Crackdown on Several High Return Reward Strategies

By: Jason Steele

11/18/2009

Among the true reward card gurus, there are several loopholes that people have been exploiting to rake in some seriously high value rewards. In the last few weeks, some of the loopholes appear to be closing, albeit slowly and inconsistently.

CitiCard Churning

This is the process of applying for multiple cards in order to reap the sign up bonus. For example, the American Airlines card offers 30,000 miles after your spend $750. Unlike most cards, they do not prohibit you from taking advantage of this offer multiple times. Some have gone so far as to receive dozens of sign up bonuses. I can’t possibly mention this tactic without warning people that this is an extremely risky strategy from many, if not most people. If having too many credit cards causes you to overspend, or even to not pay every bill on time and in full, do not even think about this. The crackdown seems to be that CitiBank is no longer automatically accepting everyone all of the time. Furthermore, there are rumors that the annual fee will not be waived for “new” cardholders starting next year.

US Mint Dollar Coins

The Mint has been offering dollar coins for face value with free shipping for some time. There is a series of Presidential dollar coins, as well as one commemorating Native Americans. It has been possible to order these coins on your credit card, and to deposit them in your bank account, reaping the miles or cash back. Recently, a notice was placed on the web site indicating that these transactions may be counted as cash advances, whereas before they were processed as purchases. Also, some people received a letter saying that people were abusing the program purchasing these coins with intentions other than circulation. There were no threats in the letter, as this practice is perfectly legal in every way, but it was an ominous sign that someone, somewhere was not happy with this practice. Others have pointed out that credit card companies are entitled to code any transaction the way they want to, the Mint has no control. Furthermore, one can request that their credit card company turn off the option for cash advances, or set the maximum amount to zero. In this instance, it should be impossible to process a coin order, if you credit card company decides it is really a cash advance.

Chase British Airways Deal

I have written about this deal that not only offers 100,000 British Airways miles as a signup bonus, but also offers a free companion award ticket after $30,000 annual spending in a calendar year. This is a great deal, but they are not accepting a lot of people who normally get any credit card they apply for. This seems to be one of the most restrictive offers out there, with rejections going to people with high credit scores, but a few too many recent inquiries on their credit report. It is not known how long the 100,000 bonus mile “limited time” offer will be around, although the terms of the companion ticket seem to assume that that offer is a long term deal.

What Does This Mean?

People who read a lot of mainstream press reports will see this as a sign that the credit card companies are truly being forced to limit reward cards in anticipation of the CARD Act becoming effective. I don’t it. If that were true, why would Chase and British Airways be offering a new credit card with unprecedented rewards? There is no indication that Citi will stop offering reward cards, just that it is beginning the process of closing an existing loophole. This is sad for those who have been successful in exploiting it, but seasoned reward card veterans will recognize this is part of the life cycle of a deal. A loophole or any other great deal is initially discovered and revealed on messageboards like FlyerTalk, or travel and credit blogs, like this one. As people exploit it, the deal becomes more and more popular. Eventually, someone at the credit card industry notices the problem, and ultimately makes some change to close the loophole. Sometimes this process takes years, as the CitiBank churning strategy has been around for several years now. Other times, the cycle takes days, like the “Big Delta Promo” last year that supposedly was not supposed to exist in the first place. In the case of a airfare misprint, the cycle can take hours or even minutes from discovery until shutdown. This is the natural cycle, and it is continuing to this day. There is no sign that these deals are disappearing forever. I am confident that there will always be a new deal on the horizon.

The important thing is to be prepared for these deals. Keep a high credit score by paying all of your bills on time. Keep a low utilization rate, that is spend far less that your availible credit. Keep a few cards for a long time. Having a longer average credit history helps your score. The most important thing is to always pay each bill in full; never pay interest on your credit cards. As I have said, many, many times, if you pay interest, you should not even be in the reward card game at all. If you have an outstanding balance, your only priority should be paying that off, and find a credit card with the lowest interest rate to help you do so. Reward cards will incent you to spend more, and they do not have the lowest interest rates.

Follow these simple rules, and you will be ready to pounce at the next great deal.

Citi Chairman Card Review

By: Mr Credit Card

The Citi Chairman Card is Citi’s elite and prestige credit card. It is by invitation only, or rather as Citi puts it, you have to be solicited! The reward program is based on Citi’s ThankYou Network. I spent quite bit of time with the folks at Citi Chairman Membership Unit and managed to get quite a bit of information like the premium travel service that is not available on their website. For this review, I’ll list out the card’s feature and then compare this with other cards.

How you earn points – The Citi Chairman Club allows you to earn one point for every dollar that you spend on the card. In addition you earn one point for every mile that you or your partner flies (as long as the ticket was booked using the card). The reward program (like I mentioned earlier) is based on Citi’s ThankYou Network Redemption Rewards. For airline tickets and travel items (which I think is what most elite card holders look for), the ThankYou Rewards require that you redeem them by using their travel site (which is actually powered by expedia.com). You can then use your points or a combination of points and cash (if you do not have enough points).

Travel Benefits

I judge elite cards by their travel rewards because that is what most people look out for. Below is a list of travel benefits and rewards.

Premium Airline Program – The Citi Chairman Card has a premium airline program that changes every year. The information here is valid only until the end of the this year (ie 2009)

Asiana Airlines – 25% off published unrestricted First Class from LA and JFK. 30% off Business Class Restricted – from LA, SA, Seattle and JFK.

