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Regulation Of Debit Card Fees Begin, What Effect Will They Have On Credit Cards?

12/27/2010

Earlier this year, the Durbin Amendment was attached to the Dodd-Frank financial reform legislation that was signed into law.   The Durbin Amendment was limited to the regulation of debit card swipe fees.   It did not effect credit card fees, the dream of every retailers and merchant lobby.  Nevertheless, the Durbin Amendment may have profound effects on the credit card market.

First, I came across this rather pedantic and inaccurate article in Slate that attempts to explain debit card swipe fees.     I can’t believe the author wrote that debit card swipe fees are “paid by the merchant, who raised prices incrementally for all customers to cover the cost.”     That statement could be true of any cost born by the retailer from labor to rent to electricity.    More to the point, retailers have many costs when it comes to handling cash.    These costs include labor, security, handling, and theft by employees or outside burglars.    I have yet to see guards exit an armored truck to pick up a stack of credit card receipts or a large safe installed to protect the credit card reading machine.   In fact many companies do not even accept cash anymore due to the costs involved.     As evidence of the high cost of accepting cash, the companies that don’t accept credit cards seems to be far fewer the people, machines, and web sites that do not take cash anymore.

Nevertheless, Congress has authorized the Federal Reserve to regulate debit card swipe fees so that they are “reasonable and proportional to the cost”.    The Fed’s proposed rules limit those fees to 12 cents per transaction.   Frankly, I have mixed feelings on such a rule.   I would love to see the prices of all sorts of things become “reasonable and proportional to the cost”.    Everything from last minute airfares to beers at a football game are nowhere close to such a standard, why do debit card issuers have to be the only ones to comply here?   The argument is that the market is broken, and I can accept that, but there has to be a better way to fix it.

How Might This Shake Out

Since retailers will be free to offer a discount for debit cards, one theory is that they will, essentially adding a surcharge for credit card use.   Since the swipe fees paid by the merchant will be lower, why wouldn’t they offer a big discount for debit cards.    The counter argument is that merchants have always been free to give a cash discount, but few have.     I would argue that the costs of handling cash are approximately equal to the credit card swipe fees, giving most retailers little incentive  to offer such a discount/surcharge.     Since the actual process of accepting a debit and a credit card are identical,  I can see merchants offering some discounts for debit cards.    If that policy becomes widespread, you will see savvy consumers opting for debit card discounts over credit card rewards.    In response, credit card companies could end up actually increasing rewards.   Nevertheless, the opportunity cost of using your credit card over your debit card may negate your rewards in the future.

Thankfully, Congress has held short of any legislation that would permit merchants from adding surcharges for credit cards.   In Australia, such legislation has led to a system where many merchants now charge credit card surcharges of up to 5%  far in excess of even the most egregious swipe fee they might have paid.

One analyst was quoted in this much better article in the Mint.com:

“Let me put it this way,” says Greg McBride, senior analyst for Bankrate. “Would merchants have spent millions of dollars lobbying for this change if they were just going to pass it all on to the consumer anyway? No. The notion that this is going to yield some big windfall for consumers in terms of lower prices is halfway to fantasyland.”

Credit card companies may not be charging retailers “reasonable and proportional” interchange fees, but at least we reward card holders are getting a cut.    That is a much better deal than we will ever get from the retailers.

Re-Thinking Your Delay

One of my qualifications for writing about travel is the fact that I am a pilot myself.   Although I hold a commercial license and have flown passengers and cargo commercially, the vast majority of my experience has been as a general aviation pilot.   For those of you who do not know, general aviation is pretty much everything that is not commercial or military.    That means virtually all of those little piston powered, propeller driven aircraft you may see in the skies from time to time.

While most of my time is in rented aircraft, I actually did own my own airplane for just over a year.   My goal was to fly it as much as possible, maximizing the number of hours I could accumulate in pursuit of a career as an airline pilot (a career I eventually declined, but that is another story).   From my home in Denver, I flew my trusted Grumman Cheetah on adventures from Alaska to the Bahamas.   Along the way, I had a considerable number of delays.

