ECON 103L EXAM 3

What was the difference in interest paid (minimum payment vs. double the minimum payment) to pay off the balance between the two methods?

$5624.13

What is the industry average fee paid by merchants to accept credit cards in their stores?

1-4%

What are the potential advantages of using credit cards? Discuss each advantage.

1. Delay payment 2. Build credit 3. For emergencies 4. Safety or security 5. Traveling outside of U.S

What was the approximate amount of penalty fees paid by American credit card customers in 2016?

15 billion

When did American Express begin issuing credit cards? Could a customer carry a balance from month-to-month on an American Express card? Was this card used by business people or by the general public? When was American Express founded, and what was its original business?

1958, Had to pay in full, Mainly for business travel and entertainment, Founded in 1850 to compete with the US postal service

When did Diners Club first allow customers to make a partial payment on an account?

1959

When did Visa and MasterCard begin? Which company began as BankAmericard? Which major U.S. bank was involved? Which company began as Interbank? Which company started first?

1966, Visa had a 6-month head start. BankAmericard involved Bank of America and became Visa, InterBank became MasterCard

When did American Express first allow customers to make a partial payment on an account?

1987

When did European countries begin using the chip, or EMV, credit cards?

1992

When was the CARD Act signed into law? Who was President at this time?

2009 by Obama

Approximately how many years did it take to pay off the balance?

26.9 or 27 years

What is the average number of credit cards per cardholder in the U.S.?

3.7 credit cards per holder and its declining

Approximately what percent of debit cards in the U.S. have been moved to the EMV system? Why is it easier for larger banks to move to the new system compared to smaller banks? Explain.

63%, it is costly which means smaller banks will take longer to convert since they don't have the capital

What is an APR? What do the letters "APR" stand for? Currently, are credit card APRs fixed rates, or are they variable rates?

Annual Percentage Rate, they are variable

What was the average credit card debt per card (for consumers who usually carry a balance from month-to-month) in the U.S.? What was the average APR on these cards? What was the average minimum payment?

Average debt = $7,527 Average APR = 13.51 Average Minimum Payment = $2%

What is the average credit card debt for students ages 18-20, 21-22, and 23-24? How does the average balance owed change as students become older (going from ages 18 to 24)? Why would this occur?

Average of $906. The desire to pay off student debt early may impact debt.

What fees are charged on balance transfers and on cash advances?

Balence transfer 3% or $5 minimum. Cash advance 3% or $5 minimum

Which of the two bank associations was larger in the U.S.? BankAmericard or Interbank? Is that still the case today (in the U.S.)?

BankAmericard and yes Visa is still the largest

How and when did Diners Club begin? Who was Frank McNamara? Was this card used by business people, or by the general public? Could a customer carry a balance from month-to-month, or was the customer required to pay the balance in full each month?

Began in 1950 because Frank McNamara forgot wallet when he dined out. Used by the top business people. Had to pay balance in full.

What debt collection practices are considered to be harassment under the law, and are prohibited?

Can't be threatened

What times of day can debt collectors call, and when can't they call?

Cant contact before 8am or after 9pm unless you consent.

What was the first bank credit card, and when was it issued? Who was John Biggins? How did Mr. Biggins pick the customers and businesses to use this system? Who paid the initial bill? Who billed the customer?

Charge It, issued in 1946, he was a banker in Brooklyn, He picked the best banking customers, The bank paid the initial bill to the companies and then billed the customer

How do credit card companies make money from merchants, even if they do not earn finance charges from consumers?

Charge business between 1-4% of amount charged for using their services

Describe how successful the EMV cards have been in fighting counterfeit fraud rates for Visa, and for MasterCard.

Chip-enabled merchants saw a 43 percent drop in counterfeit fraud compared to a year earlier, according to Visa. Similarly, Mastercard has recorded a 54 percent decrease in counterfeit fraud costs among its EMV-ready merchants from April 2015 to April 2016. Conversely, Mastercard has also seen a 77 percent increase in counterfeit card fraud year-over-year among merchants who have not yet moved to EMV or are in the process of doing so.

What happens if a consumer decides to "opt out" of changes in credit card terms? Does the consumer have to repay the debt immediately? Explain.

Consumers have the right to opt out of or reject certain significant changes in terms on their accounts. Opting out means cardholders agree to close their accounts and pay off the balance under the old terms. They have at least five years to pay the balance.

How did the CARD Act change how over-limit fees are charged? How did the CARD Act change how late fees are charged? Explain.

Consumers must "opt in" to over-limit fees. Those who opt out will have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees. Fees cannot exceed the amount of overspending. For example, going $20 over the limit cannot have a fee of more than $20.

What types of debt are covered? What types of debt are not covered?

