Tag Archives: credit card marketing

Sears, Book Sales, Credit Card Marketing & Bruce Springsteen

NBC news reports, as of an hour ago, that Sears in the U.S. may be filing for bankruptcy in the next few days. A few years ago I commented that Sears and Best Buy wouldn’t last: Sears Canada went under this January, and now in the U.S. where they has not been profitable for eight years. Best Buy is still around, but shrinking a lot in the U.S.

Great news: Books are back! As someone who has written 18, and has nine actively selling books, I loved that news. Hardcover sales are up 5% in the last five years, and softcover books are up over 17% in that time. The Kindle, Nook, and other e-readers are fading, but then, it’s always been known that your retention reading from a screen is less than an actual physical book.

The sad news is that 33% of high school graduates, and 42% of university grads, never read another book the rest of their lives. (from a book industry study group) Yet, if someone reads only two books on credit, finance, and/or investing they’d be smarter, and significantly better off than 95% of all adults…and that includes most bank staff!

Two banks right now are heavily promoting their credit cards by touting that they have fraud alerts to protect you. Sorry, but that’s marketing and not factual. You’re totally protected against fraud by federal law and not by the good graces of credit card companies. If it wasn’t your charge, it’ll be taken off your statement and they’ll issue you a new card – period. Don’t fall for the marketing. If you’re looking for a new credit card  you need to remember three tips:

Cut up the one it’s replacing but don’t cancel it with the card issuer or it’ll drop your credit score. Cutting it up keeps it alive but also keeps you from the temptation of using that one, too! If you ignore that advice, there’s an 80% chance you’ll have your old one and your new one maxed out within two years. If you sometimes run a balance, it needs to be one of the 11.9% rate cards. If you always pay in full, look for the perks that you’ll actually use and a low annual rate.

Sometimes fraudsters are really clever and I certainly have a lot of empathy for people who are victims. But I have zero sympathy for a lady named Mary. She was conned out of $11,500 by a Bruce Springsteen impersonator (first reported by CBS Chicago). The story was that Springsteen was getting a divorce so all his money was tied up and needed iTunes gift cards and cash. Springsteen, along with New England NFL player Rob Gronkowski (who’s actually in the Money Tools book) are two of the most conservative public figures with their money! Sorry, Mary, but I can’t find an ounce of sympathy: A zillionaire is hitting you up for a few buck? And he wants it in iTunes gift cards? And he does it off his Facebook fan page?

Advertisements: What You Hear & What You Need to Know

I actually enjoy good ads. Not only do they keep all media outlets in business, they support a ton of local businesses, and can also inform, and be memorable. Who doesn’t enjoy the U.S. Superbowl ads? Even the Canadian ones are well done.

But not all ads are created equal and some of them really need you to think and ask questions before buying. Do you only see the large print and never the ‘up to’? Up to triple the reward points…1% introductory rate? No payment for six months?

The largest credit card marketing is for reward cards because they have an annual fee. When you see any ad with triple reward points, that’s not the time to apply, but to get a magnifying glass and check the fine print first. Your triple rewards will be on one or two categories such as restaurants or drug stores. It’ll likely be for places with the biggest markups where they have the “room” to give you the triple points, or restaurants where you’ll earn maybe an extra 5 or 10 points, because you’re probably going out to dinner two or three times a month, tops. On the rest of your charges, the 90% or more, the points aren’t tripled. Hear me really clearly: Nobody ever became financially successful because of their reward points. People become financially successful paying cash or debit!

One of my favourite shows is the Amazing Race. This year, Scotiabank is the main sponsor with their American Express card and they have two very cute ads in the show. This is not a real charge card that you ought to have (and the only one I use) where you have to pay the balance in full. It’s a regular Amex card that allows you to make minimum payments versus having to pay it off each month.

Scotiabank’s main slogan is that you’re richer than you think. In fact, it’s the opposite: You’re poorer than you think. 50% of us can’t live without one paycheque, 70% can’t write a cheque for a $3,000 emergency, the percentage of seniors taking debt into retirement is exploding, and a CBC report last night showed 48% of us will rely on CPP for our entire retirement income. But remember that the main business of banks is to lend money. That’s how they make a profit. If the slogan were that you’re poorer than you think, you may borrow and spend less and save more. That’s how banks would lose money. However, if you have a ton of borrowed money, you’re richer than you think…for a while…until you have to pay it back from the same income you had BEFORE the line of credit, car loan, or new credit card.

It’s the old saying of buyer beware. Enjoy the ads, get the information, and then start asking yourself the right questions before signing. It’s a jungle out there – be careful.

It’s Grad Season and Lots of Businesses Want to Meet You

Your 17 to 21-year old has banks, car dealers and especially credit card companies salivating to meet them.

Those companies will do whatever it takes to get their business. Banks, and especially credit card companies, have THE best marketing minds in the country and want your teenager in debt to them – really soon and really deep.