Keep in mind that when your commercial flight is delayed or canceled, you merely groan and try to find a seat on the next scheduled flight.   When the airplane is unable to fly due to a mechanical breakdown, the worst case scenario is you have to wait until the airline can find a replacement aircraft.

Now imagine the plight of a general aviation pilot.   While many envision the luxury of a private jet, the aircraft I fly have more in common with an original Volkswagen beetle in size and comfort.   People asked me if it had a bathroom, and I would reply that it certainly did, right behind the bedroom.   It took some a few moments to catch the joke.     Although my longest non-stop flight was over seven hours, a leg of four to five hours was more common.

Comfort aside, there was also the issue of reliability.   My particular aircraft was a 1976 model, and nearly every part had been replaced during the thirty years that preceded my ownership of it.   When there was a mechanical problem, I had to find a mechanic to fix it.   If that meant canceling the entire trip, that is what I had to do.   Worse, it also meant that I paid for the parts and labor out of pocket as well.

Finally, there was the weather.  A modern jet aircraft is equipped to handle almost any weather short of a thunderstorm or blizzard conditions.  An entry level general aviation aircraft is far less forgiving.   Few small aircraft have anti-ice equipment installed, so all moisture must be avoided anytime the air temperature is near or below freezing.   If snow is in the forecast, I cannot fly.  Even a thin layer of early morning frost on the wings required that I point the aircraft towards the sun and wait.   I held an instrument rating, which allowed me to fly in the clouds, however I avoided even a modest storm that would not even delay a jet aircraft.   Flying in or around the mountains was only done in ideal conditions, and never, ever at night.

While you have your choice of roughly 500 commercially served airports in the United States, we general aviation pilots have over 5,000 different airfields to choose from.   That means that when I had to divert due to weather, I was just as likely to find myself in Lamar Colorado or Las Vegas, New Mexico rather than any airport that you ‘might have heard of.     If the storm lasts a few days, we might get to know nearly everyone in town while we wait it out.

Ultimately, that might be what  I miss most about traveling by general aviation, the sheer unpredictability of it.  (The absence of the TSA is a close second).   I came to relish the delays as an excuse to explore some place that, an hour earlier, I had never even heard of.   I toured a fish hatchery in South Dakota, explored Sandusky, Ohio, and ate with the locals at cafes in many town’s who’s names I have since forgotten.

I am thinking of this now, as so many people’s travel plans have been snarled by snow bound cities though out the east coast.    If you are one of these delayed travelers, take my advice:  let go of your previous itineraries, leave the airport, and enjoy an extra day or two wherever they are.    Home, work and family will still be waiting for you at your destination when the weather clears.   Your airline will waive the change fees, allowing you to rebook your travel at your convenience, not theirs.   Take in a museum, treat yourself to a unique meal, and have a drink with some of the people who live and work around you.   If you are in a major city, avoid the roads and use the subways or other public transit.  Most importantly, get out of the airport, and start to imagine how you will look back on the next few days of your life.   There is no doubt you will remember it for a long time, so you might as well make some good memories, instead of just hanging out at the airport, waiting for the flights to resume.

Which Delta Airlines Credit Card for the Gold Elite Members

12/22/2010

I am a Million Miler with Delta with Gold status and I wanted to get the absolute best Amex Delta card that would give me complimentary access to the Delta Crown Rooms and other lounges as well. Is there a higher priced Delta card that can do that? We also charge $500,000  a year on the card. Will that get us an added bonus as well?

Thanks,

Dan

Thanks for the question Dan.    The card you are looking for is the American Express Delta Reserve card.   It is the only Delta card that  comes with access to the Delta Crown Rooms, which have been renamed SkyClubs.    As far as you are concerned, the SkyClub membership might be the least of your benefits with this card.    You will earn 10,000 Medallion qualifying miles (MQMs) after your first purchase, and 30,000 MQM’s when you quickly sail through your first $60,000 in spending (15,000 MQMs for each of your first two $30,000 of expenditures).    With all of these MQMs, you should easily be vaulted to the Platinum Medallion level, and perhaps even Diamond Medallion. In fact, the fact that you are a Gold Member now means you earn 50,000 MQMs a year. With the extra 30,000 MQMs you will earn with this card, you will achieve Platinum Status).

