Two unrelated topics today:

Annual Fee Flexibility

Yesterday, I noted that most problems I have with credit cards are typically resolved with a single phone call, without resorting to “executive email carpet bombs” or seeking publicity.     This is due to the hyper-competitive nature of the industry.    Today, I read an example of this happening for another consumer.     The Consumerist reports on a Citibank Amex card holder named Chuck.

Chuck lost his job several months ago and wanted to continue his American Express membership, but had trouble justifying the $50 annual fee in his limited budget. So he launched an Executive Email Carpet Bomb, started his own anti-AmEx blog and started picketing… Well, no. Actually he just called customer service and asked if there was anything they could do for him. To his surprise, he got a “yes.”

The truth is that annual fees can often be waived by a simple phone call, even if you haven’t lost your job.   In the case that they cannot be waived, typically you can get some bonus miles or something in return for being retained as a customer.    My experiences have shown that Citibank in particular will not let you cancel your card without offering you something substantial.

The credit card industry can be cruel and arbitrary,  but generally it wants to keep it’s customers.   Before going ballistic, try a polite phone call.    The answer could surprise you.

Credit By Geography

Speaking of arbitrary, here is an article that suggests that companies are denying people credit based on where they live.    Apparently HSBC bank lowered someone’s credit limit, and attributed the decision, in part, to the fact that the customer lived in California.   This is not nearly as bad as the practice of denying credit based on where someone shops, but it is pretty arbitrary.     While California is suffering economically, I am sure that there are many California residents who are thriving.

There is truth to HSBC’s statement that “As standard business practice, HSBC’s card business adjusts credit criteria based on economic, market and other factors.”     Credit card issuers can lower your limit any time for any reason.   They may blame it on your state’s economy, your profession, or not even give you a reason at all.    More often, they will give you a totally meaningless reason that has no correlation to reality.

My point is that this shouldn’t matter.    If you pay your bills on time, and maintain a decent credit score, banks will always be lining up for your business.   If you cannot get the credit limits you need, go elsewhere.

Ideally, you should have far higher credit limits than you will ever need.    This lowers your credit utilization ratio, a key factor in your credit score.   I currently have far more credit than I ever hope to use.    I don’t even know what my credit limit is on my cards offhand, because it is highly unlikely that I will use even 50% of my limit on one card in a single month!

So don’t get all hung up on a lowered credit limit or some bizarre explanation from your credit card company.  It is probably a sign of the bank’s financial weakness, not yours.     Place a polite phone call, and then go out and find a bank that will give you the credit you deserve.

Last week, I told you about a Bank of America customer, Ms. Ann Minch, who made a YouTube video in protest of her interest rate being hiked.     At that time, I applauded her for her strategy of making a public appeal to executives, yet criticized her for encouraging people to default on their credit card debt in protest.

BofA Caves

Now comes word that her strategy worked, for her.    Specially, she did hear from a BofA executive with whom she was able to negotiate her rate down.    The article reports that her video received 240,000 views on YouTube, and that she has since posted a follow-up video boasting of her victory.    It is unclear if she still is encouraging others to default on their credit card debt.

Conclusions

No matter what your grievance with a company is, they will cave if you can give them enough bad publicity, or make a credible threat of doing so.    So long as her YouTube rant continued to be viewed, it was only a matter of time before the bank decided the bad publicity was not worth it.   This is called the Unscrewed method, as described by Ron Burley in his book by the same name.     The idea is that companies, large and small, are in business to make a profit by any means necessary.   Some may still believe that the customer is always right, but most just want to make as much money as possible.   According to Burley’s book, often the only way to compel a company to do the right thing is to take actions that will make it in their best interest to give you what you want.

When seen through this paradigm, it is clear that BofA thought they had more to gain by acceding to her demands than not.    Sometimes, it takes some creativity and a little bit of chutzpah to successfully pull off an Unscrewed attack.   A close relative of the unscrewed attack is the Executive Email Carpet Bomb (EECB).    This is the strategy of sending your complaints directly to the executives of a company, rather than be denied by customer service.     I personally have had success by combining the EECB with the Unscrewed method.    When I have been seriously mistreated, I merely threaten to make my complaints public in an email to a company’s executives.   It is not an empty threat, and companies prefer to do the right thing before I go public, rather than after I publicize their mistreatment.   In the end, everyone wins.

