2023 Credit cards

It turns out Wall Street was right. Stocks rallied last month on the growing belief that not only was the Federal Reserve done hiking interest rates, it would cut rates next year.

At the conclusion of the Fed’s December meeting, members of the Fed’s Open Market Committee (FMOC) released projections for 2024. Most penciled in three cuts in the federal funds rate, which determines interest rates on car loans, credit cards and banks’ prime lending rates.

Not surprisingly, stocks surged with the Dow Jones Industrial Average closing up 512 points, or 1.2%.

What it means

Here’s what that does to the investment environment:

• Savers will likely get less interest on their money. Yields on Treasury bonds fell on the news.

• Tech stocks, which led the November rally, gained even more.

• Oil prices rose after finishing the previous day at their lowest level since June.

• The price of gold, which had fallen over the last couple of weeks, posted a solid gain.

But it may be too soon for investors to make significant moves based on the Fed’s outlook. Oliver Rust, head of Product at Truflation, says the outlook is far from certain.

“With the labor market still running exceptionally hot and Truflation forecasting inflation will rise again in December, we expect policymakers will have to review their position and consider whether they need to increase rates again,” Rust told ConsumerAffairs.

There are still Fed ‘hawks’

“This would be a shock to the market, which is now overwhelmingly expecting the Fed’s next move to be an interest rate cut – though the majority now expect this to happen in May, rather than March. However, the market may be underestimating the extent of Fed Chair Jerome Powell’s hawkish stance.”

Rust also notes two of the incoming FOMC members next year also have hawkish views on monetary policy.

“This could further sway the committee toward another interest rate hike, should economic data suggest this is required,” he said. 

"In short, we are not seeing the economic slowdown required to bring inflation fully under control, which remains a core part of the Fed’s mandate. We expect Chairman Powell to remain firmly committed to this goal in 2024. If he does not see the necessary softening in the economic data in the new year, we believe he may still push for another 0.25% interest rate hike – and perhaps gain more support from his committee than he would have done this month.”

Generally, higher interest rates are a negative drag on stocks since they increase companies’ operating costs and can drag down profits.

The Federal Reserve Open Market Committee (Fed) ended its September meeting without increasing the federal funds rate but made clear its battle with inflation isn’t over.

“We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion,” said Fed Chairman Jerome Powell.

Other statements and documents suggest that even if the Fed doesn’t raise rates one more time, as expected, the policymakers plan to keep the rate where it is for months, making it more expensive to finance a car or truck purchase and pay down credit card balances.

Oliver Rust, head of product at independent inflation data aggregator Truflation, says the Fed’s decision shows it is being cautious.

“Overall, the economic picture remains murky, which explains the decision to pause,” Rust told ConsumerAffairs. “According to Powell, the Fed is now ‘in a position to be more careful’ and getting ‘fairly close’ to where it needs to be on interest rates. Faced with arguably the most important monetary policy decision since the rate hiking cycle began, this pause gives policymakers the chance to avoid a blunder, with Powell saying that achieving a soft landing still remains the Fed's primary objective.”

A soft landing would be a reduction in inflation without triggering a recession – historically, something hard to achieve.

Soft landing?

“However, with the economy on a strong path and unemployment stuck at historic lows, there is little chance of avoiding another interest rate hike,” Rust said. “At Truflation, we also expect inflation to remain sticky this year and maintain our projection of 4% CPI by year-end, which will put further pressure on the Fed.”

With new and used car prices expected to rise because of the United Auto Workers strike, higher financing rates may limit the kind of vehicles consumers can afford. Current rates range from 5.5% to over 28%.

The average credit card interest rate is 24.45%, with consumers with excellent credit paying less but those with poor credit paying a much higher rate. Both auto loan rates and credit card rates are based on the Fed’s federal funds rate.

Medical bills are the source of many consumer issues these days. They can lead to bankruptcy and ruin someone’s credit rating if they’re not paid.

Following up on its report “Medical Bills: Everything You Need to Know About Your Rights,” the U.S. PIRG Education Fund is warning consumers that the next time they’re faced with a hefty medical bill, they might find themselves pressured to sign up for a medical credit card. PIRG claims those cards are a win for the financial industry, benefiting from the millions of people who use those cards, but often a loss for the consumer.

PIRG’s latest report – “A bad deal: Why you don't want medical credit cards in your hand” – explains how medical credit cards work, why they add to the cost of a medical bill, and some alternative methods consumers can take to lower and pay off their medical bills. 

What are medical credit cards? 

A “normal” credit card and a “medical" credit card are kin, but they differ in an attractive way: deferred interest with 0% for an introductory period. And that angle is what companies pitch to consumers. 

The problem is that patients may not understand that “deferred interest” means that if they miss a payment, or can’t pay the full balance when it’s due, they’ll have to pay higher interest rates than most regular credit cards. 

According to the report, there's plenty of consumer-side pain. For one, there are loopholes in debt protection laws these cards can exploit.

Secondly, because they’re marketed inside of a healthcare office, the staffers who promote these aren’t prepared to fully explain or answer questions about the financial transaction. 

Thirdly, PIRG says consumers are powerless to keep these wolves keep away from your door. “The predatory terms of these financial products exacerbate the cost to the patient down the road. Patients need to know that they have other solutions available to them,” said U.S. PIRG Senior Director of Health Care Campaigns Patricia Kelmar. 

Listen to the advice of those who got hurt by a medical credit card

If you want proof, Evelina of El Cerrito Calif., has plenty in her review of Synchrony Financial’s CareCredit, the medical credit card she used to purchase her husband’s $5,400 hearing aids. 

Evelina’s not alone. In the 200 plus complaints about CareCredit to the CFPB, there are allegations of the company refusing to return overpayments, deceptive billing practices, and accounts closed without any explanation. 

CareCredit doesn’t have the market to itself. There's also AccessOne, PrimaHealth Credit, Wells Fargo Health Advantage, MedCredit Financial Services, and Comenity’s Alphaeon Credit Card. 

In response to this trend, several federal agencies have launched an inquiry into these high-cost specialty financial products, asking consumers to send in their stories. 

Consider the alternatives

PIRG says that there are four things consumers can do when they’re faced with a medical bill.

Verify your bill. Inside the ton of paperwork that you’ll get after a medical procedure, there should be an itemized list of what each thing costs. If you see something listed twice or a service that you didn’t receive or recognize, ask questions of both the provider and your insurance company.

Negotiate your bill. It doesn’t hurt to ask if you can get a discount and pay a lower amount, especially If you’ve been going to a doctor for a long time and they value you as a patient.