Covered (Household personal, medical, student, car loan, home equity, etc) Not Covered (business debt)

Can individuals under the age of 21 get credit cards? Under what conditions? Can credit card companies offer free gifts to students when they open new credit card accounts? Can these companies offer new cards on college campuses? Explain.

Credit card issuers are banned from issuing credit cards to anyone under 21, unless they have adult co-signers on the accounts or can show proof they have enough income to repay the card debt. Credit card companies must stay at least 1,000 feet from college campuses if they are offering free pizza or other gifts to entice students to apply for credit cards.

Can credit card companies set specific times during the day that is a deadline for receipt of a payment?

Credit card issuers are no longer able to set early morning or other arbitrary deadlines for payments. Cutoff times set before 5 p.m. on the payment due dates are illegal. Payments due at those times or on weekends, holidays or when the card issuer is closed for business are not subject to late fees. Due dates must be the same each month.

What is the highest APR? What is the "default" APR, and what would trigger the default APR on a credit card?

Default APR is the highest. Make late payments, missed payments, exceeded credit limit

Why would a credit card have "multiple APRs"? What are the different APRs that can be charged? What is the lowest APR? What are the higher APRs?

Different APRs for different uses. interest rates for balance transfers, cash advances, default, etc. Purchase APR is lowest, Default APR is highest

Have chip cards been used elsewhere in the world, or is the U.S. the first country to use these?

Elsewhere first, not US

What do the letters "EMV" represent?

Europay, Mastercard and Visa

Why did credit card companies often use a "double-cycle" method in determining a customer's average balance? Why was this practice harmful to consumers?

Finance charges on outstanding credit card balances must now be computed based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. So-called two-cycle or double-cycle billing hurts consumers who pay off their balances because they are hit with finance charges from the previous cycle even though they have paid the bill in full.

Could a customer carry a balance from month-to-month, or was a customer required to pay the bill in full each month?

From proprietorship. No had to pay in full each month.

How did the CARD Act affect gift cards?

Gift cards cant expire for 5 years and dormant fee cant occur within the first year

How did the CARD Act deal with how credit card companies must allocate payments in excess of the minimum amount due? How will this help consumers? How does this compare to how credit card companies had allocated payments before the CARD Act?

Highest interest balances paid first. payments in excess of the minimum amount due must go to balances with higher interest rates first. A common practice in the industry had been to apply all amounts over the minimum monthly payments to the lowest-interest balances first -- thus extending the time it takes to pay off higher-interest rate balances

If a consumer's debit card is stolen or used without authorization, what is the consumer's liability if the card was used as a credit card? What does the consumer need to do to limit his/her liability on these charges?

If debit card is used as a credit card you're liable for first $50 and gets tricky when time passes

Could customers carry a balance from month-to-month with these early Visa and MasterCard accounts, or were they required to pay the balance in full each month?

In 1966 no you have to pay in full, by 1980's 3 out of 4 allowed partial payment

What did you learn about paying twice the minimum payment as a monthly payment? Approximately how many years did it take to pay off the balance?

It greatly reduced the interest payed and the time it took of 10.91 years or 11

What benefit did Mr. Biggins' bank receive from using these cards? How did customers benefit from these cards? How did businesses benefit? Could the customer carry a balance from month-to-month on this card, or was the customer required to pay the balance in full each month?

It kept loyal customers, risk was low since they were the best customers, and it was good for businesses because it encouraged the customers to shop there. Customers had to pay in full each month

How did the CARD Act handle double-cycle billing?

It made them single cycle.

Which type of business pays a higher fee, large stores like Target, or small businesses?

Large businesses pays lower feed, small businesses pay higher fees

Under this new law, credit card companies have to notify a consumer before changing an interest rate on a credit card. How much of an advance notice do they have to give consumers?

Limited interest rate hikes, notify of significant changes of 45 days

In general, which company has more credit cards in circulation in the "rest of the world," Visa or MasterCard?

Mastercard

The CARD Act requires a "warning statement" be placed on credit card statements. What is that warning? What additional information must be shown on statements along with that warning?

Minimum payment warning has to tell you the minimum payment due and how long it will take to pay off if you pay the minimum payment. Also must show how much you would need to pay in order to pay off in 36 months including interest

Who is Charles Schumer? What was his position in government when the Schumer Box was created? What is his position in government now?

New York congressman (now senator)

What is meant by an "open loop system" of credit cards? How is this different from the closed-loop system used earlier?

Open loop can work as a multipurpose card (ATM, POS, Re-loadable, etc), Closed loop works between a specific vendor or a specific location

When did Congress pass a law requiring all credit card information to be in one, standardized format on a credit card statement? When were credit card companies required to start using this format? What is the "Schumer Box" on credit card statements? What must be shown in the Schumer Box?

Passed in 1988 but not in effect until 2000, the box displays important info about credit cards such as APR and minimum payment.

What is the grace period? When does the grace period apply? Is there a grace period on balance transfers or on cash advances?

