On March 15, 2010, the FED posted proposed modifications to the provisions of the CARD Act that will become effective in August 2010 and want your input.  Our blog has a brief and to the point summary, but if you love reading regulatory documents, we have the relevant section of Federal Register available for download as a PDF.  Happy reading.

Penalties would have to be “reasonable.”  We lawyers love the term reasonable.  It can mean just about anything depending on your point of view.  Charging a $29 late fee for a $15 payment that is a day late might seem completely reasonable to the likes of Bernie Madoff.  It would likely be seen as less reasonable to the person whose payment was delayed a day.  Under the new regulation, the punishment would have to fit the crime.  In other words, card issuers could not impose penalties that exceed the dollar amount of the infraction.  So in the example above, the fee could not exceed $15.00.

In addition, card issuers can only charge a customer one time for one violation (sounds pretty reasonable to me). So if you are late paying your bill, the company couldn’t keep charging you a late fee for that one incident.

Paying not to pay:  Some credit card companies were going to charge you for failing to use their cards.  Under the proposed regulation, card issuers could not charge you for inactivity.  So if you keep your card in your wallet, you can still keep your money there too. 

Increasing Rates:  Under the new legislation, card companies could not arbitrarily raise your interest rate.  The issuer would have to cite specific reasons for raising your interest rate.  Further, if your rate increased after January 1, 2010, the company would have to evaluate your account from time to time.  If the reason your rate was increased were no longer an issue the company would have to reduce the rate.

Stay tuned.  I am sure we have not heard the last of the proposed changes to the CARD Act.  After all, August is still five months away.  What has been your experience with the CARD Act to date?  Let us know by leaving a comment.

All of this back and forth can cause compliance issues for businesses and uncertainty for customers.  As we know, uncertainty can cause stress, fear and anxiety.  To make matters worse, that uncertainty hinders any economic recovery.  Good, bad or indifferent, the United States economy needs confidence and credit, to grow.  The smaller the supply of either, the less opportunity there is for economic growth.  If I lose my credit card rewards program, I might not have the confidence in my financial ability to take that trip I was planning.  After all, I only budgeted for hotel and meals, but planned to use reward miles for the flight.  Because of the uncertainty caused by my credit card situation, I might call off the whole trip.  That means there is less money being pumped into the economy and the seemingly perpetual downward spiral continues.  If customers are concerned that they might have to pay higher annual fees to keep their credit cards (because banks desperately need to recover lost revenue), that is money customers will not spend.  And the spiral continues. Notice I said if “customers are concerned” that the bank is raising fees they will not spend.  The bank might not ever actually raise the fees, but the concern is enough to change spending behavior.  Therefore, the companies that want to emerge from this recession as market leaders need to factor human psychology into their marketing and communication strategy more than ever before.

How does this apply to TransPromo and customer communications?  (Yes, I do have a point.  Did you doubt me?)  Note that I referenced the fear and uncertainty as factors potentially hindering economic growth.  This has always been an issue in Keynesian economics.  Today, however, this uncertainty is far more acute as people cope with their belief  that it was the banking system and government, the very entities charged with ensuring the smooth operation of the economy, that let them down.  Today people fear for their future and their children’s future, they are uncertain about what, if anything , the government can, or should, do to help turn around the economy.  Confusion reins when it comes to health care, taxes, environmental protection, deficits and war.   It is no wonder that there has been an increase in people seeking assistance from mental health professionals to cope with lost jobs, lost homes, and lost self-esteem.  Intelligent credit card issuers must seize the opportunity to communicate with their customers consistently, honestly, personally and in a manner that builds trust and confidence.  In their book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, George A. Akerlof and Robert J. Shiller (here is the NY Times Book Review), the authors argue that like the Great Depression in 1929, the current economic crisis is the result of human psychology more than monetary policy.

So again, what the heck does this have to do with TransPromo?  I put it to you that smart organizations, financial institutions as well as every other company that wants customers, need to start communicating more effectively with their customers to calm them down and to keep or gain their trust.  Further, sending 12 page, static “modifications” to card holder agreements is not going to do the trick.  Sure, there were strategic reasons banks did this.  But those reasons cause further mistrust and did not help explain, in plain English, what changes are going to impact THAT PARTICULAR CUSTOMER.   That is where TransPromo comes in (you thought I would never get there, didn’t you?).  Personalized communications, with messages that help to alleviate fear and anxiety, will go a long way toward building that trust.  Earning that customer confidence will make your company the trusted one people want to deal with when things get better.  And things will get better.