Cathay Pacific – 20% off Full Fare Economy Tickets, 10% off Restricted Economy, 20% off Full Fair Business Class. All flights from LA, SF, JFK to Hong Kong are eligible

Mexicana – 10% of promotional Business Class, 20% of Full Fare Business Class from US to Mexico

Virgin Atlantic – 10% off Lowest Published Premium Economy from US to London

Annual Membership to Priority Pass Membership Lounge

Membership for Gold Status on Hilton HHonors Program

Auto Rental Rewards with Avis and National

Discounts and complimentary breakfast at leading hotels

Private Jet and Chartered Flight benefits with companies like Marquis Jet

Other Benefits

24 hour personal service – Like all high end cards, the Citi Chairman Card offers a 24 hour concierge service that helps you book your travel, restaurants and other stuff.

Trip Cancellation / Trip Interruption Insurance – for up to $1,500

Travel & Emergency Assistance – $1,000,000. This applies to in the U.S. and abroad. Travel & Emergency Assistance services include medical and legal referrals, lost luggage assistance, emergency transportation, translation services and more.

Auto Rental Insurance

Extended Warranty – The terms of the original manufacturers’ U.S. warranties (of one year or less) may be extended up to one additional year on most items purchased on your card

Retail Purchase Protection – Most items purchased with your card are eligible for protection against accidental damage or theft for up to 90 days from the date of purchase.

Fees – There are two versions of this card, a MasterCard version and an American Express Card version. The MasterCard version has a $400 annual fee while the American Express version has an annual fee of $500. At this point, I’m not sure of the differences that warrant the fee difference, but will inform you once I find out. Additional card fees is $100, though you can issue a card with less benefits for no annual fee.

Comparison to other cards – Comparison with high end cards (like any rewards card) is difficult because the reward programs are different. In the case of the Citi Chairman Card, I think you have to look at how you can redeem your rewards. The ThankYou Network requires that you redeem travel rewards with their expedia.com powered travel site. The great thing about this card is that you can earn points also with the miles you fly on and not just with the dollars you spend.

Other cards like the Amex Platinum and Diners Club allows you also to transfer points to frequent flier miles. The Citi Chairman Club does not have this option.

Citi also has a premium airline travel package that is interesting. As you can see from the details above, you can get discounts with certain airlines on international routes. The American Express Platinum Card also has an international airline program where you can get a complimentary companion ticket if you a full fare business or first class ticket. The one thing to bear in mind is that programs like these change every year because credit card issuers have to negotiate with their partners again.

Otherwise, the Citi Chairman Card has got very good features which rivals the best high end cards. For example, you get Gold membership to Hilton HHonors. Amex Platinum gives you Gold membership to Starwood. They also give you annual membership to Priority Pass (which is very useful for the frequent traveler).

Verdict – I think the Citi Chairman Card is a pretty good card and will suit some folks more than others. To get the most bang for the buck on this card, you have to be a frequent traveler. If you travel abroad in business class and use the airlines that are part of their premium airline travel partner, then this would be of great value (though you still have to compare savings with discounted business class tickets). You also should not be the type that likes to earn miles for a particular airline or airlines and transfer them between airline alliance partners because that is simply not how the ThankYou Rewards program work.

If you also stay at the Hilton HHonors, the the automatic gold membership would be a bonus.

However, if you do not make use of their international airline partners, then Citi also offers an alternative in the their Citi&#174 ThankYou Premier Card, which allows you to also earn points on the miles you fly as well as the dollars you spend on the card. You will not get the other elite type benefits, but the travel rewards (with the exception of the international premium partners) is the same.

Visa Black Card Review

By: Mr Credit Card

11/17/2009

visa black card image

The Visa® Black Card by Barclays Bank was introduced in the beginning of the year. But I was hesitant to really review this card because I do not have the card. I thought about getting the card but given the fact that every one is coming up with new cards after the CARD Act, I thought I’d save some bullets. The main reason I was hesitant to review it is that they did not include their airline reward program on their website. In fact, they still do not put their rewards on their site so I do not know how their merchant partners are for their gift cards. But for folks looking at high end cards like this, gift card rewards are the least of my worries. But finally, they have now explained how their airline program works on their FAQ page. Armed with this information, I think I’m equipped with enough to form an informed opinion of this card.

I will first list their rewards and compare them with other high end cards and finally write my views on the card and who it is suitable for.

Rewards

Airfare – In my opinion, this is the most interesting aspect of the rewards program. Cardholders can redeem points for airfares with no restrictions or blackout dates. But the key question is what is the exchange ratio?

The minimum points required in $300 and that is good for a ticket costing up to $500 – making the ratio 1.67:1. There after, in the ticket cost exceeds $500, you have to use (a minimum) of 5,000 points that is worth $50 (1:1 ratio). I’ll elaborate more on this in my verdict.

Hotels – You can exchange points for hotel stays.

Car Rentals – You can redeem points for certificates at Alamo, National and Hertz.

Other Features

24 hour Concierge Service – Cardholders get access to a 24 hour concierge service.

Cash Back – You can choose to redeem points for cash on an 1 for 1 basis (that means you earn 1% cash back). You can earn unlimited cash back.

Priority Pass – Visa Black Card holders will receive a Priority Pass Membership which allows for two complimentary lounge visits each year.

Gift Cards – Like most reward programs, you can also exchange rewards for gift cards.

Other Benefits

24 hour concierge service

$250,000 travel accident insurance

$300 baggage delay insurance – $100 a day for 3 days

Auto Rental Damage Collision Waiver

$1,500 trip interruption and cancellation insurance

Purchase Protection – where your goods will be replaced or repaired if you return within 90 days – up to $500 a year

Warranty Service – you can double your warranty period for up to 1 additional year

Fees – Let’s get this out of the way as well. As a high end, prestige credit card, The Visa Black Card has a $495 annual fee. Each additional cardholder will cost $195. You can even a 0% balance transfer offer and teaser (you would think that anyone who applies for this card will pay in full).