PIRG suggests that you can ask what the Medicare rate is and ask to pay that lower amount instead. “You should explain that you are willing to pay, but explain your financial limits,” PIRG suggests. “As with a payment plan, you should get the agreed-upon discount in writing.”

On top of referencing the Medicare rate, ConumerAffairs recently found an app that finds the cheapest price for medical procedures. You could use it to make more informed decisions when negotiating a price.

If it’s a non-profit hospital, ask about financial assistance. It’s a federal requirement for all nonprofit hospitals to have financial assistance policies, so if that’s where you’re getting your medical procedure done, ask if you qualify for free or discounted care. 

Despite the fact that the provider claims you have already been screened, PIRG says that you may still apply for this aid. “In some cases, financial aid is denied because the provider lacks the information necessary to know if you qualify, and your application can provide that missing information,” PIRG added.

Use another credit source. The first thing you shouldn’t do, says PIRG, is to even apply for one of these credit cards. In short, the credit card company “owns” you. They set the terms, conditions, and rate and you are pretty much powerless to affect any change. 

“We have to put an end to the peddling of medical credit cards in health care settings. When offered in a doctor’s office, or a hospital, patients might not be in the best state to make a decision about signing up for a high-interest card,” Kelmar said.

“MDs have the expertise to prescribe drugs -- not financial advice. You wouldn’t go to an investment banker for a medical diagnosis. Evidence shows that medical credit cards can worsen debt and even lead to bankruptcy. And your provider or hospital can’t cure that.” 

Here’s a reminder that it’s always good to regularly check your credit card accounts. In addition to possible fraudulent changes, a legitimate merchant might place an accidental charge.

Wegman’s, the upscale supermarket chain, has disclosed that some customers were double-charged when they made purchases using a credit card. The extra charges occurred both at in-store checkout terminals and online.

The double-charging occurred on transactions that were processed on Aug. 16 and were reported at more than 110 Wegman’s locations in the U.S.

One consumer posting on Facebook said she contacted Wegman’s after she noticed the identical charges and was told that it was a “system-wide” error. Other customers advised shoppers to check their bank statements, though it’s not clear if the glitch affected debit cards.

Not to fear, company officials said affected customers will get reimbursed. The company said it is working with payment processors to restore the money. A company spokesperson told media outlets that affected customers should get their money back quickly, depending on the cards’ issuers.

The spokesperson did not disclose a reason for the error.

A report by the Federal Reserve Bank of New York shows total credit card debt in the U.S. has reached $1 trillion for the first time. 

Credit card balances surged by $45 billion in the second quarter of the year as more Americans apparently relied on expensive credit to make ends meet. That 4% increase pushed total indebtedness to the highest gross value in Fed data, extending back to 2003.

Another report – this one from the credit bureau TransUnion – shows many of the consumers running up large credit card balances are student loan borrowers, whose monthly payments have been on hold since April 2020.

Unfortunately for them, however, those payments are set to resume within weeks. In addition to resuming those loan payments, many will also have to find a way to pay their credit card bills.

The burden of additional debt

“The majority of consumers with a student loan have not been required to make payments for the better part of three years,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion. “Payment amounts will vary, but many of these consumers have taken on additional debt since the last time they had to pay their student loans. It’s important for both lenders and consumers to be prepared for this new payment shock.”

The TransUnion report shows that 53% of student loan borrowers, relieved of having to make loan payments during the last three years, opened new credit card accounts. Thirty-six percent also took out auto loans.

“These additional credit products mean additional monthly payments, the accumulation of which may pose added challenges for households attempting to reintegrate student loan payments into their monthly budget,” Pagel said.

While the Department of Education has offered a 12-month moratorium before student loan delinquencies will have an impact on consumer credit files, interest will begin to accrue immediately so Pagel says it is in the best interest of consumers to resume payments right away.

What to do

Faced with a tighter budget, many student loan borrowers may be tempted to make only the minimum payment on their credit card bill, but personal finance experts warn that’s a costly strategy, especially with interest rates north of 20%.

The quickest way to put a dent in your credit card balance is to apply for a balance transfer credit card that offers 12 to 20 months of 0% interest. That means the entire monthly payment goes to pay down the balance.

The ConsumerAffairs research team has analyzed current offerings and selected these seven balance transfer cards as among the best. All seven charge a balance transfer fee, but the fees charged by the Quicksilver from Capital One and SavorOne Rewards from Capital One may be the lowest.

Once the interest-free period ends, borrowers can pay off the remaining balance with a personal loan because rates are generally lower than credit card rates. Learn more about personal loans here.

In a shock to the Biden administration and the financial markets, Fitch, a debt ratings agency, has downgraded the U.S. government’s credit rating from AAA to AA+.

The firm explained its move by pointing to the Congressional brinksmanship in early June that nearly resulted in the U.S. government defaulting on its debt. 

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the agency said. "The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."

Legendary investor Warren Buffet, chairman of Berkshire Hathaway, spoke up to calm the markets.

"Berkshire bought $10 billion in U.S. Treasurys last Monday. We bought $10 billion in Treasurys this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month" T-bills, Buffett said in an interview with CNBC. "There are some things people shouldn't worry about, this is one."

But it’s one thing for a billionaire not to be concerned. How about someone like you?

It depends

Personal finance experts say it all depends on your circumstances. If you have savings, it might actually be good for you in the long run if interest rates keep rising. But if you have lots of adjustable-rate debt, it might have a real downside at some point. But there are few signs of that on the horizon.

Matthew Schaller, MBA, CFA, CFP at Compardo, Wienstroer, Conrad & Janes at Moneta, in St. Louis, says there has been only muted bond market reaction so far.

“We are not expecting material changes to consumer debt, at least not as a result of the downgrade,” Schaller told ConsumerAffairs. “Mortgages are tied to the 10-year Treasury, which rose on the news of the downgrade vs. an expected drop.  The same goes for credit card debt and car loans, which tend to be influenced by the two-year Treasury.  

Schaller says the two-Year Treasury should have spiked if the market was truly worried about the U.S.'s fiscal state, but it only rose two basis points,  which he said is not an abnormal move in a given trading day.

“The downgrade news itself seems immaterial on interest rates, at least for now,” he added.  “Fitch’s main reasoning behind the downgrade discussed dysfunction in Washington. Which, quite frankly, there has been dysfunction in Washington for a long-time – it just seems this time it was enough of a reason to downgrade the U.S. debt.”

In spite of everything, Schaller says the U.S. economy is still showing resilience, “perhaps more surprisingly than most economists were predicting this time last year.”  

Are you a Bank of America (BOA) customer? If you are, your share of the $100 million due you from the Consumer Financial Protection Bureau (CFPB’s) action against BOA for breaking federal laws that apply to financial products, including accounts and credit cards, is moving forward as promised. 

