Since the new credit card> regulations went into effect in February, many card holders have already been hit with new fees and surgical interest rate hikes, moves that were widely expected as card issuers seek to make up for lost revenue. However, some customers are facing some unexpected inconveniences.
As issuers seek to prop up their bottom lines by cutting costs, many are rolling out new antifraud programs that promise to save customers money and aggravation. However, such programs can cause hassles of their own, including unwanted messages, data breach risks and delayed access to one s own account.
Credit-card issuers have long routed customer transactions through fraud screens, which typically flag irregular or unlikely purchases. If an issuer suspects that a purchase is fraudulent, the card company may temporarily shut down the card in question while it contacts a card holder to verify a purchase. Now, some issuers are enlisting the help of the consumers themselves by allowing them to manage and track some or all of their purchases via email, text messages and, most recently, mobile-phone application.
At the end of March, Wells Fargo and Visa rolled out a Rapid Alerts program, which allows card holders to monitor their account activity. The program sends alerts via text message or email generally within seconds of a flagged transaction, such as an international purchase or one in which the card is not present. Account holders set the criteria for a flag themselves.
Other issuers including Bank of America, Chase and American Express have long offered to alert users when account overages occur or when payment due dates are imminent. Now, like Wells Fargo, Chase and Bank of America offer to dispatch alerts for certain types of transactions. For instance, users can set dollar limits for specific transactions and automated teller machine withdrawals and choose to receive an alert if such a transaction occurs. These institutions will also alert users when their passwords and customer information changes (Bank of America does this automatically). AmEx notifies customers regarding irregular purchases automatically.
Issuers say that users typically must opt in for these alerts. "It is not our intention to annoy our customers with things they don't want," says Peter Ho, the product manager for Wells Fargo Card Services and Consumer Lending. "We want to help them manage their money more effectively by allowing them to see the transactions they're making," he says.
Receiving purchase notifications via cellphone or email can help customers track their spending activities and prevent fraud. However, when purchases and account changes aren t fraudulent, these updates can be problematic, even for the user who has explicitly subscribed for them. For example, all the additional messages can amount to an extra helping of daily spam. And in some cases, customers cards can be shut off until the issuer is able investigate suspected transactions. (Note that receipt of an alert won t necessarily trigger a hold on a customer s account. That generally happens if the user confirms suspected activities or the issuer spots irregular activities.)
Card issuers say their new programs help curb the risk of having to cope with fraudulent purchases. However, industry monitors say the law effectively caps that risk. By law, customers are on the hook for up to $50 in fraudulent credit-card purchases, says Curtis Arnold, the founder of CardRatings.com. Many card issuers will waive that amount for consumers and write it off their books. Or they ll ask merchants to pay up, he says.
So why are card issuers rolling out such programs? By enlisting customers in the fight against fraud, they may have more to gain than card holders. When a company can t collect on a bad debt a common result in a fraud case the company must absorb that cost, often called a charge-off. The credit-card charge-off rate for U.S. commercial banks is expected to peak in the first half of 2010 at about 10.5% of debts owed to those institutions, and it isn't projected to ease back to the 10-year historical average -- 5.7% -- until late 2012, according to Moody s April credit card industry outlook.
Although none of the companies included in this story would disclose actual savings figures that newer antifraud measures have delivered thus far, lowering costs is almost certainly one of their goals, says Emmett Higdon, a senior analyst with Forrester Research who covers online and mobile financial services. It will cost me far less to send you a text [message] and have you respond, than it would having someone call you four times to verify information, he says. For a better idea of an issuer s potential savings, Higdon offers a tangential example of customers changing their addresses online versus calling customer service. Each change of address request that occurs over the phone costs between $5 and $6, he says. Do it online, and that cost drops to roughly 10 cents to 12 cents. Moving just 10% of those activities online can deliver significant savings, Higdon says.
Still, even if the new fraud programs are successful at lowering costs, new fees may be on the horizon, says Ed Mierzwinski, the consumer program director for U.S. Public Interest Research Group, consumer-advocate group. He notes that the passage of the Credit Card Accountability Responsibility and Disclosure (CARD) Act, which eliminated some fees, could leave some issuers facing billion-dollar losses. They aren't altruists, he says.