Where She Went Wrong

What bothered me about her approach was that she was encouraging others to behave in an irresponsible way.    If she wants to ruin herself financially, or threaten to do so, that is one thing.   It is an entirely different thing to incite others, who may not be very savvy, to ruin their own finances to be part of her “revolt”.

Over at CreditLaw.com, they have an interesting post detailing some of the consequences of her threatened actions, and some of the steps that could have taken.

The other thing that I found objectionable, was her personalization of the problem in which she referred to Bank of America executives as “evil, thieving bastards.”   Just because a company raised the interest rate they are charging you, that doesn’t make it right to slander people.    It is acceptable to refer to a policy or practice as being evil or thieving, but not individual employees of that company.

Finally…

I have never actually used an EECB or the Unscrewed method on a credit card company.    The credit card business is an extremely competitive marketplace, especially when you pay your bills on time and maintain a good credit score.     When I have problems, I often get them fixed very quickly over the phone on the first try.     That is rarely the case with the airline industry for example.    When my problems are not resolved quickly, I can always just cancel my card, another benefit of not carrying a balance.    There are so many other cards to choose from, I don’t loose much sleep over dumping a bank that is not acting reasonably.

Ann Minch put herself in this situation by incurring debt on a credit card that can vary it’s rate at any time.    She got out of this fix with a clever video in which she threatens to default on her debt while encouraging others to do the same.    I am glad she had her situation resolved, but I hope none of her viewers were inspired to follow her off a financial cliff.

Last spring, when the CARD act was being debated, I discussed a horrible amendment that would have allowed merchants to add surcharges to all transactions made with a credit card.    Currently, they are forbidden from doing so by their merchant agreement with the processors, Visa, Mastercard, Amex, etc.   Had it passed, I would have radically changed my credit card usage as merchant fees are almost by necessity going to be greater than any reward.   Thankfully, that amendment went down in flames as the CARD act was signed into law without it.

Taking Another Look At Merchant Fees

What did happen as a result of the CARD act was that the Government Accountability Office, (GAO) has been studying these fees.    According to this article in the Washington Post, there has also been a trio of bills that would change the way credit cards are processed.    Two of the bills would allow merchants to band together to collectively bargain with the processors to reduce merchant fees.    A third bill would allow merchants to charge different amounts for goods and services, depending on the method of payment.

Where Do I Stand

I am largely with the merchants here, but only up to the point where they want to be allowed to start passing on “transaction fees” that vary depending on the method of payment.   I think they should have the right to collectively bargain with processors over interchange fees, which are a cash cow.     The fact that so called “interchange fees” eat 1-2% of each transaction and make up 48 Billion dollars a year tells you that it is not a competitive market.    For $48 billion dollars you rebuild every baseball stadium in the country, construct a high speed rail line from New York to Miami, or set up a colony on Mars!    It is obvious to me that merchants are getting ripped off in the same way that consumers get ripped off by “foreign transaction fees”.

On the other hand, I shudder to think of a world where every single purchase has some sort of “transaction fee” associated with it.    A fee for paying someone is probably the most obnoxious and insidious fee there is.    It is the way TicketMaster works, and they might be one of the most hated companies in the world.     If Representative Peter Welch’s bill were to become law, every merchant would feel free to become TicketMaster.

A quick look at Welch’s  web site shows me that the Vermont Democrat has taken some very pro-consumer stands.    The web site claims that this legislation as “allow merchants to give consumers who pay in cash a discount and bans penalties for small businesses that process only a small number of transactions.”

You can call it a cash discount or a credit card transaction fee,  but it is the same thing.    I think that his heart is in the right place, but it is too easy to see the ramifications here.

What Would This Do For Reward Cards?

Ironically, we could get more credit card rewards, as they would need even more incentive to get us to use our cards when we have to pay more each time.   Of course it still will not be worth it to pay 3% more to get a couple frequent flier miles or 2% cash back.   We know that because a select fee “merchants” such as the IRS accept credit cards, but only through a third party that charges a transaction fee.    The reward is never really worth the fee.