And those millions are just the start. The bank is also required to pay an additional $90 million fine that will go to the CFPB victims relief fund.

What can be expected

You can expect payments from Bank of America if you fit the descriptions below. No action is required and there are no hoops to jump through, either. Payments have already been received by some customers and separate mailings are planned for former customers.

Customers who were overcharged for insufficient funds in their bank accounts

The CFPB’s hammer went down hard on Bank of America for its practice of “double-dipping” on deposit accounts with insufficient (NSF) funds. When a check or withdrawal didn’t go through because a customer didn't have enough to cover it in their account, BOA didn’t shy away from those cha-chings. Nor did it stop, either. The bank purportedly continued to reject a single transaction over and over again, charging a $35 fee each time.

Where things stand now is this: The CFPB reports that Bank of America stopped charging all non-sufficient funds fees last year and supposedly refunded tens of millions of dollars in fees to affected customers. The agency says that means customers who were charged multiple fees may have already had some of the money returned to their bank accounts. 

What happens next: “Double-dipping” should be officially dead and buried as far as Bank of America customers are concerned. The bank has to write $80 million worth of checks to those customers, too. If you are one of those current customers, the refund will be made directly to your account. On the other hand, if you’ve left Bank of America, you should receive refunds in the mail. 

Neither the CFPB nor the bank disclosed exactly how much those checks will be, but the bank has set up a special line to handle questions from people who have been overcharged for NSF fees. If you call them, be ready with your account information and details about how you were affected. The toll-free number is 1-855-729-1764. You can also reach them by e-mail at NSFinquiry@bofa.com or by mail at P.O. Box 25118, Tampa, FL 33622-5118.

Were you promised rewards points and cash bonuses that never appeared?

Another thing that bit Bank of America was advertising bonuses and rewards to consumers but failing to follow through on delivering those perks. There were also snafus for signup bonuses to some new customers, such as making the rewards available only to people who signed up online.

Where customers stand now: Rewards and bonus points have been credited to many affected customers already.

Going forward: In order to advertise and promote its rewards/bonus offers effectively, Bank of America must clearly state who is and isn't eligible. It is the bank's responsibility to credit people's accounts with the correct points and rewards if they haven't been provided yet.

If you didn't give authorization

For more than a decade, BOA employees were reportedly pushing credit card offers down the throats of its customers. Good for the employee because they got rewarded when they met goals for opening new credit card accounts.

Bad for some customers, however, because the CFPB found that some overzealous employees opened credit cards for customers who never even applied for – or agreed to – the new accounts. Those customers might have been hit with fees they didn’t anticipate or had their credit reports dinged negatively as a result.

Where do customers stand now? Bank of America has halted its sales incentive program that encouraged employees to break the law. In some cases, the bank has already reimbursed customers' costs.

What happens next: Bank of America is supposed to stop opening unauthorized accounts as part of its agreement with the CFPB. It must also remove anything negative that shows up on the credit reports of people who BOA opened accounts for without their permission.

In order to make payments or refunds to harmed consumers, the bank must submit a plan. If the CFPB approves the plan, the bank must provide refunds within one year after it approves it. The agency expects the plan to be ready by no later than the end of August.

How to resolve problems with Bank of America or other financial institutions

This whole Bank of America thing is a mess. So is the Wells-Fargo debacle that seems to have a never-ending life of its own. And having to deal with either one can be a nightmare, but the CFPB says that if something similar happens to you – be it at Bank of America, Wells-Fargo or any other bank – your best first step is to try to resolve the issue directly with the financial institution. 

If the problem doesn’t get resolved, then it’s time to submit a complaint to the CFPB. To submit by phone, call (855) 411-CFPB (2372). The agency will forward your complaint to the company and work to get you a response. Most companies respond to complaints within 15 days.

If you are aware of problems because you are an employee or former employee of a financial company, you can alert the CFPB by sending an e-mail to whistleblower@cfpb.gov. It says it reviews every submission.

Have you ever taken the time to calculate how much you have to spend to earn a mile or a point in the loyalty rewards programs you’re a part of? It's really simple.

Most loyalty program points/miles are worth about a penny which means the reality of a rewards program will often cost you $50 to get a $5 coffee at Starbucks or tens of thousands of dollars to get a flight that would otherwise cost you $700. 

Loyalty programs continue to get even more expensive. For example, United Airlines just increased its requirements, with a one-way saver transatlantic award starting at 40,000 miles where it used to take only 30,000.

And they’re also becoming loaded with gamification because the bigger sticks and carrots they can get a consumer to chase bring in more revenue. Sorry, but offering actual value to a customer enrolled in those programs just doesn’t exist anymore.

How does one play the loyalty game and win? Good question. ConsumerAffairs asked loyalty program gurus – the people who play this game like it’s a real job – how someone can get the most out of their credit card loyalty programs. What they came back with was pretty insightful. Involved, too, so be ready to jump through some hoops.

First off, don’t be delusional

To woo consumers, companies are smart enough to know that there’s no upside in divulging the true value of points or the hoops and fine print that someone has to eventually face in cashing those in.

So companies throw lots of sign-up bonuses at us. “25,000 miles to sign up, no fee for the first year” come-ons costs the company nothing, but if they can get a consumer to bite, then the cha-chings start to roll. 

But, a big problem with loyalty programs is that most people don't really know – or investigate – what they're signing up for. 

“People keep signing up for these programs because they think they'll get lots of perks, even if they have to spend a bunch to get them,” Michael Lisovetsky, co-founder of the banking platform Zurp, told ConsumerAffairs. “There is an illusion that their entire travel experience will change for the better, but many are designed for frequent or high-spending travelers,” not the couple who flies to Sarasota once a year to see their grandkids.

Don’t be greedy, either. RatePunk CEO Justin Albertynas told us that “Applying for multiple credit cards within a short period can have a negative impact on your credit score. It's advisable to be strategic when considering joining more loyalty programs.”

How to better reap what you sow

When ConsumerAffairs put this question to the experts, the floodgates opened with input. It’s a safe bet that at least one of these will get an "a-ha" from anyone who’s part of a loyalty program.

Weigh the value of rewards vs. cash back. “Not everyone is a great candidate for a travel rewards credit card,” says Nick Ewen at ThePointsGuy. “There are a number of no-annual-fee, cash-back credit cards out there that award 2% back on every single purchase you make. If you don’t want to worry about earning miles or points to cover an entire flight, cashback gives you the flexibility to put money back in your pocket whenever it suits you, since you’re not limited to travel.”