We have a huge emotional attachment to our first credit card. It’s the reason they’ll do whatever it takes to be front and centre in your teenager’s wallet. Once they’re first, they own you and the memories and loyalties are way bigger than a teenager’s first boyfriend or girlfriend – and last a lot longer. On average, we keep our first credit card for over 15 years. It doesn’t matter the rate hasn’t been competitive for years, that the perks are junk or the fees they add on.

It’s not even important that they’re students and don’t have much of an income. For this group, the default rates are below average because, in most cases, parents will step in and pay the balance, or at least make the payments.

Why you? Because they can’t market much to your parents. Adults already have all the credit cards they need or want. So they can’t grow their business unless they get to you. It’s millions of fresh customers and bonus: You don’t know squat about credit and the dangers of credit cards, but you do love to impulse buy.

The same applies to banks wanting to get you hooked on an overdraft or line of credit once you have some income. That overdraft will be there for decades and it’s not like you know how to shop around for the best loan deal or rate.

Car dealers also can’t wait to meet you. How many cars are you going to buy in a lifetime? Three? Four? Five, maybe? Well, the average salesman sells maybe a hundred each year. So who do you think knows stuff and totally has the upper hand? It’s like bringing a plastic knife to a gun fight – you’re gonna lose, even if you bring one of your parents or a buddy.

So you’re all set. You’ve got your student loan payments for two decades, you got the credit card, an overdraft and that car payment. Grade five math says that most of your income is now going to pay all that. So someone telling you save some money is just a pipedream.

Prepaid Cards – The Good and the Bad

Last January, I asked a credit card insider where the growth and focus of their company would be over the next couple of years. Without hesitation, the person told me that it would be in the area of prepaid credit cards.

With recent, and much stronger, consumer and financial legislations, more and more of the emphasis of credit card issuers will be on marketing prepaid reloadable debit or credit cards. For the last few years, we have become used to seeing them marketed as Christmas gift cards, but that will now be year-round.

These cards will be the main tool which banks will use to strengthen their relationship with younger people, and especially students, who cannot obtain a credit card on their own. The bank marketing will also focus on lower-income people, anyone with big credit problems, and those who have no current bank relationship. On the surface, prepaid cards can seem like a good idea, but be careful, because they are heavy on fees, and light on consumer protection.

Prepaid cards do not cover you for the same fraud protection as credit cards. If your card is lost, stolen, or fraudulently used, you are liable for the loss. Each issuer has voluntary guidelines and protections that you’ll need to understand before you get the card, and before something unforeseen happens.

Plus, you are not building, or rebuilding, credit with a prepaid card. You are paying the money up front and receive a plastic card to use up to the amount you have already given them. The issuer is not extending credit to you, so you will not have your activities reported to the credit bureau.

The good news is that provincial legislation, from BC to Ontario at least, now prevents cards from having an expiry date, or a monthly activity fee.

With a wide variety of other fees, here are some of the questions you need to get answered before choosing a card:

Activation fee amount: Most cards charge to get the card set up and activated. The Walmart Money card is one of the cheapest, but others can charge up to $30.

Cash advance fee: All cards will charge you a fee to get a cash advance from an ATM. As a result, you need to commit to never using the card to obtain cash. But do ask, because some have one or two free withdrawals.

Statement fee: All cards will let you check your balance online, but most will charge you for a mailed statement.

Balance inquiry fee: If you can’t wait until you can get online, almost all cards will charge you for a balance inquiry through an ATM. It’ll be their fee plus whatever the ATM provider charges on top of that.

Inactivity fees: The rule of thumb is that these won’t get charged for at least a year or more. If you are frequently using the card, it may not matter as much as someone who only intends to use the card occasionally.

Happy New Year – For Some More than Others

Next year, a bunch of businesses, including American Express are going to be reinvented as banks. GMAC, the ex finance arm of General Motors, just made it yesterday. No, of course they’re not a bank. It’s just a neat way of getting in on the bailout money!

This was a hugely profitable company until they took stupid pills and got into sub prime mortgages in a huge way through their mortgage division Ditek.com that you see advertising on TV all the time. Two years ago, they made billions of dollars, last year they lost about $8 billion and now finance only about 2% of GM vehicle sales. How sad…but it was either deal with it, or get a bailout. I know I’d pick the free $6 billion…

In the U.S., the car loans 60-days in arrears is up 17% for the 3rd quarter. That just came out – and that pain will continue to worsen. If people can’t pay their current car loans there isn’t going to be any relief for the Little Three formerly known as the Big 3.

For the coming year in Canada, get ready for a ton more marketing of prepaid Visa and Mastercards. They’ll make the same profit, along with an administration fee, and have no chance of delinquency. After all, you can’t go in arrears if it’s all pre-paid. But right now they’re all freaked out since their internal rules require expiry dates and a number of provinces have outlawed that rip off.

Did you get any gift cards for Christmas? In our family there were none – OK, other than Tim Horton but if they go under we can likely shut down the whole country.