Now is the time to build an integrated communication strategy.  Now is the time to plan your goals, plan how you will reach those goals, plan how to measure your progress toward those goals and plan how to improve your results. TransPromo is a means to accomplish all of this in a way that is almost guaranteed to be seen by the customer.  So put clear, personalized information on your transactional documents.  Don’t just do what is legally required and nothing more.  Go the extra mile and provide as much information as the customer can use.  Knowledge is power.  When people feel they have more power, they are more confident.  When customers and prospects feel more confident, and your company is the source of that positive emotion (even if it is subconscious), they will trust your company over your competition.  Therefore, a laser-like focus on earning your customer’s trust must be a priority for every person in your organization.

All of the new regulations and all of the changes to those regulations present an opportunity to differentiate your company, to separate your company from pack.  TransPromo is but one tool to accomplish this, but it is a powerful tool.  You will surely need other tools to complete a comprehensive strategic communication plan, and we will address those other tools in future articles.  The take-away here is that in these times of uncertainty, developing a communication strategy that builds trust and confidence will earn you rewards that dwarf the investment.

As always, if you have any questions, please contact us.  Our mission at White Space is to help our customers build communication strategies that foster trust and create good will.  If you have any thoughts or experiences you would be willing to share, please leave a comment.  We are all smarter together than any of us are alone.

In the interest of not losing every one of my readers, I will spare you the details of all of the amendments.  But there are some important (and funny) issues raised in a select number of these amendments and I wanted to share them with you so we can avoid some of the penalties for non-compliance.

As it is the first amendment offered, looking at Amendment 1 seemed as good a place to start as any.  It is also quite relevant in how payments are made and fees charged.  In addition, for those of us in the TransPromo world, this pertains to how offers, applications and contracts are printed and precisely what is contained on them.  Therefore, we really are looking at detailed issues related to document compliance.

Pay to Pay

This amendment, offered by Democrat Luis Gutierrez representing the 4^th Congressional District of Illinois was accepted on April 30, 2009.  In essence, one of the things this amendment does is allow credit card companies to charge you for paying your bill.  Well, that characterization might be a tad unfair, (nah , it’s fair).  Do you agree?  Read on, decide, and please let us know what you think.

This amendment allows credit card issuers to charge you and me, regular consumers, for making expedited payments by telephone.  Of course, card issuers cannot simply charge people whenever they want.  Under the amendment, the consumer must request such an expedited payment (apparently, they do not have to request the associated fee).

So in order to pay your bill on time and avoid a late fee, you will be charged an expedited processing fee.  No, I am not joking.  Now practices will vary among card issuers, so do your homework here.  What companies charge for late fees and expedited payments will vary greatly so read all of your mail from your card companies.  The devil is in the details.

Document Mandates – How Big is Your Font?

This amendment also requires that all credit card offers (and solicitations and contracts, etc…) notify prospective applicants that excessive credit applications can adversely affect their credit rating.  QUESTION:  if a person is making an excessive number of credit card applications, do you think they are really concerned about their credit rating?

Like much of the rest of the bill, the implementation of this is left to the Board of Governors of the Federal Reserve. This my friends, is where the wheels come off the cart.  The “suggested” guidelines have creditors supplying cardholders with information regarding the availability of legitimate and accredited credit counseling services.  Therefore, we have lenders collecting fees when they receive payments from people they know have bad credit because they have applied for a bazillion credit cards, but at least they are being offered the name of a credit counselor, in writing.  Perhaps it is even on a transactional document.  Lenders can use the effectiveness of this medium to prove they communicated with their customers in writing.

Font sizes

However, not just any writing will do.  Congress, loath to read bills themselves, requires all written information on any application, solicitation or agreement for any credit card account appear in no less than 12 point font.  Yup, the leaders of the United States of America, a country in economic turmoil dealing with massive deficits, fighting wars all around the globe, are spending their time mandating *&^#% font sizes.  And, just in case you are applying for your card in a store, the font police got your back there, too.  Businesses who are self-issue credit must display a “large, visible sign” at counters with the same information that is required to be disclosed on the application itself.