Be flexible and only travel in the low season. RatePunk CEO Justin Albertynas said the deals are better when strict dates don’t limit your choices and when the destinations aren’t overcrowded with tourists during the most popular time of visiting. “It will help you get the best deals and save your travel rewards,” he suggested.

Only use the card where and when it’s worth it. Brendan Miller, CMO of Runa, agreed, saying that wise consumers will look for cards that give the best bang for the buck they spend in certain spending categories, such as gas or food. “Consider the types of rewards offered, redemption options, frequency of usage, and the points earning rates. Spreading your points - and interest levels - too thinly across a broad range of businesses risks minimizes the value-add from your hard-earned loyalty bonuses.”

Look at the route network before committing. An airline may offer you 100,000 miles to sign up, but that doesn’t mean squat if you have no interest in flying to the places it goes to or you don’t even like the airline, David Doughty, the CEO of Admiral Jet told us. “If someone’s preferred airline offers extensive coverage to the destinations they frequently visit or partnerships with other carriers that suit their travel needs, it’s worthwhile to accumulate miles and maintain their loyalty status even if the rewards are minor.” Otherwise, it could be a complete waste of time.

Use your card for big purchases. One of the hot stick-and-carrot angles is for a credit card to reward a consumer with an unbelievable number of miles if they spend a certain amount of money in a short period of time (like $3,000 in 3 months). In her review of travel cards, ConsumerAffairs’ Kathryn Parkman says the best use of those type cards is when you’re going to make a major purchase. “That way, you can be sure to hit the sign-up bonus and maximize the amount of points you gain right off the bat,” she said.

However, you need to be careful with these types of bonus offers. You may get 75,000 miles for spending $4,000 in three months on a credit card, but if it’s going to cost you 80,000 miles to fly to London and back, that means you have to spend even more money to get that award flight; and if you don’t use the miles but stick with the card for another year, the membership fee could be as much as $395.

Churning. Murtaza ​​Khanbhai, the founder of Reward Flight, told ConsumerAffairs about a community of consumers – called “churners” – who are dedicated to getting the most value out of these programs. It’s kind of like playing the stock market, but for those readers who like that kind of excitement, here goes:  “They sign up for these credit cards for large signup bonuses and then cancel them,” he said. “When done properly you can fly in business and first class for a fraction of the regular price. For those not interested in traveling you can also redeem them for cashback offers, often upwards of $500.” Where are these communities, pray tell? ​​Khanbhai said there’s a group on both Reddit and FlyerTalk.

What are the “extra” perks? On top of the welcome bonus, Ewen says consumers should consider what, if anything, they’ll get past that stage. 

One of his favorite perks is waived checked bag fees. “If you live in an airline’s hub (e.g. Charlotte for American, Atlanta for Delta) and you take at least a couple of flights per year, an airline credit card can be a major money saver,” Ewen told ConsumerAffairs. He said that most of those allow the primary cardholder to check a bag for free on all domestic flights, and many times that perk also extends to multiple companions on the same reservation. 

“Let’s say you live in Atlanta, and you and your spouse check a bag on just one round-trip domestic flight every year. You’d have to pay $120 ($30 per person each way) for this privilege. However, if you have the Gold Delta American Express card and pay a $95 annual fee, those baggage fees are automatically waived for you and up to eight travelers on your reservation.”

However, he throws out a caution flag on that suggestion, saying that some companies make perks unnecessarily difficult to utilize, so read the fine print before you sign on the dotted line.

With inflationary headwinds stubbornly persisting, Americans are increasingly adding to their credit card balances. A new report from the St. Louis Federal Reserve Bank shows balances on credit cards and other revolving credit products are fast approaching $1 trillion.

That’s a reversal from three years ago when COVID-19 lockdowns resulted in a dramatic drop in credit card spending. Credit card balances actually declined to $750 billion in 2021. Consumers have added nearly $250 billion to their credit card accounts in just two years.

Making matters worse, the Federal Reserve’s campaign to raise interest rates to reduce inflation has boosted the average credit card interest rate to 24%, the highest since the 1980s. Personal finance experts concede the tasks can be challenging but say there are a few tools that can help an overburdened consumer reduce their debt.

“If you're struggling to pay down your balance, use a 0% balance transfer card to save on interest,” said Andrea Woroch, a personal finance author. “This will buy you more time to pay off your balance without interest piling up and could save you a lot of money and give you relief in your monthly budget to afford higher prices.”

While that can help, remember that many balance transfer cards charge a fee, based on a percentage of the transferred balance. Most fees are 3% but some may be as high as 5%. ConsumerAffairs has researched the best balance transfer cards here.

Personal loans

Taking out a personal loan to pay off a credit card balance is another option. In most cases, the interest rate on a personal loan is significantly less than a credit card. 

To pick the best lender for you, you’ll want to compare features, including annual percentage rate (APR), repayment terms, fees and loan amounts. Again, ConsumerAffairs researchers have reviewed lenders and picked the best eight offers.

Once you reduce interest charges, Markia Brown, certified financial education instructor at Money Plug, says you should avoid the mistake of sliding back into bad habits.

“This can manifest in several ways, such as overspending, accumulating high-interest debt, inadequate savings, and lack of investment for the future,” told us. “To avoid these pitfalls, it is crucial to establish clear financial goals, create and follow a budget, prioritize saving and investing, and be disciplined with spending habits.”

With inflation eating away at paychecks, you may be sinking deeper into debt. If you are, you aren’t alone.

A report by the Federal Reserve Bank of New York shows total household debt rose by $148 billion, or 0.9% to $17.05 trillion in the first quarter of 2023. As something of a surprise, credit card debt didn’t increase very much.

Instead mortgage balances climbed by $121 billion and stood at $12.04 trillion at the end of March. Auto loan and student loan balances also increased to $1.56 trillion and $1.60 trillion, respectively.

While credit card balances were flat in the first quarter, at $986 billion, that runs counter to the typical trend. Fed economists note credit card balances usually go down in the first quarter of most years.

Tony Dwyer, chief market strategist at Canaccord Genuity, believes an increase in consumer spending on credit cards is only beginning, flashing a warning sign for American households as well as the U.S. economy. In an interview with CNBC, Dwyer said consumers are still spending only because they have available credit.

‘Unsustainable’

“At some point, you’re going to deplete your cash,” Dwyer said. “At some point, the money supply data, the movement of money out of deposits into money market funds, and the use of credit cards are going to hit a level that is unsustainable and I think we’re pretty close to it.”

In an environment of rising interest rates, consumers cut back on other types of debt. Mortgage refinancings were sharply lower because homeowners with 3% mortgage rates were not eager to start paying 6%. That means home equity is staying in the home and not being taken out to spend on other things.