While reaching higher levels of Medallion status will, by itself, help your upgrade and standby chances, Delta also grants their Reserve Card holders priority upgrade status within Medallion and fare classes.    If you are vying for the last seat with another Medallion member of the same rank, the person with the Delta Reserve card will get the seat.   That is an incalculable benefit to travelers when there is a series of weather cancellations and there are precious few seats available for days on end.

While you specifically mentioned the best Amex Delta card, you might also consider the Platinum or even the super secret Centurion card.    The Platinum card from American Express (there is also no foreign transaction fee now for this card) offers the lounge access at Delta and other airlines as well as Membership rewards miles, which are easily converted to Delta miles.   The Platinum Card offers no MQMs or upgrade priority.

As for the Centurion card, it is hard to say what it offers, as Amex is very secretive about this offering.   According to the Wikipedia page, the card has a one time joining fee of $5,000 plus $2,5o0.    While that is steep, it is said to offer unlimited international companion tickets for full fare flights, presumably in premium cabins.    A jet-setting couple could easily gain more in tickets than their card fees after just one business class international trip.  If you can show Amex that you are spending a half million dollars a year, I think they might invite you into the program.

As someone who has a high annual spending total, you are the dream customer of both Delta and Amex and the target of several of their products.    Choose the best card or cards for your needs and they will pamper you wherever your travels take you.

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Cracks Appearing In The Foreign Transaction Fee Scam

12/20/2010

What if I told you that most major banks have been scamming their customers for years.   Many would probably just roll their eyes and agree.  Of course, I am talking about the foreign transaction fees (FTFs) that are being charged on each transaction with a merchant outside of the United States.    Sometimes, you don’t even have to leave home to incur the 1-3% fees, you just have to have the misfortune of dealing with a merchant with a payment processor based outside of the United States.

Consumers Are Catching On

For the longest time, the only way to avoid this scam was by using a Capital One card.   There were also some cards available from credit unions that were fee free.   It seems like consumers are slowly catching on this scam, and the credit card companies are noticing.    As usual, Ron Lieber of the New York Times has the scoop.    Amex will be discontinuing the fees on both their Platinum card and their Centurion card.   The Platinum card already has a $450 annual fee, and the Centurion card has a “if you have to ask, you can’t afford it fee” said to be a one time $5,000 fee plus $2,500 a month.  It must be nice.

Over at Citi, they are dropping the fees on much more attainable cards such as Premier Pass, Diamond Preferred Rewards, Simplicity Rewards, Home Rebate and Driver’s Edge Options cards.

Even Chase is getting in on the trend, dropping the FTF on it’s British Airways Visa.   That seems like a good call, as you can imagine an American customer of such a card is probably someone who travels outside the country a bit.

If you are like me, and keep a fee free Captital One card with you for foreign purchases, at least you now have a few more options.

How Delta's Medallion Program Is About To Be Devalued

My Atlanta based family craves their Medallion status.   They will pay higher fares on Delta than their competitors to renew their status every year.    They make a good argument for their behavior when you consider that they are getting upgraded on most flights.    Certainly a dozen first class upgrades are worth the few hundred dollars a year extra they have been paying to maintain their status, right?

Introducing The Buy Up System

Under the current system, a Medallion member purchases a coach seat, and then is automatically upgraded to first class as space permits.    The upgrades occur in relationship to the member’s rank in the Medallion system and with each rank, the edge is given to holders of the Delta SkyMiles American Express Reserve card.    If you are not a Medallion, you don’t get upgraded.