Comparison vs other cards – So how does the Visa Black Card stack up versus other high end cards and who is this card most suitable for?

In my opinion, the best comparable would be the Amex Platinum Card because of the annual fee. Other cards in a similar annual fee range include the Citi Chairman Club. Let’s start with the non-reward features first. The features that the Visa Black Card offers are quite standard among elite credit cards these days. Things like 24 hour concierge service, warranty extension, purchase protection, auto rental collision waiver are all common features in many good credit card.

The Amex Platinum has more features like their international airline program, their private jet membership program, automatic starwood preferred guest gold membership. Amex Platinum also have their own shopping mall where you can earn extra points by shopping through their online portal. And because Amex sponsors lots of sports and musical events, card members get early notifications of the best seats in town. The Citi Chairman Card has international airline partners where you can get discounts on their airlines.

So in terms of common features, I find the Visa Black Card slightly lacking compared to the Amex Platinum and the Citi Chairman Card. But whether it affects you depends on whether you use those features. If you do not travel internationally, then it does not matter!

In terms of rewards, this is a harder call simply because the reward program and how you redeem points for travel are different. In the case of Amex and their membership reward program, you have two choices on how to redeem points for airline travel. You can either transfer points to frequent miles of their partner program or use points to book flights directly with the Amex Travel site which is powered by Travelocity. The Citi Chairman Card reward program (ThankYou) requires that you book with their travel site (which is actually expedia.com) and redeem points that way (1:1 ratio – as in 100 points is worth $1). Chase’s new Ultimate Rewards program allows you to either book with their travel site (much like Amex or Citi) or you can also book with any other travel agent online or offline and redeem points for a statement credit.

The Visa Black Card travel rewards is a throw back to the good old days of rewards where a certain number of points gets you a ticket of up to a certain value. So in this example, if your ticket prices normally costs $400-500 dollars, then you will only use 30,000 points. If you have booked your tickets with Amex, Citi or Chase, you would have needed at least 40,000 to 50,000 points. But if your ticket normally costs only $150, then you would still need to use 30,000 points. In this case, this is not a good proposition.

Verdict – When I look at high end cards, the most important thing to me are the travel rewards (especially airline rewards). I doubt any serious cardholder exchange points for gift cards and other merchandise stuff! The Visa® Black Card has a travel reward system that is different from other high end cards and will suit travelers who travel frequently on flights that cost between $400 to $500. It is in this range that you get the most bang for the buck on your reward points. If you fly southwest and your ticket costs around $200, then this card is not for you.

If you are the sort of person that has multiple frequent flier programs and like to use airline alliance to get the most bang for the buck, then this card is not for you. Perhaps an Amex Platinum or Starwood Preferred Guest American Express Card is a better bet. If you only fly one airline, then perhaps, getting that particular airline credit card is better.

In terms of other features, I think that the cards like the Amex Platinum has got more features although you may not necessarily use it. For example, I have not yet used their international airline companion ticket program. Neither am I going to use their private jet program anytime soon. I have taken advantage of events they have sponsored and got great seats for those though. But like I said, only you can decide which features are important to you.

One thing that this card has going for it is simply that it is a Visa and you will be assured it will be accepted in more places than an American Express or a Diners Club. The Visa Black Card also has a very cool black titanium card design. One cannot understate the value of the prestige a high end card carries. For those working in industries where image is very important, the Visa® Black Card is a card to consider.

My Take on Dave Ramsey

By: Jason Steele

11/16/2009

I came across the Dave Ramsey phenomenon in response to a reader’s letter. More recently, I just read an article in The Atlantic magazine about him and his philosophy. I actually receive the print version of The Atlantic, which really allows me to thoroughly enjoy their writers in places, shall we just say, where the computer doesn’t go.

Anyways, author Megan McArdle attended Dave Ramsey’s seminar, and even gave his methodology a test. Her results were fairly positive. Now, I haven’t attended one of his seminars or read his books, so I will be relying on her experiences.

The Philosophy

Ramsey truly hates debt. He preaches giving up credit cards and all other forms of debt, with the exception of a 15 year home mortgage. One of the things that I did not know about him, was that he is very similar to an evangelist. He quotes extensively from the bible, and McArdle compares his meetings to a prayer meeting. His methodology is to withdraw all of the money you will spend in a month, and put them in envelopes. In this way it is thought that you will spend less money.

My Take

It is hard not to agree with Ramsey’s goals. We agree that almost all debt is bad. To me, credit card debt is one step better than pay day loans, but not by much. I also tell people to avoid debt on just about all depreciating assets, especially cars. On the other hand, I don’t have that much problem with debt on appreciating assets like your home or your education. Sure, we just passed through a very short, unique period where home prices underwent a correction, however over the long term, homes do appreciate in value quite reliably.

Where Ramsey and I disagree is in both our methodology of reaching the debt free goal, and our approach to promoting our philosophy. Dave would have you cut up your credit cards, as the picture in the article clearly shows. I personally feel that the benefits of using a credit card as a method of payment outweigh the psychological risk of overspending. For many people, Ramsey’s advice makes sense, as they have used their credit cards as a method of financing purchases they cannot afford to pay in full at the end of the month. There is the key difference between method of finance and method of payment. People like myself who use credit cards as a method of payment, pay their bill in full every month. They use other means to budget their money. If you ever find yourself tempted to use your card as a method of finance, Ramsey’s all cash solution is a reliable, if brute force method of kicking that habit.

