Archive for the ‘PROBLEMS’ Category

Credit card minimum repayments the hidden danger in your post-Christmas bill

Beware the minimum payment as you contemplate that post-Christmas credit card balance.

Economists have found the minimum payments that appear on monthly credit card statements act as an “anchor” causing many consumers to pay off less debt than they otherwise would – and should.

Putting a price on Christmas

Australians will spend billions this Christmas, with the largest percentage spent on food.

A study by American researchers Benjamin Keys and Jialan Wang shows that almost a third of card borrowers in the US make payments at or near the monthly minimum. Their findings suggest a substantial proportion of consumers – up to one in five – settle for the lowest possible payment even though they could afford to pay more.

“A large fraction of near-minimum payers appear to treat the minimum as an anchor,” the study published by America’s National Bureau of Economic Research said.

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That means higher balances, higher interest costs and eventually greater financial risk for many card holders. At the national level the influence of the minimum payments may be helping to elevate household debt, which makes the whole economy more vulnerable to shocks.

Australian credit card users are also susceptible. A consultation paper released this year by the Australian Treasury said “a growing body of experimental research and field studies have shown that some consumers make a smaller repayment than they otherwise would have simply due to the presence of the minimum repayment.”

The Treasury paper said card issuing companies set minimum repayment amounts as a very small proportion of the outstanding balance, “so that households making the minimum repayment will only pay off their balance over a very long period and incur very large interest costs.”

Gerard Brody, chief executive of Consumer Action Law Centre, said that credit card users should focus on the total amount outstanding on their credit card statement and pay off as much as possible rather than the minimum payment.

“The minimum payment might look easy to pay but that’s all the bank wants you to pay,” he said.

“They know that if you do that, they will make a lot of money from you in interest payments. What you should be focused on is the full amount outstanding and paying that before the due date when the interest payments come through.”

There are no regulations that determine how credit card minimum payments are set. The Treasury’s paper said they are typically 2-3 per cent of the outstanding balance.

Consumer advocacy groups including the Consumer Action Law Centre and CHOICE say minimum repayments should be lifted to ensure consumers aren’t lumbered with high interest debt for decades.

CHOICE spokeswoman Nicky Breen said card issuers should also be required to “proactively contact customers” who are only making minimum payments and drawing out their debt.

“The federal government has had a consultation on broad credit card reform but no decisions have been made as of yet,” she said.

Some card users simply don’t have enough money to repay any more than the minimum. But Dr Keys and Dr Wang observe that when American credit card companies lifted their minimum payments, consumers paid the higher amount most of the time, suggesting they could have contributed that much all along.

Bessie Hassan, from financial comparison website finder.com.au, said card users with the means to make payments above the minimum payment should make a conscious effort to do so.

“Many borrowers fall into the mentality of thinking they just need to make the minimum payment on their credit card, or some may simply be unaware that they can make overpayments,” she said.

“Typically, there’s no cost involved for making overpayments so you’ve got nothing to lose and everything to gain.”

Ms Hassan said that if a consumer with an average credit card debt of $3073 (and average card purchase interest rate of 17.31 per cent) paid the minimum repayment of $62, it would take 24 years to settle the debt and a total of $6000 in interest would be paid.

“However, if you increased your minimum monthly repayments by $50 to $112…you’d pay it off within three years and only pay a total of $867 in interest,” she said.

Since 2011 Australian card issuers have been required to tell customers on statements how long it will take to repay debt if only the minimum payment is made.

But Mr Brody said there has not yet been any “rigorous analysis” of what impact this requirement has had on the behaviour of credit card users.

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Henry Sapiecha

How Hackers Found a Way to Thwart Chip and PIN Credit Cards

Make no mistake, the tech is not invulnerable.

credit card closeup blue image www.creditcardseasy.net

After years of preparation, chip and PIN credit cards are finally arriving in the United States. But while a chip and PIN might be much more secure than a signature, hackers have shown that it’s not invulnerable, and now we know how they pulled it off.

As Ars Technica reports, a number of chip and PIN cards were stolen in France back in 2011, and somehow, the fraudsters who took them were able to start using them in Belgium, despite the security enhancements that credit card companies are wont to hold up as unimpeachable. Security researchers expressed their doubts about the tech as early as 2010, but the incident in Belgium was the first (and so far only) instance of an actual exploit.

Now, the researchers behind the investigation have published a paper that explains how the hack worked. At least as well as they can tell; the actual cards are still untouchable due to being evidence in a criminal proceeding. As Ars Technica explains:

The fraudsters were able to perform a man-in-the-middle attack by programming a second hobbyist chip called a FUN card to accept any PIN entry, and soldering that chip onto the card’s original chip. This increased the thickness of the chip from 0.4mm to 0.7mm, “making insertion into a PoS somewhat uneasy but perfectly feasible,” the researchers write.

Essentially, that small extra chip would sit between the card’s actual chip and the point of sale, and assure both sides that everything about the transaction was on the up-and-up, even though it wasn’t.

The problem is solvable, the regulators behind the chip and PIN system say it’s already been solved. But that a vulnerability was present at all is still troubling. The all-around weakness of signature based authentication meant that credit card companies had little choice but to eat the cost of plausible and frequent fraud. But if those same companies hold up chip and PIN as infallible, it could make claiming fraud much harder or virtually impossible.

Yes, chip and PIN will hopefully make credit card fraud much rarer, but if credit card companies continue to treat it as fool-proof when it very well may not be, the next vulnerability could prove very expensive for the victims.

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Henry Sapiecha

CREDIT CARD NEW TECHNOLOGY BRINGS WITH IT A SET OF PROBLEMS

new credit and debit cards image www.creditcardseasy.net

Millions of Americans are getting new credit and debit cards with more secure chip technology, and that’s already leading to headaches for companies that rely on working cards to charge their customers every month.

Video and music streaming companies, dating websites, gyms and other subscription-based companies can take a hit when customers don’t update their accounts after receiving a new card. It’s always been a hassle, but with millions of cards carrying the new being mailed out all at once it’s creating bigger problems.

Netflix this week said large numbers of cards that weren’t updated were partly to blame for slower subscriber growth in their most recent quarter.

The video steaming site said Wednesday that an unusual number of accounts were cancelled during the three months that ended in September. Netflix Inc., which has 69 million members around the world, expects the issue to continue into the next quarter as more new chip cards roll out.

With subscription services gaining in popularity, where customers have funds automatically withdrawn from checking accounts every month for a service, it has become increasingly noticeable when people don’t update the cards that they use for those services, or are unaware that they need to.

Often, the number on the card is still the same, but the expiration date has changed, said Matt Schulz, a senior analyst at credit card comparison site CreditCards.com. Typically, payments won’t go through if the expiration date is different.

Recurly, a San Francisco company that manages bill payments for more than 1,900 subscription businesses, said it has seen a slight increase in card declines. Recurly uses a service for its clients that automatically updates when new card numbers are issued, so the customer doesn’t have to do it themselves, said CEO Dan Burkhart, though not every bank participates in the service. Burkhart said subscription companies will face some “turbulence” as customers get new cards, but those issues typically resolve within a few months.

The problem has hurt Netflix before.

A year ago, the Los Gatos, California, company said a number of customer’s accounts were put on hold due to The Home Depot data breach, which forced many customers who shopped at the home improvements store to get new credit cards.

Similarly, IAC/InterActiveCorp, a New York company which owns dating websites such as Match.com and OkCupid, said last year that credit that were not updated after major security breaches at Target and Home Depot cost it about $5 million in earnings for the year before interest, taxes, depreciation and amortization.

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Henry Sapiecha