The volume of new auto loans was $162 billion, a reduction from pandemic-era highs but still elevated compared to pre-COVID volumes. Again, interest rates may be keeping some people from purchasing a new vehicle.

Holding onto cars longer

This week S&P Global Mobility reported that the average age of vehicles on U.S. roads hits 12.5 years, another record. The report said there are almost 122 million vehicles in operation that are over 12 years old.

High interest rates, along with inflation, may be making it harder for Americans to keep up financially. The Fed’s report shows the share of current debt becoming delinquent increased across nearly all types of debt. The delinquency transition rate for credit cards rose by 0.6% and 0.2% for auto loans.

Sometimes, having a little coaching and information can help consumers get a handle on their finances when debt starts to rise. Check out what ConsumerAffairs learned when we rated credit counseling agencies.

It may be time to take a new look at your credit report – especially if you are among half of the Americans who have any kind of medical debt. The Consumer Financial Protection Bureau (CFPB) says that many consumers who've taken on some form of medical debt in the last year have protections they need to know about. 

The biggest subset of that pool is the 40+ million people who might have unpaid medical bills. For them, the U.S. Congress, federal agencies, and others have stepped up to pass the No Surprises Act to help protect Americans from certain unexpected medical bills, such as those surprise medical bills from out-of-network providers for “emergency services.”

The second group of consumers who are getting some relief are those who’ve seen negative information pop up on their credit reports related to a medical expense. For them, the CFPB has laid down the law to debt collectors and consumer credit reporting companies that they can’t collect, furnish, or report any invalid medical debt.

In the wake of the pandemic, Equifax, Experian, and TransUnion were tasked with removing all paid medical debts from consumer credit reports, those less than a year old, and all medical collections under $500. That last step went into effect on April 11, 2023, and with this change, the CFPB estimates that roughly half of those with medical debt on their reports will have it removed from their credit history in the upcoming months.

Those three companies have taken to this task expeditiously, too. When ConsumerAffairs checked on their collective progress, TransUnion claimed that nearly 70% of the total medical collection debt tradelines reported to the Nationwide Credit Reporting Agencies (NCRAs) have been removed from consumer credit files. 

Making sure your debt isn’t still being reported

To prove they’re doing what they were told, Equifax, Experian, and TransUnion are offering free online credit reports once a week through AnnualCreditReport.com. The CFPB says consumers with medical debt would be wise to order one from each and double-check if they’ve been removed like they’re supposed to be. 

The agency offered this advice to be sure:

• If you previously had a medical collection under $500, a paid medical collection, or a collection less than a year old on your credit report, check to make sure they no longer appear on your reports. Be aware, however, that this doesn’t include credit card collections, even if you used your credit card to pay for a medical expense under $500.

• Also, while you’re looking at your reports, check for any other information that might be inaccurate. Here’s a list of the typical inaccuracies on a credit report.

• If you find a medical collection under $500, a paid medical collection, a collection less than a year old, or errors on your report, you can dispute that information with the credit reporting company.

If you run into problems

Another olive branch the credit reporting companies are offering is an extension of the time it takes to dispute, negotiate, or pay for any outstanding bills before they can be reported. Consumers in those situations now have one year from the time they saw a doctor before they’re allowing medical debt to appear on their credit report. 

For those who are unable to pay their medical bills, they may qualify for financial assistance programs, aka “charity care.”

If all else fails, the CFPB says it's got our collective backs. “We expect that the No Surprises Act, the recent actions by credit reporting companies, and the CFPB’s own actions and guidance will reduce the challenges many families face after they receive medical care,” the agency said.

“If you find invalid medical bills on your credit report or if you’re having issues disputing other medical bill errors with the credit reporting companies, submit a complaint to the CFPB.”

There are a good number of class action settlements that are winding down and the window for consumers to file for their share of the settlement is closing with it -- as early as in the next week or two.

ConsumerAffairs found these settlements that end soon, courtesy of ClassAction.org. Click on the name of the company to get to the settlement website.

Other class action lawsuits in the beginning stages

There are a number of what could be profitable settlements waiting for consumers if some of the class action lawsuits that are being filed come to fruition. Make note of these and keep an eye out for how you can apply for your portion of the settlement.

Twitter: ClassAction.org says that attorneys are investigating whether a class action lawsuit can be filed in light of allegations that Twitter said it was collecting information from users for account security purposes but secretly used the data to target them with ads.

Diet Pepsi: If you’re a Diet Pepsi drinker, heads up. ClassAction says that attorneys are investigating whether Diet Pepsi contains toxic chemicals known as PFAS and, if so, whether a class action lawsuit could be filed over the issue.

Roundup: Several lawsuits have been filed claiming that the herbicide Roundup a) can cause cancer, and b) that the manufacturer was lax in warning people about the risk. 

Ford Motor: ClassAction also reported that drivers have reported problems with their vehicle’s transmissions when starting, accelerating, and shifting. Attorneys are now investigating whether a class action is possible.

Taylor Swift is a successful pop star with a string of million-selling albums to her credit. But it turns out she has some investor savvy as well.

In 2021 FTX, the now bankrupt and defunct crypto exchange, approached Swift about signing a $100 million endorsement deal. Several other celebrities had already done so.

Swift didn’t sign and now we know why. Adam Moskowitz, one of the lawyers handling a class-action suit against several high-profile FTX promotors, says Swift was the only person to ask a very important question.

Moskowitz, appearing on "The Scoop" podcast to discuss the lawsuit, said Taylor turned to the lawyers and asked if the FTX securities were registered. She was told they were not.

At that point Swift backed out of the deal and, in doing so avoided becoming a defendant in the lawsuit. Tom Brady, Shaquille O’Neal, and Larry David signed the deal and now face a lawsuit.

Big losses

Investors in the FTX exchange should probably have asked that question as well. Investors lost an estimated $8 billion and FTX founder Sam Bankman-Fried faces federal fraud charges.

Operating from the Bahamas with little to no regulation, FTX “loaned” investors’ deposits to a sister company, Alameda Research, which made a number of risky investments, resulting in big losses.

A security is defined as a tradable asset that has value, such as a stock or bond. Securities sold in the U.S. must be registered with the Securities and Exchange Commission (SEC). The SEC has accused FTX of selling an unregistered security in the form of FTT, its cryptocurrency.

Swift may have inherited some of her investment smarts from her father. According to Business Insider, he was an investment adviser with Merrill Lynch for 30 years.

With the economy bouncing all over the place, consumers have been bouncing their credit all over the place, too. Hoping to find some breathing room, people have turned to Buy Now Pay Later (BNPL) and balance transfers as options.  