At least that is how it works today.   Last week, Delta released a report to their investors indicating that they would be rolling out a new system where coach customers would be offered an upgrade at check in.    Many carriers, like Airtran, currently offer such system.   It is not uncommon for me to be offered an upgrade for $60 or so when I check in for a flight between Denver and Atlanta.   As a cheapskate, I decline, but I am sure there are many takers.

This is all good news for Delta’s investor’s, who are probably happy that Delta is not just “giving away” their first class seats,  but selling them off at the last minute.    If you are a Delta Medallion member, you probably will not be too pleased.    If every Joe Shmoe from Sheboygan can upgrade at check in for $50 or so, how many of those first class seats will be left over for those ATL based Delta Medallion members?   The answer is: A lot fewer.

Where Will All The Medallions Go?

It turns out that the next major Delta initiative is introducing a premium economy class.   This new area of coach will probably be similar to United’s Economy Plus.    That is to say, same narrow seat, but several more inches of legroom.   Once these two programs are in effect, premium economy is probably the closest a Delta Medallion will ever get to First Class without paying extra for it at check in, just like everybody else.

Oh The Irony

Ironically, Airtran is going the other direction.    Just as we are about to the see the end of their first class section, in light of  their impending assimilation with Southwest airlines, Airtran has announced that they will be offering free upgrades to their members, but only after people have been offered the option to up.   Enjoy the possibility of an upgrade to first on Airtran while it lasts.     The good news is that there are the same number of seats (137) on identical aircraft from both Airtran and Southwest.   The difference is that there is a business class on Airtran and less legroom in coach.   On Southwest, there is a single class and more legroom for everyone.   Call me a Socialist, but I like the Southwest system better.

Scammed By A Foreign Merchant

12/17/2010

Dear Mr Credit Card,

I am spending hours trying to dispute a transaction that was performed using dynamic currency conversion in the UK on my World MasterCard issued by Barclays Bank Delaware.   I told the merchant in the U.K. to run the transaction in local currency (pounds sterling) but the merchant claimed it could only be performed in U.S. dollars.   My credit card company (Barclays Bank Delaware) don’t seem to have any idea what I’m referring to and told me I need to call MasterCard. When I called MasterCard I spoke with a representative in the Philippines.

Eventually I got to speak with a representative in the U.S.  She referred me back to my credit card company.  I’m extremely frustrated by this process.  What can I do to receive a refund on the inflated portion of the exchange rate that I received?  I’m tired of the process and I’m close on throwing in the towel but more than anything else I would love to see action being taken against this merchant in the U.K. Please advise.

Thanks,

Robert

As you have learned by now, Dynamic Currency Conversion is a scam.     The retailer pushes this on visitors because they receive a generous cut from each transaction; they and their dubious partners are the scammers.   While it is too late now, you should always know that you have the right to refuse the DCC.    Of course, the whole point of the scam is for the merchant force this onto the customer by not giving them a choice.     If you have any indication that a merchant is trying to get you to agree to DCC, then you should decline the transaction.    You can even go so far as to write on the receipt that you are declining DCC and paying in USD.   Keeping a copy of the receipt should make this clear to your bank in the event that this fraud is perpetrated against you.

Even if you don’t have your receipt, I think you still have a good case that you were fraudulently charged.   You should be able to ask for a partial chargeback, and force the merchant to produce your signed receipt.

Sadly, I have dealt with Barclay’s bank before, and I have found their customer service to be pretty poor.   I encountered nice people, but it was almost as if their company kept them in the dark on purpose.    I would try to frame your inquiry as a fraud investigation, and demand to see the receipt or request a chargeback.      Put the burden of proof on the merchant.

If all else fails, try to reach their executive customer support team.    These people are generally better trained and more interested in resolving problems than their regular customer service personnel.

Good Luck!

Word Lens: Remember This Day

My wife speaks four languages.   I only speak English.   Every time I am with her and I hear a language that I don’t understand, I instinctively nudge her and ask her to translate it for me.    It turns out that the four languages that she does speak are only a small fraction of the hundreds of languages spoken throughout the world.   Even a skilled linguist like her is powerless to read over 99% of the languages in the world.    But not for long.