When I say that the benefits of credit cards outweigh their risks, what am I talking about? First, when cash is lost or stolen, it is gone forever. When your credit card is lost or stolen, you loose nothing. My house was burglarized recently, yet little was taken. The police pointed out that they were almost certainly just looking for cash. They didn’t find any as the only cash I ever have is in my wallet. I also enjoy the charge back ability of a credit card. Frequently, just the threat of a charge back is enough to convince a merchant that they should do the right thing. Of course, the cash back rewards don’t hurt. I am saving 2% or more on everything, all of the time. That really adds up over the course of a lifetime. Finally, credit cards simplify my finances. I know when my payment is due, I don’t have to worry about each withdrawal and each check, as the money comes out of my bank account in one payment to cover many expenses.

The other big difference between Ramsey and I is how we get across our message. McArdle paid $220 for front row seats to hear him speak, while you can read my blog posts for free. Frankly, I have a hard time trusting anyone who would thinks it is a good idea to shell out that kind of money for a financial lecture. Another huge difference is that Ramsey is giving his advice in a highly religious context. According to McArdle, most of his attendees are evangelical Christians, and his talk concludes with a plea to get to know Jesus.

It so happens that I myself am not a Christian, but I do have the utmost respect for Christians and their faith. That said, I just don’t see the point in mixing religion and personal finance. I don’t pretend to have any crucial insights into spirituality, just some good advice on how to use credit cards for your economic benefit. I like to think that my advice applies equally to people of all faiths, or of none. I am not sure Ramsey can make the same claim.

I will, however, conclude with a religious analogy. It is said that different religions are just different paths to the same truth, or different ways of worshiping the same god. Likewise, Dave Ramsey’s method of achieving financial security and independence, like his religion, is different than mine, yet I think that in the end we both share the same goals.

Are Credit Card Companies Ethical? Is Any Business Ethical?

By: Mr Credit Card

11/15/2009

I have to commend Len Penzo for finally speaking out for the crowd that is “not against credit cards” or do not think they “are evil” with his very time post stating that he will not be cutting up his credit card. Prior to that, Adam Baker has written a post on how unethical credit card companies are. Even my good friend Matt Jabs is asking folks not to get cards just for rewards because the merchant fees actually make all goods more expensive to the tune of maybe say 2%.

My Stance – Firstly, if you do not know already, check out the credit cards that me and my staff use (for full disclosure). For me, I belong to the “camp rewards”. I pay my bills in full every month and I also do pay an annual fee for my card.

I do realize that there are folks who hate credit cards, had bad experiences with them (by getting into debt) and swear never to use them again. Folks like Brad Chaffee who has just got rid of his credit card. I respect that decision. I myself have weakness for certain stuff. While I have never carried any credit card debt, can’t be bothered to gamble (too troublesome), I can’t say “No” to candies I love. I tend to the most expensive electronics! So for those who can get carried away with credit cards, don’t use them.

But the “anti credit card folks” don’t accept this argument” – If everyone was reasonable, this would be the end of the story and it is best summarized by JD Roth who says do what works for you.

But Adam has gone into the territory of saying credit card companies are “unethical”. To quote him: “For me, the credit card industry is on the same level with the gambling and tobacco industries. I don’t mind the rare celebratory cigar, nor do I object to mindfully spending some of the entertainment budget at a casino.

However, the blunt truth is all three of these industries derive a large percentage of their profits from a select group of people who are caught up in destructive, cyclical habits. They feed off their respective junkies.”

By the way, he left out alcohol (does he drink the occasional drink?)

The huge problem with this argument is that applies to almost every industry. Here are some examples.

List of Businesses With Questionable Ethics

Is the jewelery shop that sells diamonds unethical because diamonds add absolutely no value to the economy other than vanity? How about other high end brands that simply exploit our vanity?

How about restaurants that serve ridiculous portions and contribute to our nation’s health problems (most heart attacks in the world?). MacDonalds’ for selling cheap processed meat and process chicken fingers? Or the diner that slaps loads of fat laden bacon! Preying on the lack of discipline among those who are overweight? Hey, we don’t need to go to restaurants right, just cook at home! Could even follow some pf bloggers recipe!

Gym owners – because they know that a large portion of their paying members do not use the gym anyway? So are they unethical because they know folks sign up in January and forget about their new year’s resolution by February and still pay their membership fees. A business based on people’s needs but also on a lack of follow through?

Workout programs and DVDs! Everyone knows that only a small percentage of folks that workout DVDs actually follow them, diet and achieve real results. Are these business unethical because the majority of their customers probably bought their videos on impulse?

How about food manufacturers like Kraft. Maybe they should not make mayonaisse? Too fattening? Contributes to the nation’s health problems!

How about every tourist shop that over charges their goods because they can get away with it? And they cause folks to overshoot their vacation budget? Or the ice-cream vendor that charges you $2 for an ice-cream at the zoo?

Perhaps we can lump online stock brokers into this ‘unethical” category as well since “academic studies” have shown that the probability of individuals beating a “benchmark return” is really small!!

Let’s talk about credit cards for a while

For those who hate credit card companies, including my friend Matt, the various reasons cited are credit card companies intentionally charge late fees, raise interest rates for no good reason. I have a few thoughts about this.

When credit card companies (ie Amex, Visa and Diners Club) first started in the 50s and 60s, all they issued was charge cards. The criteria to get those cards were strict. The on top of that, you have to pay an annual fee and pay in full but in return, you get the convenience of not having to carry cash all the time and earning rewards. In return, these companies got a nice cut from the retailers and merchants (and nothing wrong with that since we all have to make a living). In return, the more popular these cards got, the more retailers and merchants would benefit. Think of the time centuries ago when you actually have to carry silver coins! Carry a lot and the risk of robbery is great is the good old days.

