The schizophrenic credit card industry

An article in today’s Wall Street Journal provides some interesting insight into the past, present, and future of the credit card industry, including our good friends Chase.

The past can best be described on an industry the indulged in risky practices and bilking customers.  I specifically say bilking because the fees and charges that fueled profits mostly on the backs of sub prime borrowers were due to credit card programs designed specifically to do just that – make people break the myriad of small print rules that would cause them to rack up tons of fees.  See the Secret History of the Credit Card by Frontline for more information on this.

Of course, we all know what happened, sub prime borrowers crashed, causing huge defaults, and public sentiment against the deceptive and unfair practices of the credit card industry resulted in new rules from the Credit Card Act of 2009 that has cut off a bunch of the industry’s fee income.

So now, companies are scrambling to make up for the list income and trying to find a new model that will allow them to return to the unrealistic profits of days gone by.  According to the WSJ article, experts predict that credit card companies will only be able to recoup about 25% of the fee income they have lost due to the new regulation, mostly through various new tricks.

That brings us to the schizophrenic present.  Take Chase for instance.  On the one hand, it says that it has been pulling back from its riskiest and least profitable customers.  Unfortunately, those classifications are not mutually exclusive.  The least risky customers are also the least profitable ones, although this mostly holds true in good times.

Take myself for instance; I pay my credit cards off every month in full, making me a classic “least profitable” customer and I’ve been told so in not-so-many words by at least one of my credit card companies.  But I am also very cost conscious and will happily dump a bank if I can find a better deal elsewhere.  When banks finally realize that they have the best chance of making money over the long term buy finding and keeping reliable, albeit boring, customers, they might find it a strategy that is hard to succeed at, as the WSJ also reports that consumers are showing less loyalty to their credit card companies with just 22% of consumers reporting they definitely wouldn’t change their primary credit card company in the next 12 months. Good luck with that.

So what is Chase’s strategy?  The WSJ reports that Chase has been running ads in upscale ski resorts and Hawaiian retreats, and is focusing on affluent consumers with good credit histories.  Yes, but these are also among the least profitable customers clearly contradicting their other statements.  Meanwhile, Bank of America is focusing on customers it has other (banking) relationships with and Citigroup is wading back into the sub prime market.  No-one seems to know exactly what is going to succeed.

I’ll help them out a little.  Here is what I think will ultimately work:

• Focus on getting and keeping good reliable customers that pay their bills on time, preferably maintaining a zero or small outstanding balance.  These customers will allow you to make some reasonable money over the long term.  Chase, this means getting your head out of your ass and providing actual customer service.
• Change the design of your credit card programs so that it encourages people to be responsible for their credit.  Stop giving more cards to people that have too many.  Stop allowing people to pay so little that their debt continues to grow.  Stop raising interest rates so high that people can’t possibly afford to pay.
• Show some loyalty to your existing customers and work with them to help them get out of trouble.  See the second point above.

If this sounds vaguely familiar, it is a return to what banks used to be, respectable institutions that valued customer relationships enough to treat their customers well.  Boring but predictable.  If big banks don’t figure this out, small banks and credit unions that DO treat their customers well will continue to siphon off customers.

Credit Unions vs Banks

While this comparison has been published by a credit union and might be considered biased because of that, I think it is a fair representation of why a credit union might be better than a bank.

Credit Unions
> Not-for-Profit
> Profits Benefit Members
> Don’t Need a Bail Out
> Don’t Cost Taxpayers Anything
> Locally Owned
> Low Fees
> Surcharge-free ATMs (28,000 to be exact!)
> Approve Loans in Members’ Best Interest
> Still Lending Responsibly
> Most CUs have 3,500+ Branches
> Voluntary Board of Directors
> Member-owned
> Small = Nimble, Can Serve Quickly
> Transparent

Banks
> For Profit
> Profits Benefit Stockholders at Customers’ Expense
> Need a Bail Out
> Cost Taxpayers
> Typically, Not Locally Owned
> High Fees
> ATM Fees
> Approve High-risk Loans
> Slowing Lending Due to Poor Lending Practices
> Limited Number of Branches
> Paid Board of Directors
> Bank-owned
> Large = Bureaucracy, Overhead
> Concealed

WaMu debits cards about to stop working?

From a reader this morning:

Was just wondering if you’ve heard of anything weird about this.

I was a Wamu customer before the changeover.  Was in my local Chase branch about 2 months ago and the teller told me that my old Wamu debit card was about to stop working.  The expiration isn’t until 2011, so I questioned her and she said all Wamu debit cards are about to be turned off and I should order a new Chase debit card.

I didn’t think much about it until I was in the branch again about 2 weeks ago.  I asked one of the CSRs about it and he said yes, those “old wamu” cards were scheduled to be turned off “any minute.”  He was surprised mine worked at all and said mine was probably one of the last ones still working.

I have never received any official notice from Chase about this, only words from the people in this one branch.

Well, I had him order me a new debit card and I asked if it would be the same card number.  He said “no” because they would be switching from Mastercard to Visa.

Fast forward a week or so and my new card arrives.  It’s a Mastercard just like my “old” wamu card, but with a new number.  The thing is, my old wamu card still works fine.  I haven’t activated the new card yet.

I’m wondering why the hard push to get me into a new Chase branded card?  Any thoughts?