Today is the day when the world first saw an iPhone application called Word Lens.    Simply put, this application is the first of its kind that will change not only how we travel, but how humans interact with each other throughout the world.  Check out this demonstration video:

It appears as if this application is only available at this time for the iPhone and in Spanish, but it is easy to imagine it’s development on different platforms and with different languages.    Next, imagine viewing your iPhone output through a pair of video glasses with cameras.

We are about to enter a world where a traveler can open a menu in any language, put on his or her translating glasses, and effortlessly order food, or at least point to it.     Imagine walking down a street in India, and having every sign translated from Hindi to English as you see it!   Imagine sitting on park bench in Moscow, reading a newspaper in Russian.

The technology is there, and we will wait for it to be integrated and the price to come down.    Remember that computers, cell phones, and even digital watches were once exotic, high priced gadgets.     These devices are now commonly available and affordable in industrialized countries.    It is only a matter of time until this technology is incorporated into a pair of glasses and is no more expensive than a nice calculator.

Every so often we are privileged to witness the birth of a technology that will revolutionize our world.    Today is one of those days.

Delta Bag Fee "Rebate" Outrage

The only thing worse than having to pay a bag fee is paying it and then having your bag lost.   In that case, I think it is pretty clear that the airline should refund your money.   Delta doesn’t think so, and has redefined the term “rebate”.

Introducing The Delayed Bag Fee “Rebate”

I found this page on Delta’s website titled Delayed Bag Fee Rebate.   The title sounds great, and I started imagining that this was a fantastic new policy.   Delta, I reasoned, had saw fit to automatically refund your baggage fees in the event that your luggage was delayed.   Unfortunately, that scenario exists only in my dreams.

In reality, Delta is saying that if your baggage is delayed by more than 12 hours from the time you report it then you must fill out this form. Only then, might you expect to receive a Delta credit, not an actual refund.

What Delta Is Saying

When you pay for checked bags, you are merely paying for us to accept the bags, not to actually deliver them on your flight.   That service is optional and is not really what you are paying for.    If/when your bag is lost or delayed, we keep your money, but we may give you a coupon if the delay is long enough and you fill out this form, and we are somehow more competent at delivering this phony “rebate” then we were at delivering your bag.   Of course, forget it if you: paid more than 2 bags, paid to check a bag over 50 lbs, or even if you paid their outrageous fees to check “specialty items”.

What Is A Rebate

A rebate, is two things.    First, it is a euphemism for a opt in scam.   Companies offer rebates knowing that a huge percentage of people will not bother to fill out the paperwork.   Among those who do, fewer still will follow up when said paperwork is eventually lost.   Among those who do follow up, most will just go away when informed their paperwork is lost.    Ultimately, the small, persistent fraction who eventually receives their rebate, expects actual money, not a lousy coupon.    Therefore, Delta’s use of the term “rebate” is only partially correct in that it refers to the existence of a scam, not the promise of an actual rebate of money spent.

What’s Wrong With This Coupon Offer?

The person who is paying for a checked bag that is eligible for this phony rebate is someone who has no status in their SkyPesos program and does not have their Gold SkyPesos Amex.   These are people who don’t often fly Delta.   Delta knows this and is offering a coupon to market future flights to them.   Unlike cash, the coupon will undoubtedly have an expiration date.

What’s worse is the impossible conditions specified.   Imagine you arrive at your destination late at night.    After staring at a carousel for an hour, it stops turning and you finally know what you have suspected for the last 45 minutes, your bag didn’t make it.    You then proceed to the baggage desk, assuming they haven’t shut down for the night, and file a claim.     Only then does the 12 hour clock start ticking.    You proceed to your hotel in the dead of night,  delayed over an hour by having to wait for the last bag and to file a claim.   If you are lucky enough to have your bag when you return to your hotel the next day, Delta could merely claim that it was delivered within 12 hours of the claim and, as far as Delta’s web site will admit, you are entitled to zip.