BNPL has been much derided by both financial experts and the Consumer Financial Protection Bureau (CFPB), but recently there’s been an increase in balance transfers, and one financial guru tells ConsumerAffairs that option is a double-edged sword.

“Balance transfers are both a good and bad thing,” Cyndie Martini, the CEO and Founder of Member Access Processing (MAP), said, laying most of her concerns at the feet of “credit card churning” that sucks people into the balance transfer vortex.

And churning is certainly attractive. It can give a consumer the impression that they can open a new credit card account and score some sort of benefits like zero-percent or low-interest balance. There might even be a bonus like airline credit cards often do, dangling the carrot of tens of thousands of miles that could be used for free travel.

The ramifications of balance transfers

Martini – in big, bold letters – says that before taking the balance transfer route, consumers need to consider what they’re getting into.

Don't overextend yourself, it's not free money. “Balance transfers come with certain costs and limitations. Generally, you'll have to pay a balance transfer fee - usually 3% or 5% of the total transfer,” she said. “Therefore, know that a credit transfer is not free money to extend paying off your open balance – it's simply discounted.”

Your credit score can be impacted. Really? Really. Martini said that unbeknownst to many people, their credit score is impacted based on the total limit of combined cards. As an example, she offered this narrative: “For example, if you have two cards with a $10,000 limit on each card, your credit score will be affected in the same way if you have four cards with $5K limits on each. The effects of a balance transfer may be hard to predict, but it's important to arm yourself with as much important information as possible before you transfer any open balances.”

Understand why you want to transfer your balance to a new card. Yes, that’s “why” and not “why not.” “Your credit card score will also be impacted each time you sign up for a new card to transfer your balance onto because the credit card company will have to run a credit check on the account when you sign up,” Martini said. But, if having simply a “good” credit score rather than a "Holy Grail" perfect credit score is good enough, then a transfer balance may be a worthwhile consideration. 

Plan for when you run out of free interest. Let’s say you have a 6-month interest-free offer when you transfer your limit to your new card, but you still have $10K in debt. “Then it's better to pay off the debt balance rather than continuing to transfer your open balance to new cards,” she recommended.

In its review of balance transfers, the CFPB also offered its insights on what happens when the "free interest" dries up. If anyone uses the same new credit card to make new purchases, they need to understand that they won’t get a grace period for those purchases and will have to pay interest until they pay the entire balance in full, including the transferred balance. Worse yet, if you’re more than 60 days late on a payment, the credit card company can increase your interest rate on all balances, including the transferred balance.

Pay your balance within your interest period. If you don't pay your balance in full within this period, the credit card company may charge you for the 6-month free interest in total. Oops. Most people don’t want to take the time to read a credit card policy before they leap into one, but Martini said that the devil is in those details more times than not and it’s worth poring over all the ifs, ands or buts.

Do the math. Martini said that if you have a significant amount of credit card debt, the 3-5% balance transfer fee is absolutely worth paying when transferring your balance to a card that has a 0% intro APR offer, but only – and this is important – if they still need time to pay off the balance. However, she said that if you can pay off your balance immediately in full on your current card, that is ideal because you'll save on any new interest fees as well as a balance transfer fee. 

If after considering all of these points you decide a balance transfer card makes financial sense, ConsumerAffairs has looked at some of the best.

How bad do consumers think credit reporting agencies are? Plenty bad. According to a new analysis by the U.S. PIRG Education Fund, complaints to the U.S. Consumer Financial Protection Bureau (CFPB) about credit reporting problems nearly doubled from 2021 to 2022.

At the top of this dubious list: the so-called “Big 3” credit bureaus -- TransUnion, Equifax and Experian. That trio received more complaints than any other financial firms in 2022 – 604,221 out of 3,420,113 total complaints.

Credit reporting agencies stink up the place when it comes to reviews at ConsumerAffairs, too. Equifax had the most reviews over the last year and 98.1% of those were 1-star. TransUnion and Experian basically tied with the second most reviews with 93.3% of TransUnion’s reviews being 1-star and 86.9% of Experian reviews earning the lowest rating.

"I’ve studied credit reporting complaints for over 30 years, yet I cannot comprehend how little the credit bureaus’ poor treatment of consumers has changed,” said Ed Mierzwinski, senior director for federal consumer programs at U.S. PIRG Education Fund. “When Americans describe a system rigged against them in the stories they file into the CFPB database, it’s unfortunately not surprising -- I’ve seen it all before.”

Many people are griping about the same issues

Among the key findings of PIRG’s “Big Credit Bureaus, Record Complaints: a look at increases in CFPB consumer complaints 2021-2022” report is that many consumers have the same gripes --  student loans, checking and savings accounts, and credit card or prepaid card complaints.

New financial technologies cracked the Top Ten for the first time, with consumers up in arms about frauds and scams and virtual currency like Bitcoin, as well as standard services like credit repair and money transfer categories.

On a per-capita basis, consumers in Georgia, Delaware, Florida, the District of Columbia and Alabama filed the most complaints.

How can consumers make use of the CFPB’s database?

ConsumerAffairs has been using the agency’s database for about a year and it’s been very helpful in giving us insights into problems such as with Buy Now Pay Later.

We reached out to the CFPB to find out how a consumer can make the best use of the database and one of the beauties of the system is that someone can look at the complaints of a certain company and see how that company responded.

For example, one consumer filed a complaint against TD Bank, saying they asked the bank to close a checking account but the account stayed open, accruing fees. The record shows the bank responded in a “timely fashion” and the complaint was “closed with monetary relief.”

The agency said that in conversations with stakeholders, the database is typically best for gaining insights into problems people are experiencing in the marketplace.

To aid consumers, PIRG is also releasing a short video showing how easy it is to use the database.

The CFPB encourages consumers to file complaints

The CFPB is required by law to monitor consumer complaints. While more is not necessarily the merrier, anytime a consumer files a complaint, it provides the CFPB with important information about the types of challenges consumers are experiencing with financial products and services and how companies are responding to consumers’ concerns. 

The agency didn’t specifically name situations where complaints led to it filing an action against a specific company, but it’s possible that its investigation against Venmo and its concerns over “negative option” subscription programs likely were connected to consumer complaints.

"For the CFPB to do its only job, protecting consumers, as effectively as possible, it’s important to hear directly from people what’s going wrong,” said U.S. PIRG Education Fund Consumer Campaign Director Mike Litt. “The complaints in this database act like an alarm system. When the CFPB reads them, it’s alerted to problems, who the culprits are, and what actions it needs to take.”

Using a credit card and making timely payments usually increases your credit score. However, making purchases with a debit card does not. That’s because you aren’t “borrowing” the money when you make a purchase, it comes straight out of your bank account.