The effect on reward cards is not the reason I oppose it though.    I just like price transparency and hate fees.   I like the convenience of the credit card, but I still don’t think I should have to pay a fee to pay someone.   I don’t want to be waiting in line for a million years behind people writing checks and fishing for spare change.    I don’t want to have to be one of those people in order to avoid a transaction fee or get the “cash discount”, which is really the same thing.

Ultimately, if merchants can negotiate lower interchange fees, than we will probably see fewer rewards.    If that happens, then I am ok with that.     Merchants should get to negotiate and they should not be taken advantage of.     More likely, there will be less of that $48 billion dollars for profit for the banks and the credit card processors.    I for one, will not stay up at night worrying about them.

Have you ever seen an ad for the Jitterbug phone.     It is a mobile phone that does something remarkable; it only makes telephone calls.    It offers no instant messaging, no web browsing, and no cameras.     The idea is that many people, myself included, only want to use their phone to call people, and are happy using their cameras and computers when they want to take pictures and use the internet.

Credit Card Companies Try Simple

Earlier this year President Obama called on credit card issuers to offer “plain vanilla” credit cards.    The idea was that current cards are too confusing with a myriad of terms and conditions that few people really understand.   His statements came during the debate over the CARD act.

The President eventually had the privilege of signing the CARD act into law, however, it did not contain any provisions requiring banks to offer a plain vanilla card.    Now, banks are starting to heed the President’s call for simpler credit cards.      The Washington Post has an article highlighting some of the new simple cards.

Bank Of America Goes Basic

Next month, BofA will be offering a new “Basic Visa” card with simplified terms.    There will be a single interest rate for all transactions, including charges, balance transfers, and cash advances.    There is a $39 fee for late payments.    Interestingly, they claim that all of the terms and disclosures should consume only a single page.    According to other reports,  this is one of four new cards they will be offering with simplified terms.    The interest rate will be Prime plus 14%.

Chase’s Blueprint Card

I have been seeing ads on tv for this card.   The ads tout the benefit of being able to choose which expenses to pay off in full and which to carry a balance on.    You can also set a target date for paying off your balance, and they will calculate how much you need to pay every month.

My Take On These New Cards.

Simplicity can be a plus, as anyone who has tried to program their VCR can attest to.    While, I find some of these changes to be either trivial or irrelevant, others strike me as genuinely innovative.

With Bank of America’s Basic card, it is a little trivial that everything has the same interest rate.    That is simpler, but I am sure some rates are better and some are worse than their other cards.   I have to assume that balance transfers and cash withdrawals still have different fees and terms than purchases.   Typically, transfers come with a “transfer fee”, and they both lack a grace period.   If that has changed, it would make the card much more interesting in my opinion.    I also like the condensation of the terms and conditions to a single page.     I am sure someone had to spend a few hours working on it to cut out all of the mumbo jumbo, but that should have been their goal all along.    I haven’t seen the page, but it wouldn’t surprise me if there are unique pages mailed to customers in each state.    Currently, your terms and conditions contains all sorts of clauses that only pertain to residents of one state or another.   Having unique pages would make their life slightly more complicated, and our lives vastly less so.     Actually, it can’t be that hard.   They already print out a unique statement for each customer every month, how hard would it be to print out one of 50 different agreements to go with it as well?

My Take On Chase

I think it is a bit irrelevant that Chase’s allows you to decide which charges you want to pay off and which you don’t.     Money is money, and it doesn’t matter if you feel like you are “paying off” your $100 shoes or your $100 grocery purchase.   It remains unclear whether or not you will lose your grace period on the items you “pay off” every month.   If you can retain your grace period on purchases that are paid off, then this could be a genuine innovation.  I do find it innovative that Chase will give you recommended amounts to pay in order to pay off your entire balance by a set date.    Hopefully, this will help people pay off their balances quicker.

In Conclusion

The CARD act is about to bring change to the credit card industry.    Unlike the doom and gloom scenarios painted by the industry while the act was being debated, not all change will be bad for customers.    As we are seeing here, some credit card companies are using innovation as a way to attract and retain customers.    I applaud these new ideas, so long as they are striving to be customer friendly.    In the end, banks that change through pro-customer innovation will triumph over those who try to adapt through the adoption of anti-customer terms and fees.

