the run up to the law’s passage, we were bombarded with terrifying scenarios explaining the supposed horrors of the post-CARD world.

Some  Post CARD Predictions

Matthew Amster-Burtonover at The Mint has taken a look at the CARD act and what it’s implications are for individual cardholders.    First, he looks at the case of the “deadbeats”, those who pay their accounts in full every month in order to avoid interest.    He concludes, “If you do show steely discipline and pay in full consistently, the card issuer is now likely to reward you by lowering your credit limit or canceling your account. Happy trails.”       I find that prediction to be as implausible as it is pessimistic.    Card issuers want customer who pay their bills on time.    They represent an extremely low risk of default while being a reliable source of transaction fees.    We know card issuers like these customers because these are the people with high credit scores who get tons of solicitations in the mail for new cards.     This prediction predates CARD, and I have seen zero post-CARD evidence that deadbeats are being dropped.

But More Reward Cards????

Next, Amster-Burtonover contradicts himself completely when he claims that there will be more reward cards offered to people with high credit scores.   He attributes this to transaction fees, a factor he neglects when making his prediction about deadbeats.    I can agree with this analysis, only because it completely contradicts his logic in regards to deadbeats.

New Fees?

He then predicts a multitude of new fees, such as annual fees, inactivity fees, and foreign exchange fees.    First, none of these fees are new.   Second, they have been rising even before the CARD act.    Finally, consumers can still find plenty of cards without those fees.    Some, but not all of my reward cards have annual fees, and I chose to keep them only because the annual fee is far less than my rewards.    I have a Capitol One card that I use out of the country specifically because there are no foreign exchange fees.   I am also a little tired of the stupid “inactivity fee” canard.    These fees are only charged when people haven’t used their card in a year, and even then the fee is less than the bank spends in postage to mail you your statement every month.     If you haven’t used your card in a year, you should either cancel the card or pay the fee if you really want that card so much.      Whatever you do, just don’t complain about it being a result of the CARD act.     I would be shocked if all the inactivity fees paid by everyone in the entire country add up to one thousandth of one percent of all the credit card interest paid.

Banks Getting Into Payday Lending

This does not surprise me.   In fact, I recall reading that many payday lenders are subsidiaries of major banks.

Opt Out of Larger Banks For Smaller Banks?

Here, the author seems to indicate that consumers will abandon their big banks for smaller banks offering simple cards.   If this is the case, it would be a welcome development.    While the big banks offer some great rewards, it is easy for many consumers to be confused by the terms and encouraged to overspend.     The Obama administration has long been an advocate for simpler financial products, like the ones being offered by credit unions.

There is a lot of misinformation and faulty predictions out there regarding the CARD act.    The Mint gets a few things right, but also makes some glaring, and contradictory errors.    As time goes by, the implications of the CARD act will eventually become clear.

I had my 341 meeting Feb. 12, 2010. I checked my Sears credit card account online today and it appears that it has not been closed, I did not owe them any money when I filed for Bankruptcy. Should I try to use this card and continue to make regular monthly payments in an attempt to rebuild my credit or do you think they will close the account. If they did close my account and I had a balance on it could they raise the intrest rate or do something else that could create a problem for me.
Thanks

Mr. alan poyer

Answers – Mr Poyer, if you did not include the Sears credit card in your bankruptcy, then technically, it should still be open. Whether they will close it after their regular scanning of your credit reports remains to be seen.

The key to rebuilding your credit after bankruptcy is simply responsible use of credit. I would suggest that you do not even consider carrying a balance on any credit card. Instead, use it as a tool to rebuild your credit. Only charge what you can pay in full every month. Pay it off on time and in full. That way, in the event that they ever decide to cancel your card, all you have to do is to pay it off in fully and be done with it.

If that ever happens, just apply for a secured credit card and you can continue your journey of rebuilding your credit.

And also, please keep us updated as to whether they keep your card open.