But leave it to the new wave of fintech financial services companies to find a workaround. Extra card has introduced the Extra debit card and company executives say using it responsibly will raise your credit score. Here’s how:

A regular debit card is issued by your bank. It’s the same as writing a check, but more efficient.

The Extra debit card has some features of a credit card. For example, it pays rewards. But it is linked to your bank account, just like a regular debit card issued by your bank.

When you make a purchase with the Extra debit card, Extra pays for the purchase immediately, then withdraws the amount of the purchase from your bank account. When you make an on-time payment, Extra reports the payment to Equifax and Experian – two of the three credit reporting agencies.

The company has released research that found that over the course of one year, Extra card members who practiced good credit habits while successfully using the product as recommended, experienced an average overall credit score increase of 48 points and were twice as likely to get approved for an auto loan or a credit card.

Road to higher credit score?

Company officials say the card could be a way for a consumer with marginal credit, who might not qualify for a credit card, to raise their score so they can access credit on better terms.

"We seem to be in an era now where tech-bro negligence is at an all-time high, which was one of the main reasons why conducting a study like this and providing proof points for Extra's first-of-its-kind product is more important than ever," said Cyrus Summerlin, co-founder & chief brand officer of Extra. "As an uncertain economy continues to affect customers, I would love to see a reset in fintech startup culture that celebrates impact made, more than just money raised.”

Using an Extra debit card carries a monthly or annual fee. The Extra Credit Building program costs $8 a month. The Extra Credit Building and Rewards program costs $12 a month or $108 for the entire year. 

If you’re paying more money each month to keep your credit card account current, but are seeing the loan balance continuing to rise, you’re in good company. A new report from the Federal Reserve Bank of New York said that’s the situation for a growing number of people.

By the end of 2022, credit card balances totaled $986 billion – an increase of $61 billion over the previous quarter. If that seems like a big number, it is. It’s the largest increase in credit card debt from one quarter to the next since the Fed began collecting that data in 1999.

It doesn’t stop with credit card debt. The report shows overall household debt, which includes mortgages, car loans and student loans – combined with credit card balances – surged to $16.9 trillion by the end of the year.

"Credit card balances grew robustly in the fourth quarter, while mortgage and auto loan balances grew at a more moderate pace, reflecting activity consistent with pre-pandemic levels," said Wilbert van der Klaauw, economic research advisor at the New York Fed. "Although historically low unemployment has kept consumers' financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers' ability to repay their debts."

It’s happening

Actually, there’s evidence that is happening. A report by Moody’s Analytics shows that by the end of the year, nearly 10% of car loans extended to people with subprime credit scores were 30 days or more behind on payments at the end of 2022.

Car prices inflated last year and auto loan rates rise every time the Fed raises its federal funds rate, putting the squeeze on more people.

“The households that were on the financial ledge to begin with might have been tipped to the point where it’s hard to keep up on the car loan and everything else, and people have to make some very hard decisions,” Pamela Foohey, a professor at Cardozo School of Law, told the Wall Street Journal.

Sandwich generation

While fears of a recession have begun to recede, it doesn’t help the growing number of people who are struggling under a mountain of debt. A study by New York Life shows members of Gen X – a demographic that usually has older children and aging parents – use their credit cards the most. 

“While financial health and confidence for Americans may differ for myriad factors, it’s worth noting that women and Gen Xers, or those within the “Sandwich Generation,” are likely parent-caregivers, handling both parent or guardian and unpaid adult caregiving roles, often leading to greater levels of stress,” said Suzanne Schmitt, head of Financial Wellness at New York Life. 

Balance transfer credit cards with several months of 0% interest are a good option to quickly put a dent in a credit card balance. So is a personal loan, which often has an interest rate half of what credit cards charge.

The ConsumerAffairs Research Team has checked out both. Here’s what he found out about balance transfer cards and here’s the scoop on personal loans.

When does “approved” or “pre-approved” mean just that?

In a ConsumerAffairs review of Credit Karma's credit card offers, Emily, of Macon Ga., said she found there were quite a few hoops to jump through. She said the loans the company pitched her as “approved” required filling out an application that promises it won't hurt your credit scores as well as APR and monthly payments which look great up front but turn out to be “crazy high.”

And what Emily experienced, the Federal Trade Commission (FTC) apparently found happening across the entire consumer credit landscape with Credit Karma. Following a public comment period, the agency finalized a consent order settling charges that Credit Karma deployed “dark patterns” to misrepresent that consumers were “pre-approved” for credit card offers – pre-approved as in as much as a 90% sure shot of getting a good deal on a loan. 

Unfortunately, many of the people who applied for the credit offers weren’t as credit-worthy as they should be and wound up with nothing unless they wanted to bite off more than they could chew on monthly payments. 

However, the FTC said Credit Karma benefited because it was able to gather over 2,500 data points on each consumer, including credit and income information. Credit Karma then used that information to send targeted advertisements and recommendations for financial products, like credit cards.

Credit Karma disagrees, but will pay a fine. Is that good enough?

The FTC’s consent order requires the company to pay $3 million that will be sent to consumers who wasted time applying for these credit cards. It also agreed to stop making deceptive claims.

“We fundamentally disagree with allegations the FTC makes in their complaint, but we reached this agreement to put the matter behind us so we can maintain our focus on helping our members find the financial products that are right for them,” a Credit Karma spokesperson told ConsumerAffairs.

But as recently as December 2022, consumers were still complaining about the company’s pitches.

“Got an offer for a guaranteed approval on a product where they would pay me $50 if I was not approved. So, I applied, hard inquiry made on my credit within seconds, and I was not approved,” Jason, of Media Ohio wrote. 

But that’s where he felt Credit Karma failed to follow through on its offer. 

“I then contacted them to get my $50 and they told me that I could not receive it because I did not qualify and that they could not find any applications for credit, he said. 

It’s important for consumers to complain when they feel like they were wronged

Jason doesn’t have the same clout as the FTC, but his finger-waving is what the FTC wants to hear about. It asks anyone and everyone to let it know when they run up against something that doesn’t seem fair and honest by submitting a concern at its complaint website.

Not only is it worth doing it for the sake of protecting other consumers, but in Credit Karma’s case, the ones who complained will share in that $3 million fine. 

As inflation raises the cost of living, consumers are trying to keep up by putting more purchases on credit cards and allowing balances to grow. That is a cause of concern at the Federal Reserve, which is trying to fight inflation by raising interest rates.

In a new report, the Federal Reserve Bank of New York found credit card balances increased by $38 billion from the second quarter of last year to the third quarter. That coincides with sharp increases in the Consumer Price Index (CPI).