The problem: they don’t say what size font must be used on the signs.  Some lawyer’s kid will get their braces paid for with tax dollars when this oversight is litigated (and it will be litigated).  Folks, I can’t make this stuff up.  It’s nuts, but it’s the law.

Stay tuned for more, or subscribe to the feed so you don’t miss one important (or silly) compliance issue.  While we try to look at this stuff with a bit of humor, it is important to your business.  And if you are concerned that the intricacies of these laws could impact your company, it would be wise to get some professional input.

After all, if you have a small font (hey, I thought size didn’t matter!) it might be more than just the guys at the gym harassing you!

The Law of Unintended Consequences

This is one law that is as old as time itself and like the laws of physics, the law of unintended consequences cannot be broken.  One such consequence is that banks, in anticipation of the new law’s February 22, 2010 deadline, have raised rates and cut credit limits.  Apparently, the banks took some 16^th Century wisdom and made hay while the sun was still shining.   Banks are also adjusting the tier structure of late fees, still permitted under the Act.  These issues were raised by Marlys Harris in a moneywatch.com post.

Additional examples were cited in an article by Polina Vlasenko in the Christian Science Monitor.  The piece says the CARD Act’s limitations on raising interest for those with bad credit will result in borrowers with good credit being treated the same as borrowers with poor credit.  Thus, according to Vlasenko, higher rates and increased fees will be forced on all cardholders.  Another unintended consequence will be an increase in merchant fees (the fees paid by merchants for processing charges) as banks seek ways to make up for revenue lost from complying with the act.  These increased fees will likely be passed onto the consumer.

Playing Defense with Your Credit

Like all legislation, as soon at it passed, those affected start looking for ways around it (gotta love lawyers).  There are a few ways to make sure you get the benefits intended by the CARD Act if you are a consumer.  First, pay more than your minimum balance.  The Act requires that any payment above the minimum be applied to charges with the highest interest rate.  That is good.  However, it only applies to payments made above the minimum.  (Section 104 of Credit Card Accountability Responsibility and Disclosure Act of 2009. 15 USC 1601)

Another, common sense way to play defense with your credit is to be knowledgeable about the terms and conditions of your credit cards.  Banks have inundated us with modifications to credit terms, and if you do not read them, you stand to pay dearly.  Knowing which cards are offering the best terms will allow you to “vote with your credit card.”

Another possible trap that is contained in the Act eliminated the right of an aggrieved cardholder to sue in court.  Arbitration is now mandatory.  This creates consequences that are both positive (arbitration is generally less expensive than litigation) and negative (arbitration clauses can be difficult to understand and require significant payments to arbitrators).

Age has its Advantages

One of the more wide-reaching aspects of the new legislation is that it will be difficult for those under 21 years old to get a credit card unless there is an adult willing to co-sign for the card.  According a recent study by Sallie Mae, on average, college students carry over four credit cards with a record balance of $3,173.  This same study claims only 17% of college students pay off their cards in full every month.  On the downside, this will mean many young people are going to have a difficult time establishing credit.  On the plus side, there should be a lot fewer students with crushing debt, fewer defaults and fewer bankruptcies.  However, banks will need to replace the revenue they received from young cardholders that pay their cards off, with interest, over time.

The Summary so Far

As with most things, knowledge is power.  Stay informed.  Check back here for more updates and check out the expanding resource section of White Space Marketing.  We will keep you up to date on all of the latest developments.

Have you had any dealings with your credit card company that you would be willing to share?  We would love to hear it.  Please leave your thoughts and comments.   And please let us know if you have any questions.

 One part of the law requires credit card issuers mail or deliver periodic statements at least 21 days before they are due.  That is a change from the prior law, which was 14 days.  Another part of the law that became effective August 2009 requires card issuers provide at least 45 days notice of any APR increase or other significant change in terms. 

Please notice that these laws are all focused on CUSTOMER COMMUNICATION. 

Massive Legislation - the cure for insomnia

 Come February 22, 2010, we will have to deal with laws that are completely reshaping the way we handle transactional documents.  The law imposes requirements that are likely add at least a half page to the average statement.  This is a great opportunity for everyone in the TransPromo and marketing field. 

 An opportunity to open a dialog with our customers.  An opportunity to use individual statements not only to comply with the law, but also to improve our communications with customers.