I came across this article today in the Huffington Post.   In it, the author describes a woman, Ann Minch, who has posted a video on YouTube in which she is refusing to pay her credit card bill with Bank of America.     She cites the fact that they have raised her interest rates unreasonably and the fact that they are one of the recipients of the federal bank bailouts.

What I Like About This

She is appealing to the executives of the company after she made an attempt to negotiate her rate down.    This is somewhat like the strategy that I recently wrote about in regards to an issue that I had with Delta Airlines.     If you feel you are being mistreated by a company, and you have exhausted the normal channels, then this kind of appeal can work.

I also like that she has removed her savings account from the bank, taking her business elsewhere.    Like voting, one person’s actions are insignificant, while many people acting as a group can cause rapid changes.

What I Don’t Like About This

Where to begin!?    For one, carrying credit card debt is the worst possible way to manage your money short of payday loans and loan sharks (is there a difference?).    Getting past that, it struck me that she had removed approximately $5,000 from a savings account in protest of her interest rate on her $5,943.34 balance.     So she is within a $1,000 of being able to pay off her balance completely.    Paying off her balance and canceling her card would be the smartest move.

If she cannot bridge the gap between her savings and her credit card debt, there are two other options she could choose.    The easiest would be to pay off most of her debt, and finish off the rest as soon as possible.

She could also do a balance transfer to another card with a lower interest rate, preferably a 0% introductory rate.   Unfortunately, she will still accrue a balance transfer fee, typically 3%.     She could also do both, pay off most of her debt, and transfer a small fraction to another card.

Admittedly, without a job she might have trouble getting another card, but lets see where her “strategy” of default is going to lead.

Misguided Populism

Perhaps the worst thing about her video is the fact that she does not intend to pay off her balance at all and she is encouraging others to take the same irresponsible path.    For a reality check, here is what will happen.    First, she will ruin her credit.    That will make a balance transfer to another card impossible.    It will also have plenty of other consequences.     She will not be able to qualify for a mortgage, a refinance, or a home equity loan.     She may see higher insurance rates.     She is currently an unemployed mental health case manager.  When she looks for a new job, they may do a background check and discover her poor credit.     Since she is works in health care, that is a very real possibility.   I don’t agree with this practice, but it is a reality.

From there, this only gets worse.   Depending on what state you are in, the company can take you to court, seize your assets, and garnish your wages.   Her anger at her credit card company or their  government bailout will have zero influence on the judge.    She may also be liable for court costs and legal fees on top of her ever growing principal, interest, and penalties.

By far the worst thing about this video is that she is encouraging others to follow her off of a financial cliff.    Even if you agree with your politics, this is the financial equivalent of a cult leader ordering a mass suicide.

My Advice

She got herself into debt.    It is unfortunate that she lost her job, and it is not fair that the bank is raising her rates, but default is not the answer.   This is like the car chases on TV where the suspect gets pulled over for speeding, and then ultimately spends years in jail(or worse) for leading the police on a high speed chase.   She may get her 5 minutes of fame, but she will lose in the end.

As I have shown, appealing to executives and publicizing your cause can be a great strategy for getting a company to do the right thing.    Acting in an irresponsible and financially self destructive way is a terrible strategy.  Encouraging others to follow her is morally wrong.  The bank will survive her default, but she will be financially ruined.

She should continue her appeals to the executives and put whatever pressure she can on them.    Alert elected officials and the news media as well.   At the same time, it is vital that she continue to pay her bills and maintain her credit.    She should also recant her calls for others to default.

Late last year, Delta Airlines offered a huge bonus for partner activity, including credit cards.   I wrote about it excitedly here and here.    In response to the promotion, my wife and I obtained American Express Delta SkyMiles personal and business cards.    Later, Delta canceled the promotion saying that it was never intended to be released, yet they would honor it’s terms for those who had registered while the promotion was visible on their web site.     To this day, their explanation remains on their website here:

“The SkyMiles® multi-partner threshold promotion was in the development phase and not yet formally announced or launched when it was inadvertently published online. The landing page should not have been live and the content was subsequently removed.