The Fed has two concerns. First, it would rather consumers spend less on products and services to help lower inflation. But a second concern is that, as high-interest credit card balances swell, fewer consumers will be able to make timely payments.

The Fed data doesn’t show which consumers pay off their credit cards in full each month and those who let their balances grow. However, the data does show the younger the consumers, the more debt they had in the third quarter.

Can consumers continue to make payments?

“The real test, of course, will be to follow whether these borrowers will be able to continue to make the payments on their credit cards,” the authors wrote.

In August, LendingClub Corporation, in partnership with PYMNTS.com, released its periodic study of consumer spending patterns and found that 61% of consumers spend all of their money between pay periods. That was up from 52% a year ago.

That makes living paycheck-to-paycheck the most common financial lifestyle in the U.S., with increasingly more high-income consumers now entering that category. Some, an estimated 13%, actually spent more than they earned in the previous six months by tapping savings or going into debt.

That presents a huge problem when prices of nearly everything are rising. It isn’t possible to keep up that kind of spending without an increase in income or an increase in debt.

Balance transfer or personal loan?

To reduce credit card debt, some consumers who can qualify for a balance transfer credit card might consider opening an account that offers a year or more of 0% interest. Another alternative is to take out a three-year fixed-rate personal loan and use the money to pay off a high-interest credit card.

The average interest rate on a credit card is approaching 21% but some are much higher. According to NASDAQ, the average interest rate on a three-year personal loan is less than 13%.

The payments may be higher but you get out of debt faster. A five-year loan might offer lower payments but carries a significantly higher interest rate.

A personal loan may also be a good choice if you need to pay off a large balance because it offers a fixed interest rate. Credit card rates will rise each time the Fed hikes interest rates.

Ever claim you didn’t make a purchase that shows up on your credit card? If you have and you actually received the product, it could come back to haunt you.

A new survey by fraud prevention firm Sift reveals that chargeback dispute rates have skyrocketed 35% in the last year. However, the more shocking number is that nearly one in four of the consumers who filed a chargeback claim admit to committing “friendly” fraud, at an average of $192.53 per claim.

“As the economy cools down from historic highs, consumers are looking to save money however they can, luring many to resort to first-party fraud,” said Sift Trust and Safety Architect Brittany Allen. Allen said that the big three fraud categories are also among the largest spending categories and include clothing and electronics.

Typical friendly fraud scenarios

Friendly fraud can show up in any number of ways according to Chargebacks911.

The innocent versions might come from a mom who sees unknown charges on the family’s cell phone bill which she disputes, only to find out later that her son made several in-app purchases on a game that he plays on his phone. “Oops, sorry.”

In fact, things that appeal to children are the most frequent drivers of unauthorized family purchases, according to ChargebackGurus: in addition to in-app purchases in video games, there’s streaming video and music, one-click shopping options on sites like Amazon, and website subscriptions.

Other not-so-guilty versions are where:

• The consumer has buyer’s remorse and, instead of contacting the merchant to convey that, they go the chargeback route instead.

• The item or service wasn’t delivered.

• The item or service was not as described (counterfeit, wrong color, etc.).

• The merchant didn’t cancel a recurring payment when requested.

The sinful versions revolve around a cardholder trying to get something for free. Cyber-shoplifting, if you will.

Defrauders might wait a couple of weeks before calling the credit card’s issuing bank and claiming that they don’t know what the charge is. They request a chargeback and, effectively score a freebie. 

Circling back to when children innocently make charges in-app that mom and dad don’t know about, there's also a wrongful flip-side called “first-party fraud” where family members – usually male, in their 20s, and struggling to make ends meet,  knowingly make a purchase without telling the cardholder. 

Another dishonorable version according to ChargebackGurus is when a customer wants a refund for whatever reason and the merchant won't give it to them. In many of those cases, the consumer files a dispute with the credit card company because they think that if the merchant ripped them off in the first place, the merchant would only lie or stonewall them if they asked for a refund directly.

Other consumers pay the price

Anyone who does even one friendly fraud chargeback is hurting their fellow consumer. That may sound like a stretch but with these chargebacks costing merchants more than $132 billion each year to eat the costs associated with fulfilling a chargeback, they have little choice but to shorten return windows, raise prices, and charge for returns to try and recoup those losses.

Unfortunately, tackling the issue gets even more tricky when a merchant’s customer becomes a fraudster. Until a customer is caught red-handed, merchants have little choice but to acquiesce because they don’t want to run the risk of losing a customer who may, in fact, be honest. 

Whether they’re an honest customer or a deceitful one, the customer is in the driver’s seat and they use that to their advantage. Allen said the majority of consumers – 83% – are less willing to buy from a brand in the future if they have to file a fraud-driven dispute, and 50% say they’d never shop with a seller again if it failed to resolve their dispute within 30 days.

Playing with fire

Friendly fraud is a temptress. If a cardholder gets away with an underhanded chargeback, 40% are likely to do it again within 60 days. One mother-daughter duo became so enamored with the scheme that they disputed charges with 14 credit card companies to defraud everyone from Chanel to the Dollar Store to the tune of $850,000. They were last seen in court in handcuffs.

Anyone who thinks friendly fraud is their proverbial ship coming in is playing with fire and their own financial reputation.

If they’re discovered, there’s a lot that can happen, none of it good. Ken Tumin, the founder of bank account comparison site DepositAccounts, says that people who commit friendly fraud get hit from two sides.

The merchant may choose to blacklist the consumer in which the consumer is no longer able to make purchases from the merchant.

The bank may close the account of the consumer if they think the consumer may be committing chargeback abuse. A closure like that could result in a drop in a consumer’s credit score, but even more concerning is that person may have a tough time finding another bank that will welcome them with open arms.

Banks can make that heat hotter, too

Tumin said that bank account closures can also be recorded into ChexSystems, a company that provides information about the use of deposit accounts by consumers. “Someone who has too many negative marks in ChexSystems may find it difficult to open a bank account,” he said.

And the temperature can go up even higher.

Anyone thinking that a false chargeback is less serious than true fraud – such as stolen cards and identity theft – may want to consider another defense. Merchants will claim that they have to protect themselves from significant financial losses caused by chargeback fraud and, as the mom and daughter deceivers found out, the courts are showing no fear in taking their gloves off. 

If you’ve committed friendly or chargeback fraud, it may be time for a good, hard look in the mirror – unless you think you look good in orange. 

According to law firm Bachner & Associates, PC, making a false chargeback in most states is punishable with a fine or imprisonment. In general, the penalties for credit card fraud vary from one to three years in jail and a fine of $1,000 to $10,000.