I recently stumbled across an article about a South Africa company introducing a cell phone based payment system to Cape Town, South Africa.
It’s got me wondering whether this type of mobile payment system will catch on in the United States. While it would be nice to simply carry my cell phone rather than my wallet, I expect that it will take awhile for general acceptance. And until a system is created to carry my driver’s license on my cell phone, and I don’t feel the need to carry some emergency cash on my person, it is really attempting to solve a problem that I don’t have.
I wondered whether cell phone payments had been tested in the United States and after a little bit of research I discovered that a wireless payment sytem was tested in the Washington DC area in 2006 (explained here). It involved using an Radio Frequency Identification chip (RFID) in the cell phone to store credit card and bank information, which was read by a scanner at the check out counter. Major League Baseball has implemented a similar system to allow baseball fans to receive baseball tickets on their mobile phone and enter the park by displaying and scanning a bar code on the cell phone. Now that is something that I expect to catch on.
This Bankrate article from 2005 predicted that cell phone based payment would be a growing method in 2006-2008. And while gas stations now frequently offer contactless transactions for those on the go, I don’t think it is nearly as popular as the author in the article would have predicted
But digital payment companies, such as Paypal and its competitors, are moving into the mobile payment space. They are enabling persons to transfer money between cell phones numbers and authorize the payment of money through text messaging. As cell phones move to replace (or at least substitute themselves for) desktop computers and televisions as entertainment devices, there’s no reason that they couldn’t replace credit cards as well as the public becomes more comfortable with the technology and retail establishments begin to accept them.
What do you think? Will cell phones make plastic credit cards obsolete?
Credit card companies have pretty much always felt free to adjust the interest rate on their fixed rate credit cards. That is, until last year when Citibank decided that the fixed interest rate on its credit cards would no longer be increased at any time for any reason. Citigroup has since rethought that policy, and now it turns out that Discover has also had its fixed rate credit card policy under consideration.
An NBC affiliate reported that Discover Card has informed holders of its fixed rate credit cards that it is converting them to variable rate credit cards. The conversion will take place on October 1, 2008. I haven’t determined yet how many Discover Card holders are receiving the notice of the change in policy terms.
The report is concerned that variable rates will increase the amount of interest that credit card holders pay and could kick start credit problems among some who cannot convert to another fixed credit card and are forced to accept an increase in the interest rate on their credit card.
I am going to hold off on judging the effect of the conversion from a fixed rate to a variable rate by Discover. Since fixed rate credit cards have recently operated almost as variable interest rate cards, it’s not clear what will be the short term impact on the interest rate of card holders. The concern with variable interest rates is that an affordable debt obligation could become unaffordable as interest rates increase. But as long as the Federal Reserve continues to keep interest rates low, consumers might even benefit from a floating rate.
The conversion by Discover also ends the doublespeak on interest rates that has surrounded changes in interest rates on fixed rate credit cards. That, in and of itself, is a policy change to be celebrated.
Credit card companies argue that college students handle credit as well as the general population, but it may be simple economics. The costs of acquisition of new debtors while in college are low, there is often strong brand loyalty from college students toward the company that provides their first credit card, and parents often bail out their debt burdened children when they get in trouble.
It’s an issue that has gained increasing attention as Congress considers reforms for the credit card industry. Some colleges have sought to prohibit marketing to their college students. But other colleges have profited from the exploitation of their students by the credit card providers. In fact, some estimates are that colleges and universities in this nation receive more than $1 billion from deals with credit card providers. State representatives in Ohio have introduced legislation to prohibit credit card marketing on Ohio campuses and universities. It’s also been subject to examination by Congress.
Some experts argue that what is needed is more education about finances and credit cards for college students. But those that have studied prior education efforts to promote financial literacy doubt its effectiveness. This Chicago Tribune article argues that financial education classes are ineffective and potentially counterproductive by giving graduates a false sense of security when entering financial transactions. They say there’s simply no evidence that education works and are fearful that the Congressional response will be limited to more education.
One good aspect of the suggested Federal Reserve credit card reforms was that they began from the presumption that more disclosure wouldn’t help. It seems to be implicitly recognize that education on the policies of credit card companies wouldn’t work.
But the issue of credit cards and college students has gotten more important over the last year as the credit crisis has tightened the availability of private student loans by college students. The increasing cost of tuition and limits on public assistance has, in the past, forced many to turn to this source for additional money for college and graduate school. Private student loans typically account for 25% of student loans. But with tightening credit standards and banks ending their private student loan programs, as well as the difficulty that parents will have in tapping into what is left of their home equity through loans, college students may be forced to choose between charging some portion of their tuition to their credit card or halt their college education to earn more money. Already, 24% in a recent survey indicated that they had charged part of their tuition to a credit card. That percentage seems likely to grow. It will also probably increase the average credit card debt of graduating students, which is already averaging $2000 - $3000. And that debt will be at a higher interest rate than typical student loans, without the offering of deferment or forbearance for those in school or unemployed.
It will be interesting to see how these issues play out over the next six months as the first college students face the credit crunch - whether states, federal programs, and other lenders step up to fill in the gap - and how Congress addresses the issues of credit card marketing.
This story in Crain’s Cleveland Business about Medical Mutual of Ohio offering a medical credit card to assist its insured in paying their out of pocket medical expenses is part of a larger trend of the medical industry assisting consumers in paying for increasingly expensive treatments by offering payment assistance through credit cards.