As these pioneer companies got bigger, they realized that they could spread their product use faster if they allowed banks to issue their own cards but did the back end processing for them. Soon banks began issuing credit cards rather than charge cards and allowed cardholders to carry a balance.

Then, we reached a point where every bank was issuing their own credit cards. We reached a point in what economist would call perfect competition. And we know how things went from there.

Are businesses deliberately trying to make money unethically? – The curse of growing too big

I don’t know. Credit Card companies did not start out trying to make a living off charging late fees. In fact, in the corporate world, if a company issues debt and defaults on just one, it technically means that they have defaulted on all their debt and creditors can then pursue them. The term for this is cross-default. It is a standard term in any debt offering (which by the way makes the terms and conditions issued by credit cards a piece of cake). When a company is a day late in their bond interest payments, investors like PIMCO or Blackrock or even boutique hedge funds are not going to say: “It’s OK”, we’ll give you another day or two. They are going to take action and if it was due to some banking error, corporations have to pay some fee to creditors to prevent them from calling a default. It’s a tough world when you take on debt!

Also, as a corporation gets bigger, IT becomes a big challenge. Yes, it is scummy that they consider your payment late even if the check is dated before the payment deadline. But look at what happens to TD bank! Customers finding out their balance is zero, or that they have gotten an extra $200 in their bank accounts. When credit card companies merge, IT systems can really screw up customer service (see what happened to WAMU credit card holders when Chase took over them).

I’m going to state my view: I do not think credit card companies want to be making money mainly from charges and late fees. To think that would be insulting to folks in their senior management. OK, you could fault them for everything that happened in 2008 and their loose lending practice. But remember that many of them (or most of them) have MBA from ivy leagues. They can make mistakes but they are certainly not stupid. If you were the CEO of a bank, would you want to be making the majority of your credit card income from late fees! Come on, that is simply not sustainable.

If you start a gym, you probably did it with good intentions. You wanted the best gym environment and a core of loyal clients who value the workout environment. But what if you find that as your gym grows that only 25% of the people come to workout. The rest simply pay up, come for a month and then disappear (no follow through). Does that make you unethical as a gym owner? Would you give refunds to those who do not come but keep paying?

Or what if you sold a fitness DVD workout? Truth is that probably only 10% of the folks who your workout will actually do it and get great result. Does that make the producer and seller of DVD workouts unethical because the majority of folks who bought them do not workout.

Is anything that could cause an addiction or preys one’s vulnerability be unethical?

Sports teams charge a lot for their ticket prices. Once you are in the stadium, you are subjected to ridiculous prices for food and drinks and not to mention their merchandise! Are sports teams preying on our love for the team to jam us with “high priced” products unethical? After all, a shirt’s a shirt and to pay $275 for a jersey with a name written at the back?

MacDonald’s target their ads at kids. They make marketing arrangements with movies to give their merchandise with every kids meal! They make your kids want to go to McDonald’s and eat their unhealthy processed meat! Is that unethical?

Places like Costco deliberate design their stores so you have to walk the whole place! The result, very few people leave without ing more than they planned when they entered the store. Is that unethical?

Nutrisystems’s diet system consists of nothing more than smaller portions of junk food like frozen pizza in smaller sizes, smaller bag of potato chips. Is that really ethical? Isn’t that a little deceptive? Well, I guess you could still lose weight eating “less junk food but still eating junk food!”

Many kids get addicted to video games and flunk high school. Does that make the whole video gaming industry unethical?

The curse of growing big as a public company

I think a lot of the unhappiness directed towards credit cards and perhaps some of the areas I mentioned can be traced to the fact that these companies grew too big. When a company grows too big, things that did not seem important all of a sudden becomes very important indeed.

MacDonald’s did not get movie toys as gifts for kids meal until recently. But when you have saturated the US market and are looking for “incremental growth”, I guess you think of every crook and nanny to increase your bottom line. To increase revenue, Norton and all other security suites charge $59 for 3 computers! I don’t have 3 computers and only have 1, but I can’t a license for one at one third of the price! Is that ethical?

Disclosure and Terms and Conditions

Many folks also claim credit card terms and conditions are too difficult to read. Really?

Actually, contrary to many folks, I think reading a credit card’s terms and condition is one of the easiest things. But speaking about this matter. Let’s look at some other products with more complicated terms and conditions.

Mutual Funds and ETFs – Have any of you actually read the terms and conditions of any ETF or mutual fund you bought?

Terms of Agreement on software – Has any of you ever read the terms of agreement on a software you downloaded? Do you understand all the cookie jargon.

Cabla, Phone and Internet fees – Yes, only $49 a month for 1 year. But has anyone realized that cable and phone companies do not even disclose the “fee after the introductory period”! At least credit card companies do!

Perceptions and Opinions can be skewed by one’s experience

When you brand an industry to be unethical, very often, that view is shaped by one’s experiences. Adam’s view is shaped (at least partially) by his experiences with racking up debt. So is Matt. Matt has been cooled headed enough to keep a credit card and take responsibility for getting himself in to debt. Kudos to that. But to put a blanket “this industry is unethical” may be to blind ourselves to the fact that “the particular industry” may help someone people. I used to bitch about the high fees of sub prime cards. But then I hired a blogger (who is no longer working for me) who had been through bankruptcy and she was pleased she got get a high fee sub prime card to rebuild her credit! She did not mind paying those fees!