What Delta Should Have Done

They could have, at the very least automated the system so that you received an apology and your coupon code when your bag is not delivered within 12 hours.    Better yet, they could do so the moment you file a lost bag report, and not insult their customers with this bizarre new 12 hour rule.   Frankly, they should automatically refund your baggage fee if you bag doesn’t arrive on your flight.

What You Should Do If Delta Or Any Other Carrier Fails To Deliver The Service You Paid For

Delta’s new policy is an insult.   If you pay for your luggage, and your bag is lost or not delivered in a timely manner, you should demand a cash refund of your baggage fees.   You should never accept a coupon.   If the airline refuses, inform them that your next step will be contacting your credit card to file a chargeback.     If they try to tell you that this is their policy or something, ask them to prove to you that you accepted these conditions in writing.   Personally, I can’t find anything on their web site that says bag fees are not refundable even if your bag is lost or delayed.  If such a policy exists, Delta certainly hasn’t been informing their customers of this.

Ultimately, this seems like a great example of why a chargeback exists.  If you pay for a service, and you don’t receive it, you are entitled to your money back, not an application, full of restrictions, that promises a coupon.

Citi Cramming Protection Plans

12/16/2010

A reader writes:

My husband is the primary on our card and I am an authorized user.  Last year,  I unintentionally enrolled us in account protection at 85 cents/per $100. Of course we never needed the protection and the bill was $1,000.

We just received a letter that they will not refund. The question I have is; wouldn’t my husband have to enroll since this is a change in the account status? I am an authorized user to use the charge only. Every time I call them, they say they need to speak with my husband to verify info.

Do you think we should pursue this?

Thank you!

Thanks for the question.   I have written about the case against Discover for surreptitiously adding these protection plans to cardholders accounts.    Your situation certainly sound similar.   When you say that you unintentionally signed up for this, it is hard to tell if you mean that you signed up by accident or you were actually tricked into giving a response that they chose to interpret as consent.

The fact that your husband is the primary account holder is also significant.    Basically, the tactic you should take is to have your husband demand to see proof that he authorized the charge.    It is your husband’s account, and as far as he is concerned, he did not authorize anything.    The burden of proof should be on them to prove that he himself authorized these charges.

Once you have exhausted this avenue, your next step should be to have him reach out to Citibank Executive customer service.   Their information can be found here at the Consumerist web site. Have your husband write them a brief, polite, and firm email informing them that he did not authorize this charge, and that no one else on the account is authorized to make changes to the account.    I would also reiterate that you never used this service.  Finally, insist on a prompt refund of all charges related to that service.    You may also choose to hint that you are willing to contact both the media as well as your state attorney’s general’s office, but you would prefer not to have to take that step.   This let’s them know that this is their last chance to satisfy their customer before you contact the authorities and the media.

I am sure we are not talking about a lot of money, but I think this is worth fighting on principal.   Composing and sending a brief email should not take much time and effort.    The fact that you saw fit to write us here at Ask Mr Credit card certainly indicates this problem is bothering you, and I don’t blame you for trying to get Citi to do the right thing.

Good Luck!

Expedia Citi PremierPass Sign Up Bonus Not Given

One of our readers Beth signed up for this card and has never gotten her bonus.

I signed up for this card to get a $50 discount on a flight. The discount was never applied. When I called inquiring about this and wanting to cancel the card they said I would be able to apply the $50 bonus towards future eligible programs. A few months later I called to inquire if I could apply the $50 towards a rental car. I followed the instructions and booked through expedia. When I received my next bill the $50 bonus was not applied. I called again to inquire and was told that even though I had the proof (conf. number) for the rental car they would not honor the bonus because the rental car company did not use the correct “code” when swiping my credit card. I then disputed this decision since this was no fault of my own. over a month later I received notice that would still not honor the $50 bonus. I think this is terrible customer service and I will end up canceling the card. Do I have any other recourse at this time? Thanks.

If there is anyone from Citi in the credit card department who can help out, please contact us.

Or if there is anyone who has faced similar issues, please share them and tell us how you overcame it (if you did).

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