Credit card companies that once were a vehicle for out-of-control spending are now helping consumers stay out of debt.
Citi, a parent company of financial giant Citigroup, which was accused by the S.E.C. of failing to disclose its exposure to subprime mortgages, announced on Tuesday it would be the first bank in the U.S. to deploy MasterCard's "inControl" program, where consumers can set up monthly spending controls and receive real-time information about their accounts.
Since the Dodd-Frank financial overhaul bill became law earlier this summer many banks, anticipating more oversight and onerous regulation, are trying to get ahead of the new Consumer Financial Protection Bureau, which may be led by Elizabeth Warren. The move for companies like MasterCard to offer money management tools has become part of a larger trend in an attempt to reinvent the industry, says Curtis Arnold, founder of Cardratings.com, a credit card ratings and review website. Linda Sherry, spokesperson for Consumer Action, a DC-based consumer advocacy group, said, “They are not going to be able to rely on these massive profits from basically tricking people like the overdraft profits that have been made on the backs of the consumers who can least afford it.”
Credit Card Reform
Mastercard’s announcement comes days before the final provisions of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the most comprehensive overhaul of the credit card industry in history, goes into effect this Sunday. Fiore said the move was not tied to current government-imposed financial regulations or the CARD act, which is designed to provide consumers with greater protection against interest rate increases and questionable fees. Signed into law in 2009, the CARD act has been implemented in stages over the past year. The final protections go into effect Sunday and include shields against penalty fees, rate hikes and inactivity fees.
“The new reforms put consumers squarely in the driver’s seat by restricting fees and requiring clearer rules and improved disclosure,” said Kenneth Clayton, vice president at the American Bankers Association. “Better information allows for better choices and we believe the new law will make it easier for consumers to understand and meet their credit obligations.”
Consumer groups welcomed the MasterCard announcement but said this shouldn’t be the only tool consumers take advantage of to manage their money. “Believe it or not there are good things that plastic can do if used wisely,” Arnold said.
The MasterCard service has already been in use by the UK-based Barclays bank since January, but it will not be available in the U.S. until the end of the year. In addition to spending controls, MasterCard holders will get real-time account information, be able to create budgets, and determine how and when they receive alerts on overspending or attempted card activity. “We provide that ability beforehand and a piece of mind to the card holder,” Michael Fiore, vice president of MasterCard, told The Fiscal Times. Fiori says that MasterCard, which has been developing the program for the past two years, is trying to bring this service to as many banks and cardholders as possible, but he wouldn’t say which ones.
“If we were to find a silver lining to the economic conditions, it would be that it has been a very harsh wake-up call to consumers.”
Offering financial management services through credit and debit cards is not new. American Express lets users download statements and activity to Quicken or Quickbooks; Chase offers free debit card overdraft coverage; Visa provides basic money management advice, and almost all of them now have mobile apps that let cardholders manage their accounts anywhere. Bank of America offers free online and mobile transaction alerts to customers as well as an online budget service. And free money management websites like Mint.com, which boasts 1.2 million users, have grown in popularity.
A Recession’s Silver Lining
If consumers use these new services to pay down debt and manage their money, credit card companies can change from devils to darlings. “These issuers realize they face two choices: They can try to do business the old fashioned way and get shut down by regulators or they can reinvent themselves,” Arnold said. “With an announcement like this, it will help them rebuild their reputations. Their future is brighter than we might think it is.” However, some advocacy groups say to some degree the online help marginalizes people who don’t have online access.
Consumers have been more diligent about money management following the economic crisis: They are spending less, saving more and improving their credit card payments. In July, fewer customers defaulted or made late credit card payments — falling to their lowest level this year. Capital One, the fifth-largest issuer of MasterCard-branded credit cards, reported a fourth straight decline in credit card defaults — which is defined as at least 30 days late.
Gail Cunningham, spokesperson for National Foundation for Credit Counseling, said “If we were to find a silver lining to the economic conditions, it would be that it has been a very harsh wake-up call to consumers but nonetheless a needed one that forced them to take charge of their financial situations.”
Related Links:
MasterCard: Citi to Offer New Customer Controls (Businessweek)
New Credit Card Rules Limit Penalty Fees (Bankrate)
U.S. Household Debt Shrank 1.5% in the Second Quarter (Bloomberg)