However, Delta Air Lines will honor the bonus miles promotion for SkyMiles members who have already enrolled.”

Delta stayed true to it’s word and honored the promotion.   Flush with SkyMiles, I booked a trip for my family to Israel this winter.

Change Happens

I made the booking this winter, and then really didn’t think about for some time.    In July, someone asked me what dates I was going to travel, and I logged into my SkyMiles account to double check.     To my surprise, there was a note in red by my itinerary saying that my flights had changed.     My outbound trip from Denver to Atlanta had moved up, eliminating most of the time I had on a planned stopover there.    A quick call to Delta cleared this up, but I was still wondering why I was never notified of the change.

Last week, I again looked at my itinerary online, and again there was a change.    This time, my flight from Tel Aviv to Atlanta had a change of planes in JFK.   As any traveler knows, it is a good idea to avoid JFK at all costs, especially in the winter.    I also had no interest in making two changes of planes on an already long trip.   Furthermore, it was really starting to concern me that Delta was changing my plans over and over again without notifying me.

I called Delta and found out that the daily non-stop Tel-Aviv – Atlanta flight had changed to four times weekly, eliminating my flight on that day.  I had to choose to extend my trip a day or cut it short a day.    I agreed to cut my trip short a day, but I had one simple request.    In light of all of the changes that Delta had been making to our itinerary without notifying us, I thought it would be appropriate for us to be able to make a slight change to one of our flights.

Since we made the original reservation, we found out that we would have a large amount of our extended family visiting Atlanta on the day we were traveling through, Christmas Day.    We merely hoped to have our Denver to Atlanta flight changed from afternoon to morning so that we could visit with family on Christmas.      Normally when an airline makes a significant schedule change, passengers have the right to cancel the flight at no penalty, or to make further changes without charge.

Unfortunately, the agent I spoke with would only agree to waive the change fees on my ticket, since at that time, the schedule change only affected my flight.  My wife an daughter were returning on a separate flight, and the earlier change had affected them, but not this change.

I asked to speak with a supervisor, who was very blunt in explaining that it was Delta’s “right”to change our schedule as often as it pleases, yet any change on our part would incur a change fee of $250 per person! I tried to explain that Delta had been changing our tickets multiple times, without notifying us, and that the right thing to do would be to allow us this one small change as a courtesy.     Unfortunately, courtesy and customer service were concepts that this person seemed unable or unwilling to utilize.

My Appeal

In the courts, you case can be thrown out, but you can always appeal.    In a large company, the only avenue you have is to communicate directly with their executives, a method known as the “executive email carpet bomb” or EECB.    Simply put, this is a polite letter that explains your case to someone who has the unquestionable authority to grant your request.    Such a person can hopefully see the big picture of satisfying customers over the minutia of corporate policy.     The core of my argument was that just because Delta may have the right do enforce it’s rules to the letter, that does not make it the right thing to do in this situation.   I did mention that I would be blogging about this event.    I am not exactly the most well read blogger on the internet, but I thought whichever way they decided, I wanted them to know that I would be sharing their response with their current and future potential customers.

Their Response

As you can tell by the title, Delta finally did the right thing in granting this minor change to our schedule on Christmas morning, a time when aircraft fly mostly empty anyways.    They explained that they were doing so as a one time courtesy, exactly what I had originally asked of the representatives on the phone.

Lessons Learned

Lesson One, when flying Delta, make sure to sign up for schedule change notifications.   In their response, they also pointed out that Delta has a separate place on their web site to sign up for flight change notifications.    I have flown hundreds of thousands of miles on Delta in my lifetime, but frankly, I was not aware that I had to register separately for notifications of schedule changes.

Lesson Two, when dealing with a large company such as an airline, or your credit card company, don’t give up.     Always ask to speak to a supervisor.   If you don’t get the service you are entitled to, don’t be afraid to write to the executives of the company.     Always be brief and polite, but let them know that their decision will have consequences.   You can start a blog, or write letters to other bloggers and journalists who fight for consumers.      In this case, I let Delta know that I would be writing an article about this subject, and for whatever reason, they ultimately chose to do the “right thing”.

In the end, that is all that matters.