If you did, get out there and use them. The sooner, the better. It’s a real crap shoot if that merchant or restaurant will still be in business to honour the card and that isn’t worth the risk. Last week, a U.S. report showed that an estimated 148,000 retail businesses will go under in 2009. Someone paid real cash for that gift card but until you use it up, all you’ve got is an I.O.U.

Here’s one more prediction for 2009: As the economy gets worse, there’s a business that’s up 30% as a result: It’s on-line psychics. Yes, for about two to four bucks a minute, or $100 an hour, psychics are doing very well predicting your financial future on-line.

I’m going to do that free for you. Think of it as your late Christmas present: One on-line psychic was quoted as saying he tells people (that’s code words for: he tells everyone the same thing) your finances really won’t improve until about the middle of next year.

Now aren’t you glad you didn’t have to get on the computer to get that?

Have a happy New Year and we’ll talk about the “real” New Years resolutions in the coming weeks. You and I both know that today is not the day for any resolutions which will survive beyond a week or two…

If You Use Your Credit Card At a Tire Shop Should That Reduce Your Credit Score?

If you visit a marriage counselor, should that affect your credit score? OK, how about a massage parlor charge on your credit card? According to a lawsuit by the Federal Trade Commission (FTC) against credit card issuer CompuCredit – it happens.

Every lender uses a credit score, but even for the widely used FICO score, nobody fully knows what goes into calculations of the formula.

Others use internal proprietary models, and the FTC lawsuit against CompuCredit alleges “deceptive” marketing practice and provides a great (or ugly) insight into the secret business of credit scoring.

In this case, it is about their Aspire Visa cards for subprime borrowers. What the FTC alleges in the suit is that the company didn’t disclose that they closely monitor spending patters and reduce credit lines if cards are used at certain places that trigger a “problem.” Some of them allegedly include tire shops, massage parlors, bars and marriage counselors.

Yes, all card issuers look at your spending patters, amounts, and the places you spend money on your credit card. But the concern is that they may affect your credit in biased or unfair ways as a result. It’s CompuCredit’s second lawsuit, the first was in New York, and was settled for $11 million over its marketing and billing procedures.

Credit card issuers have been quietly reducing credit card limits in any event, mostly without ever notifying customers in advance. With some card issuers running 10% arrears, small wonder. And somehow they’re surprised delinquency is skyrocketing when they were handing out credit cards like candy?

The majority of limit reductions appear to be in geographical areas hardest hit by the housing troubles, including Florida, California, Arizona and Nevada. It is another important reason never ever to have all your financial eggs in one basket – with one card issuer. A lower limit reduces your available credit – the percentage you owe vs. your total available limits and that’s around one-third of your credit score.

Card issuers are pretty jumpy these days and want to prevent losses down the road, rather than just writing off more and more balances reactively. According to the Wall Street Journal, American Express appears to have a new software program that may kick in to reduce limits should cardholders use their credit card at Wal Mart or Marshalls, for example.

It’s only a guess, but it appears that Amex believes charges at these two stores, for example, may predict problems down the road. Is the company thinking their card holders may be in trouble shopping at the “lower-end” stores, or is it a drastic overreaction and incorrect predictor? Time will tell, but I’ve used my Amex card at Wal Mart for decades. It isn’t about financial trouble, for me it’s about avoiding it, by not getting overcharged at other retailers.

Is There A Problem Here?

Last week, the Royal Bank released their annual survey of Canadians’ spending and savings habits. Now, any survey gets huge media coverage. In most of the major newspapers across the country it was a full five column story whereas I can’t get one column talking about the insights into credit and debt. But more complaining in a minute.

The survey shows that our savings are dropping and our debt is growing. Yes, it’s all backwards. 83% of us worry that we don’t have enough savings and even more than that say they can’t save as much as they would like. Less than half of us have any emergency savings and under 25% have three month’s worth of savings – and that has to be a minimum rainy day fund! Here’s what I’ve been saying for years and now there’s an actual stat: 67% of us think of our credit cards and line of credit as our emergency fund!

Now onto the whining part: Is it just me or is there some huge conflict here? The survey by Ipsos Reid was sponsored by a bank. Banks are in the business of lending money. That is where they make a profit. When we borrow and go broke – they get rich. When we save money – they pay US interest and on their financial statements, that’s a bad thing!

So am I right to be suspicious that banks are preaching savings while all their ads focus on selling their credit cards and debt? Their Sr. VP of Banking was quoted all over the story that us Canadians should save more, rely less on credit and be ready for financial emergencies. You bet, it’s totally right. But does that mean he will change the whole focus of the bank away from debt and onto marketing savings, lowering service charges and expense ratios on their mutual funds, make GIC easier to obtain and stop charging service charges on savings accounts? I’m thinking not! For me, actions always speak louder than words.

If I’m too harsh or out to lunch – I’m two clicks away from sending me a note, because my purpose and passion is not to be right but to make you think!