But people who have been scammed by say the internet with things like Acai Berry reverse billing fraud or “make money at home with google” and numerous other get rich quick scheme may be very wary and distrustful of ing any thing from the internet. And that would be a shame because there are great sites like Matts around that benefit so many folks.

For all the years that I have used the Blue Cash card, I’ve made over 2% in cash rebates and over $1000 cash back every year! Is that not frugal. But I guess folks who hate this industry will never see this benefit because they close their mind to the fact that credit cards can be useful.

Being Ethical Has Its Cost

Being ethical can have it’s cost? Why? Because the majority of people do not think about it or bother about it. In a competitive world where price and costs matter, firms will do anything to cut cost. Diners will get lower quality meat cuts to reduce cost. The “ethical restaurant owner” who wants to serve healthy food and use only olive oil will have a tougher time because of higher cost. And folks still want their greasy bacon and egg sandwich even though their heart is crying out load for them to stop! Consider how much more expensive are organic food than regular food. Goes in a cycle, the more expensive the item, the less people . They less people , it will not be economically feasible to reduce prices. You could a cheap computer from Best Buy. But to make it cheap, hardware makers sign marketing agreements with software companies and load up your computer with software you do not need! And to keep prices lower, they outsource tech support to India! (nothing against Indians but I’m sure Indians would not want tech support from Southern Texas cos they wouldn’t be able to understand us either!). Or you could from a great firm like Puget Systems, who custom makes your computer, install only necessary programs, does not upsell you, and has tech support in the US! But it cost more!

If every personal finance bloggers recommend getting a charge card, which has an annual fee and also requires full payment every month, everyone of us may be better off! Credit card companies earn their annual fee and there is much less default risk for them! There is no preset spending limit, so you would not have your limits cut! But hey, who am I kidding. Every pf blogger will say “get a no annual fee credit card instead”! But look at it this way, the more free stuff we demand and expect, the more creative ways corporations have to sell to us to make money. So you could sign up with mint.com for free and get ads and “questionable recommendations” for credit cards and other loans! That is what you get with a “free” and “cheap” mentality, corporations needing to “upsell” you with “backend poducts” to remain profitable! And this is where the temptation to cross the line comes into play.

There will always be demand for “unethical stuff”

For every person like me who is willing to pay an annual fee for my Amex charge card, there are probably 20 people who would never want to pay a fee for a credit card. For every person willing to spend more on organic food and healthy food, there will be more who just want their cheap greasy bacon and cheese bagel for breakfast or their Big Macs! For every person that values customer service and wants to a great computer, there will be dozens others who will settle for the “cheapest computer” that outsources tech support to folks who have trouble understanding us! For every Matt Jabs that realizes what a time waster cable TV is, the are dozens who would get the latest HD Plasma TV and veg out in front of the tube! For every serious person like Adam who is looking to build his blog and internet projects, there are dozens of people who are addicted to and just want to play their latest wii game (does that make wii an unethical company – after all, all they do is make young kids addicted to games?).

At the end of the day, most people know that they are doing or consuming stuff that they should not. Most of us know we should eat healthy food but don’t. We know we should pay our credit card bills in full, but many don’t.

But can we make a blanket statement and say credit card companies are unethical and say they belong to the tobacco and gambling group? Should we include all diners that serve greasy food and indirectly cause American to have the highest rate of heart attacks? Should we include video game manufacturers, though whose main aim is entertainment, ends up causing addiction to games and as a side effect destroys marriage and lose productivity at work?

Where do we draw the line of ethics and personal responsibility

The problem with labeling the credit card industry unethical is that you might as well label the capitalist system as unethical! Businesses are in the business of “selling their stuff”. We as consumers are responsible for doing our own research and figuring out if a product is right for us and how to use them!

Ending thoughts

But I guess the real problem I have when some one writes a post like that is this : it appears that the sole purpose of most post like these is just to get attention (or it could be unintentional and still get all the attention)! Write a anti credit card post and rest assured that frugal dad will stop by and pat you on the back. But if you really give it some thought, this line of reasoning would lead you to live like the Amish!.

So to all bloggers out there: If you want to write another posts about how evil credit card companies are (and there is nothing wrong with that), then please also write about the restaurant industry, the gaming industry, the “online broker” industry and how “unethical they”. And heck, you should be against Lending Club as well since it encourages folks to borrow and give them another outlet now that banks are starting to tighten the screws! Write about how the Federal Reserve printing money is unethical.

Chase Sapphire&#174 Card Review

By: Mr Credit Card

11/13/2009

Chase Sapphire Card The Chase Sapphire&#174 Card is the latest “revamped” rewards card line up from Chase. From what I can see in the reward program, I think Chase has a winner here. Check out this long review below.

How to Earn Points – The Chase Sapphire&#174 Card allows you to earn one point for every dollar that you spend on the card. Reward points do not expire and you can earn unlimited points. As a sign up bonus, you will get 25,000 bonus points after you spend $3,000 within the first three months. The Ultimate Rewards program also allows you to book travel tickets through their online travel system and if you choose to use that, you will earn 2 points for every dollar that you spend on the card. You will also earn double points from dining (from fast food to fine dining as Chase puts it). They also have a shopping portal where they have many online merchant partners. Using your card and shopping through their portal could earn up to 10 points for every dollar that you spend.

Rewards – The reward program for the Chase Sapphire&#174 Card is the Ultimate Rewards. It is a rewards program that offers travel rewards, merchandise, gift cards and other rewards. We’ll now go through the rewards.