Period of time after your billing period ends when interest charges are not yet applied to your debts. No grace for cash advance or balance transfer

What types of businesses issued "proprietary cards" in the early 1900s? How did the selected customers and these businesses both benefit from these cards? Why were these cards called "proprietary" cards?

Proprietary Cards - Issued by oil companies and department stores. Good for business because it builds loyal customers and customers didn't have to pay right then (convenient)

What statements are prohibited? What unfair practices that are prohibited by this law?

Repetitive calls, bad language, claim to be someone they arent, include amount higher or lower than what you owe, cant send repo bc of not paying other debt, cant send post-card

Describe two different groups of credit card users: transactors and revolvers. Which group pays off its credit card balance each month, and which group carries a balance forward? Which group is seen to carry credit card balances as "debt" and which does not?

Revolvers maintain a card balance and card issuer makes money on them. Transactors use for transactions and pay off every month so no finance charges. Debt is carrying a balance month to month

What is a "validation notice"? What can you do if you believe you do not owe that debt?

Sent through the mail and it includes info about the debt. They have to send something in writing after you talk to them for the first time (5 days). If you dont think you owe that debt you must submit in writing

Why do some small businesses not accept credit cards? Why do some governmental offices not accept credit cards for payments of taxes, parking tickets, water bills, etc.?

Small businesses have a slim profit margin and paying 1-4% cuts into that. Gov may not for same reason or they will offer an alternative of 3rd party

What is a garnishment? What does a debt collector have to do to garnish your bank account or your wages?

Taking something, can only occur with court order for a debt collector

Can a debt collector call you at work? What can you do to stop those calls?

Talk to them once, they can call you at work unless you tell them you cant take personal calls at work bc you will be fired

Which department of the federal government enforces this law?

The FTC has jurisdiction

What happens every time an EMV card is used for a purchase? What is created in the EMV system? Explain why this should reduce credit/debit card fraud.

The card chip creates a unique transaction code that cannot be used again. If a hacker stole the chip information from one specific point of sale, typical card duplication would never work "because the stolen transaction number created in that instance wouldn't be usable again and the card would just get denied.

Why were these early credit card systems known as a "closed-loop" systems?

The credit card company, the customer, and the business. AMEX and Discover still use closed loop

Explain the importance of the October 1, 2015 deadline for accepting the new chip cards. What liability did a store have if it didn't have new scanning technology ready? What liability did a credit card company have if it had not issued cards with the new technology?

The liability for card-present fraud shifted to whichever party is the least EMV-compliant in a fraudulent transaction. The cost of the fraud will fall back on the merchant.

What was "universal default"? Why was this practice harmful to consumers? How did the CARD Act handle universal default?

The practice of raising interest rates on customers based on their payment records with other unrelated credit issuers. Not fair to consumers because creditors could pass judgment

Can a debt collector call someone else (a friend, relative) about your debt? What restrictions are placed on those calls?

They can call other people to find you but they cant discuss the reasons for the call. They say its personal business matter

What is the "grace period"? What are the minimum grace period consumers have to make a credit card payment after the bill is mailed/emailed to the consumer?

To pay their credit cards is every 30 days. The minimum time consumers have to make payment once the bill is mail is 2 weeks

What data is/was stored on the magnetic stripes on traditional credit and debit cards? What made these cards targets for counterfeiters? Explain.

Unchanging data. Whoever accesses that data gains the sensitive card and cardholder information necessary to make purchases. Stolen data = Cash. If someone copies a mag stripe, they can easily replicate that data over and over again because it doesn't change.

In general, which company had more debit card transactions in the U.S., Visa or MasterCard?

Visa

In general, which company has more credit cards in circulation in the U.S.: Visa or MasterCard?

Visa

When will pay-at-the-pump gas terminals need to be EMV compliant?

Visa and Mastercard agreement now gives pay-at-the-pump gas terminals until October 2020 to become EMV-compliant.

Why has it been so difficult for the U.S. to move to the EMV system, compared to European countries that did so years ago?

We have 13,000 financial institutions in the U.S. that issue credit and debit cards, and we have 5 million merchant locations in the U.S. that accept debit and credit cards. So it's a massive undertaking.

Can you stop a debt collector from calling? How?

Written submission, talk to them and communicate

If a consumer's credit card is stolen or used without authorization, what is the consumer's liability?

You could be charged up to $50 per transaction for unauthorized charges. You need to call asap and catch within 2 business days

What would be the benefits for a business person using Diners Club or American Express cards?

You could easily entertain your employees or clients. Pay the bill when you have the money, not when you dine, eased the process of filing taxes and creating expense reports. Made cash flow easier.

What is the minimum font size that must be used for the Schumer Box for general information? ....for long term rate information?

long-term rate information in 18-point type or greater and remaining terms in at least 12-point type