Anyone had their card stop working without any notification?

Jamie Dimon quote of the day

This from back in July in reference to new laws that limit fees banks can charge.

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” James Dimon, the CEO and chairman of JPMorgan Chase, told analysts in mid-July. “My guess is over time, it will all be repriced into the business.”

Court voids deed of trust for Chase TILA violations

Another win for the opposition.  Homeowner Paul Nguyen took Chase to court for violations of the Truth in Lending Act.  After a year-long legal battle, the court found in favor of Nguyen and voided his deed of trust with Chase bank, effectively wiping out his mortgage.  Furthermore, they awarded Nguyen $4,000 for each TILA violation for a total of $16,000. Here is a link to a lot more information on this case for anyone that might want to use Nguyen experience and research to take Chase to court.

I dont know how many people take it upon themselves to challenge their bank; but I was an experience I will never forget.  I challenged Chase on my mortgage based on TILA violations.  The bank retained a large law firm in So. CA with 3 lawyers.  So much motions and procedures to learn and apply as the case moved along in the last year.  Finally, the case went to trial yesterday.  The court finally rendered judgment in plaintiffs’ favor in voiding the deed of trust.  As far as the outstanding loan, it is forfeited and the bank would have to take that lost.  Furthermore, the court imposed statutory damages of $4k for each violations which amounted to about $16k.

I am in the process of preparing the judgment for the court to sign along with tax cost.  Believe it or not, I have expended over $10k in cost alone; which includes expert witness cost.

So much research was done and I hate to see it goes to waste.  If you have access to PACER, everything is there for public use.  Best of luck to all fighting the bank now and keep up your spirit.

Naomi Wolf sues Chase for stonewalling fraud investigation

The fact that best selling author Naomi Wolf was defrauded out of $300,000 isn’t the most interesting part of this story.  The most interesting part is that she is accusing WaMu, and subsequently Chase of a systematic approach of stonewalling fraud investigations so that customers have no recourse and the bank can’t be held accountable.  You can read the about this interesting story at the Huffington Post or The Smoking Gun.

Then the same officials who had directed me to keep the accounts open, disappeared — systematically, for just over six months. When I sought to talk to the fraud department, I still could not get records — including my own missing bank statements — even to see the full extent of my losses. The bank officials who had directed me to keep my accounts open were unavailable at the branch — over the course of many attempts to speak with them. The police at the Sixth Precinct needed to see the missing documents, but even they could not force WaMu to hand over their — my — records. (WaMu’s own internal emails cite a $300,000 figure for my loss from fraud — I still did not have enough of my records to identify the loss. It is illegal, by the way, to withhold from an account holder his or her own records).

At eight months after the fraud discovery was confirmed — eight months of trying to communicate with officials and a fraud department who were oddly unavailable or unresponsive — I received a form letter from the WaMu Fraud Department advising me that according to the regulations, I had had a six month window for taking action; and (since WaMu had played out the clock for eight months) the letter asserted that I had waited ‘too long’ and my case was closed.

But she got lucky, because a bank official accidentally gave her the wrong file which contained damaging evidence of their policy of stonewalling investigations in the form of several emails.

Inadvertently, subsequent to that, a WaMu bank official handed me the wrong file — wrong from his point of view; illuminating from mine, and from any consumer’s. It contained emails, some of which you can see at TheSmokingGun.com, from WaMu bank officials to one another — and including emails from and to their counsel, PR department and and the fraud department — that take as given that stonewalling a client with a fraud claim on the bank is standard practice; and yet one freaked-out bank official in the emails warns his colleagues that if their mechanisms in this regard became known, their practices would be all over the newspapers.

It is unclear whether this practice was limited to WaMu or also a policy of Chase.

Watch out for new bank tricks

With the passing of the Credit Card Act of 2009, and the new protections it offers customers, some people may think they can rest on their laurels because banks are finally being forced to do the right thing.  Not so, says the Seattle times, and common sense.

According to the Seattle Times, some bank customers are already seeing the following:

• Increased or new annual fees.
• Increased interest rates.
• Increased late-payment fees.
• Shortened billing cycles to require faster payments (minimum is now 21 days).
• Added fees for not using the card or not charging a minimum amount.
• Higher fees for using the card outside of the country.

The point is that banks have increasingly gotten the mentality that customers are endless sources of nickel-and-dime fee income, rather than seeing their business as providing a good service for a reasonable fee.

It is now more important than ever to read over EVERYTHING you receive from your bank very closely and challenge anything they do that you don’t like or may be against the law.  If your bank just won’t be reasonable, switch to one that is.

Chase bully and threat division

Apparently Chase has a group that constantly monitors the Internet for slanderous (i.e. true) statements about Chase and threatens the people to get them to take the offending content down.

During a very lengthy (6 hours, I am told) conversation, the lawyer from Chase told the lawyer from Keller Williams Realty International that if the videos in question,  mentioning Chase, were not removed from Kevin and Fred’s Short Sale Power Hour site,  Chase Bank would pull every REO listing from every single Keller Williams agent!  There are 80,000 Keller Williams agents.  Every REO listing that was a Chase listing from every single KW agent anywhere in the world.

Given that our site posts more negative information about Chase than just about anyone else, this group, like most of the others in Chase must not be very good at their jobs, cause we haven’t heard from them.