Travel Rewards – There are a few ways to redeem travel rewards for the Chase Sapphire program. You can use their online travel site and book your flights, hotel stays, car rentals, cruises etc (just like you would with Expedia.com or Travelocity.com). Their travel site should be the same as these online sites with access to most flights and hotels. If you do it this way, you can get earn 2 points for every dollar you spend. By doing it this way, you could also either pay by points or pay by points and cash (from your credit card off course). 100 points is worth $1 (which is pretty standard).

You could also book your travel with other online sites or even off line travel agents. After you have done the bookings, you will just have to inform Chase and you will get a statement credit.

You can also use your points to exchange for gift cards. You can exchange points for Continental OnePass, United Mileage Plus, SouthWest and British Airways gift cards as well as other hotel gift cards. Below is a screen shot of some of their partners.

ultimaterewardsairline

ultimaterewardshotel

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Gift Cards – The Ultimate Rewards also allows you to exchange points for gift cards as well. Below is a screen shot of their merchant partners.

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Online Merchant Partners – The Ultimate Rewards Program for the Sapphire Card allows you to earn extra points (up to 10 points) for every dollar that you spend with their online merchant partners. Below is a screen shot of their partners. I got this from my Freedom Card which gives you rebate (or discount) rather points. But the partners are the same.

ultimaterewardsmerchants1

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Merchandise and other stuff – The Ultimate Rewards program also has tons of merchandise and you can also donate your points to charities. But there are just too many rewards to list them all here.

Fees – The Chase Sapphire&#174 Card has no annual fee.

Verdict – There are a few things I like about this card. Firstly, as far as travel goes, there are a variety of ways to redeem points for travel. You can book through their site and earn double points (just like Amex charge cards – but without the annual fee). You can also book your travel with any travel agent (online or offline) like the Discover Miles and Escape Card. So this card is pretty flexible in the way it allows you to redeem points for travel. You could also exchange points for gift cards of United, Continental, SouthWest and British Airways.

Their other rewards like gift cards and shopping partners is pretty comprehensive as well. I would recommend the Chase Sapphire&#174 Card to folks to want to use their cards for travel and also other rewards but are not hardcore frequent fliers. It has great flexibility in the way you can redeem points for travel. On top of that, there is no annual fee, you can earn unlimited points which do not expire.

Lending Club Interview and Review

By: Mr Credit Card

11/11/2009

I had the pleasure yesterday of interviewing Rob Garcia of Lending Club. Lending Club is a person to person financial service where borrowers can apply for loans and investors can fund those loans directly. Below is our radio interview and I will follow that up with a review of the site.

What is Lendingclub.com? – Lending Club is peer to peer marketplace for individual borrowers and investors (or lenders). It was formed in 2006 and after getting SEC approval in 2008, has seen its business grown leaps and bounds. Lending Club issued more than $6M in loans in October, which makes them the largest P2P lending operation in the world, while it keeps growing at an impressive 15% monthly.

How does it work for borrowers – For those who need to borrow, all you need to do is to sign up with some basic information. After the sign up process, you will be sent another set of questions to answer which contains more details like your salary, your job etc. Not everybody could be a borrower as there are criteria to meet. The two most important are your FICO score (which has to be at least 660) and your debt interest to income ratio (excluding mortgage) cannot exceed 25%. You can request a loan for up to $25,000 for a 3 year maturity. The interest is fixed and the loan is unsecured.

Based on the information that you give, Lending Club will run through a proprietary credit score system and assign the borrower a rating and an interest rate. Below is a screen shot showing what the ratings are and what rates are being applied.

lendingclubrates

How does it work for lenders and investors? – Once again, all you have to do is to sign up. The minimum investment is $25. All you have to do first is to deposit some more from your bank account to Lending Club. (Note that you do not earn any interest for any money sitting with them that is not invested).

You can browse the list of borrowers and even ask them questions about the reason for their loans, their past records etc. It is like being a credit officer.

Lending Club advocates diversification (who doesn’t) and claims that the the average net annualized return (after fees and defaults) is over 9.5%.

What happens when someone defaults? – According to Lending Club, the annualized default rate is slightly over 3%. Lending Club has a collection process if a borrower defaults. According to them, about 80-90% of missed payments are due to changes in bank account or temporary cash flow issues, and these loans become current again within the first 30 days of the missed payment. Late payment fees are charged to late payers and most of the fees goes into the investors pocket. Lending Club will also utilize external collection agencies if the note is deep on default.

Lenders and investors also have a choice of selling their loans in the secondary market. This requires a sign up with FOLIOfn (which is a member of Finra and SPI).

Lending Club is governed by the SEC – Lending Club is governed by the SEC. That that every loan is issued in the form of “notes” and is filed with the SEC.

Tools for Lenders – Lending Club has a statistics page which contains a lot of statistics for lenders. They contain some really cool date like

what are the main uses of funds for borrowers?

what is the average returns for loans with different purposes?

what are the average default rates for a specific category?

Below are screen shots of the stats page.

lendingclubstats

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Why is Lending Club able to offer borrowers a lower rate and are they underpricing risk? – I asked Rob in the radio interview why was lending club able to provide a lower cost of borrowing to borrowers and if they were underpricing risk for their lenders. His answer was that Lending Club is not a bank and they do not take deposits or borrower money. Hence, they have no “funding cost hurdle” to overcome. They also do not have costs associated with having branches and a bricks and mortar bank have. Hence, they are able to pass these savings on to their borrowers and investors.

Who is Lending Club For? – On their statistics page, Lending Club has a breakdown of the use of the loans taken out by borrowers. By far and large, most borrowers make use of Lending Club as credit card consolidation loans. Some use them for small business, home improvement. This does not surprise me as credit card issuers have been clamping down on their 0% balance transfer offers. Hence, if you are looking to consolidate your debt, whether is it just credit card or other types of debt, Lending Club is a great alternative if you cannot get approved for these 0% offers. There are several advantages that Lending Club provide.