But when a doctor or hospital offers you the means to pay for your medical treatment through taking on credit card debt, should you do it?
This article from an ABC affiliate answers with a pretty decisive no. Putting your medical care on a credit card diminishes the ability of the patient to negotiate lower payments and a longer payment schedule. And according to the ABC affiliate article linked below, medical debt looks much better on your credit report than credit card debt. They even recommend turning down a medical credit card with 0% financing!
Medical debt is an increasing problem in the United States. It is estimated that half of bankruptcy filings are the result of debt taken on for health care, and many of those have health insurance when they first got sick, according to this 2005 US News & World Report article. It’s a bad situation for both the debtor and the medical provider, but it’s not clear that medical credit cards are the solution to this crisis.
If you need more information on how to negotiate your medical bills to save thousands, learn what leverage you have against medical providers, and how to find a professional to negotiate your medical debt, click here.
The United States isn’t the only country where consumers are having difficulty with credit card debt and rising expenses. I previously wrote about the problems with credit card debt in Great Britain. And several new news articles have focused on the spreading consumer debt crisis around the world:
Australians owe a national record $44.2 billion in credit card debt, up 3.5% since December. The average credit card debt for a family in Australia is $3200, with typical interest rates ~ 20%.
Credit card spending in Korea in July was up 22 percent compared to July 2007, due to both an increase in the popularity of credit cards and a 6 percent year over year increase in consumer prices.
And Turkey’s problems with credit card debt were recently chronicled by the New York Times. As the NYT said, “Few American exports have proved as popular as credit cards.”
Although this website is generally about consumer debt, a Washington Post review of a new documentary movie caught my eye recently. It did so when it said the nation’s looming economic crisis would make the Great Depression look like a market correction. I expected it to be talking about the foreclosure crisis or credit crunch, and was surprised to find out that the documentary’s focus is the national debt.
The movie, I.O.U.S.A., is debuting next Thursday, August 21, and I’m sure it hopes to capture the nation’s interest in documentary films and turn that attention during the current economic environment to the mounting problem of the national debt.
Here’s the movie trailer:
Documentary movies such as Michael Moore’s Roger and Me (the story of Flint and GM), Morgan Spurlock’s Super Size Me (McDonald’s), and Al Gore’s global warming documentary, An Inconvenient Truth, have captivated the nation in recent years and created a buzz about the issue at the center of the movie. It will be interesting to see if IOUSA will be able to bridge the gap between raising awareness and causing a change in the spending habits of the nation’s government.
The current economic climate created by the real estate downturn plays in the movie’s favor, as the collapsing debt market and credit crisis makes the potential for an economic crisis caused by the national debt seem much more likely than it would have just a few years ago. It will be interesting to see, though, whether Americans unwillingness to talk about their own personal debt issues effects the popularity of and buzz around I.O.U.S.A.
For those interested, here’s an interview by RealTVfilms.com with IOUSA director Patrick Creadon:
The Sun News article presents some staggering statistics about the extent that debt issuers have pursued military personnel. If you have a mental image of debt companies standing right outside the military gates, you’re almost right! The city home to Camp Pendleton Marine Corps has more payday lenders than any other zip code in the United States. And military families are three times more likely to take out payday loans than civilians.
The result is that Navy discharges because of high debt increased ~ 900% between 2000 and 2005.
Pretty much every newspaper article offering tips on using credit cards recommends that you pay off your credit card debt every month. But two recent surveys have found that some Americans don’t know whether they are following this oft given advice.
A survey of 1,000 Americans sponsored by CreditCards.com found that 5 percent didn’t know whether they carry a balance on their credit cards from month to month. Another survey, this time by the Consumer Federation of America and Washington Mutual Bank, found that 8 percent did not know whether they were carrying credit card debt over from month to month.
This article in the Salt Lake Tribune wonders how those people do not know if they carry a balance, but I think it’s pretty simple. Their spouse pays the bills and they don’t talk about their credit card debt. It’s either that or they can’t face opening their bills from month to month. I’m not sure which explanation is worse - but if you are reading this and you don’t know if you are carrying a credit card balance over from month to month, you should probably find out.
Now you can use your credit card for more than racking up credit card debt.
The news from the Defcon hacker conference is that some high security locks used in places such as the White House and the Pentagon can be picked with a credit card. And for those movie buffs that are interested, you don’t slide the card between the wall and the door to pop the lock open. You use a photocopier!
Find out why it seems that no lock is safe from picking at CNET. Somehow I don’t think this is one of ABC News’ proposed reasons for cutting up your credit cards.
A recent study published in the Journal of Consumer Research by Derek Rucker and Adam Galinsky of the Kellogg School of Management at Northwestern University suggests that the cause of Americans consumer debt problems is low self esteem. The study found that individuals who felt powerless were willing to pay a premium for items considered status symbols.
I haven’t read the full journal article yet, but I wonder whether the chicken or the egg came first. Does debt and economic problems increase feelings of self esteem or is it truly low self esteem that causes the debt problems. To some extent, my guess is that they reinforce each other. That’s the same conclusion that I’ve drawn about research suggesting that the stress from credit card debt leads to health problems. Because medical problems are the cause of debt for many people, it’s hard to say which condition is the cause of the other.
The other question about the study that I have is that America’s current credit card debt problems seem to have appeared as the result of good times rather than bad. Were Americans feeling powerless during the time from 2002 to 2007 when they racked up their current debt. Or were they simply taking advantage of an endless supply of easy credit?