Your payments are fixed – credit card issuers can raise their minimum payments on a 0% deal from 2% to 5% without any notice. This will never happen with Lending Club

If you accidentally make a mistake and miss your payment by a day, credit card issuers can jack up your rates to “default rate levels” of 29%. With Lending Club, this will not happen (though you will be charged a late fee).

Overall, I think Lending Club is a great concept and marketplace and has been used successfully by both borrowers and lenders. I know of folks who have been denied a 0% interest credit card but managed to consolidate their credit card debt through Lending Club. It also gives lenders a chance to earn higher returns that they would if they kept their money in the bank. They key is to have a diversified portfolio of loans. I think Lending Club would continue to grow and become more mainstream. Whether you need money or are looking for a place to earn higher interest, Lending Club is the place to be. (note: I do not have an account yet with Lending Club because it is not yet available in my state. But I will open an account when it becomes available. I was told by Rob that I can still open an account but can only “secondary loans”)

Lastly, if you sign up through the link here on this page, your account will be credited with $25 bonus.

(note: Lending Club is not available in every state though they are working hard to make them available).

CitiBank Sends Me A Check

By: Jason Steele

11/09/2009

Bellow is the funniest letter I have ever received. The story is that I recently canceled a CitiBank card that I had. Apparently, I had overpaid my last bill by the princely sum of $0.01.

I have seen this phenomenon before, sort of. Years ago, when I had a roommate, we used to split our utility bills half and half. Inevitably, we both rounded an odd number down to the next cent. One day I got a bill for an outstanding balance of $0.01. We had the greatest time calling the company up and telling them we couldn’t come up with the money, and would like to pay in installments!

Personally, I can’t really think of a way around this. If they did not send out checks, then they would be accused of profiting in small increments, like in the movies Superman III and Office Space.

What do you think, should I frame it?

1 cent

Bombshell Deal From Chase and British Airways

By: Jason Steele

11/06/2009

Last year, we had the “Big Delta Promo”. Delta later claimed that it was published by mistake, yet they still honored the deal. My wife and I went from zero to several hundred thousand miles in a few months, enabling our next big family trip, a “falafel run” to visit family in Israel, scheduled for next month.

That was last November. Now this November, Chase and British Airways may top that offer. Here is the deal. To break it down, you get 50,000 miles for signing up, another 50,000 miles after your first $2,000 spent within the first three months of the account. That is 100,000 points for just $2,000 dollar spent, (50 miles per dollar) but we are just getting started.

Spend $30,000 in a calendar year, and you will get a companion award ticket. This is not a companion ticket good at some paid fare class equal to twice the regular fare, it is an actual free companion award, valid when you redeem any award in any cabin. Note that British Airways usually operates four cabin aircraft for long haul flights including economy, premium economy, business, and first classes. For comparison, Delta and Continental only offer two class service, with United, American, and US Airways offering three class.

What You Could Do With This

Gary Leff at the View From the Wing blog and Richard Ingersoll at the Frugal Travel Guy blog are both all over this one. The theory is that a couple could each get the card, spend $32,000 over the next year, and end up with the equivalent of 480,000 miles, or two first class tickets from LA to Dubai.

Wait One Second

This offer does seem a bit too good to be true, and there are some major catches that Gary and Richard don’t bring up. I however, started a thread over at FlyerTalk with some real British Airways frequent flier gurus to find out what it would really cost. I used my “falafel run” from Denver to Tel Aviv, via London as my reference point to how I could use this deal.

In the end, I found out that my family of three would pay nearly $2,000 in fuel surcharges alone on three business class tickets Denver-London-Tel Aviv round trip, about $700 each. the $32,000 spend also carried an opportunity cost of $640 in rewards had I spent that sum on a %2 cash back card such as Schwab Bank. There is also a $79 annual fee per card that is not waived the first year.

So the tickets would hardly be free, but the forum members pointed out some real benefits. First, British Airways awards are reasonably available, unlike say, United. Also, they do not have multiple tiers like Delta, with the lowest tier being almost completely unavailable. They are partners with American Airlines and other OneWorld Carriers, although the companion certificate is only good on British Awards. Another plus is that British Airways awards are flexible; they can be rebooked on different dates along the same routing for free, and a London stopover is also free. Another factor is that British allows families to pool miles with household accounts, a really nice feature. Finally, I discovered that lap child award tickets are available for %10 of the mileage of the parent’s award ticket. Other airlines have outrageous policies where lap infants traveling with their parents are charged 10% of the highest fare class they can come up with, often more than the price of a coach seat! This could be a factor considering that it may take over a year to get to the 30,000 mile annual spend, and we may then plan the trip nearly a year in advance to get the dates we want. If that is the case, it would not be the first time we booked a ticket for a member of our family not yet born at the time.

Unknown Factors

There is another rather lengthy discussion thread on the merits of this deal at FlyerTalk in which it is pointed out that this deal may flood the North American market with BA miles and companion certificates, reducing the once reasonable award availability. That is certainly a risk. Another risk is that BA may decide to change it’s redemption policies between now and when I might eventually redeem an award. As I have said, if I do this, it will be a long term project. I might apply for the cards now, get the companion certificates in a year, and book travel for some time in 2011 or even 2012 at the earliest. Who knows what can happen between now and then?

For many this deal will be a no brainer. If it all works, this could be the biggest credit card deal of the year. I just hope they don’t pull the deal before people have had a chance to jump at, as what happened with the Delta deal last year.