Bad News: Crooked Credit-Card Companies Con Consumers (Good News: Bitcoin To The Rescue)
Monty Henry, Owner
U.S. Regulators Are Cracking Down On Credit-Card Issuers For Allegedly Misleading Consumers About The Value Of Extra Services, Such As Lost-Income Protection And Identity-Theft Monitoring. To Date, Four Banks Have Settled:
(1) Capital One: Agreed In July 2012 To Pay $210 Million, Including $150 Million In Refunds To 2.5 Million Consumers.
(2) Discover: Agreed In September 2012 To Pay $214 Million, Including $200 Million In Refunds To More Than 3.5 Million Consumers.
(3) JP Morgan Chase: Agreed In September 2013 To Pay $389 Million, Including $309 Million In Refunds To 2.1 Million Consumers.
(4) American Express: Agreed In December 2013 To Pay $76 Million, Including $59.5 Million In Refunds To 335,000 Consumers.
The New York-based company agreed Tuesday to pay $16.2 million in fines to the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau and issue $59.5 million in refunds to more than 335,000 customers. The company said in a statement that most of the money has already been paid to customers.
The regulators also accused AmEx of misleading consumers about the benefits of a product that canceled debt if a customer lost a job or became disabled. While some consumers were led to believe the product would cover their payments in the event of a job loss, such payments were capped at $500, regulators said.
"Consumers deserve to be treated fairly and should not pay for services they do not receive," said the CFPB's (Consumer Financial Protection Bureau) director, Richard Cordray, in a statement.
The company is in the process of exiting the final product, a "lost wallet protector" that is sold to customers in Puerto Rico, according to an AmEx spokeswoman. That product, which cost $39.99 a year and will end in the first quarter of 2014, assists customers in canceling all of their debit or credit cards if they are lost.
Capital One Financial Corp., Discover Financial Services Inc. and J.P. Morgan Chase and Co. have all settled allegations they misled consumers about the benefits of add-on products. J.P. Morgan Chase And Co. paid $389 million in fines and refunds earlier this year to resolve similar allegations.
Tuesday's settlement is the latest regulatory slap against AmEx, which provides service to an affluent customer base. Although it ranks as the sixth-largest card issuer, its customers ring up more purchases on those cards than other issuers such as J.P. Morgan Chase and Bank of America Corp., according to the Nilson Report, a Carpinteria, Calif.-based company that tracks the card industry.
AmEx is best known for its iconic charge cards that require customers to pay their bills in full each month. The company also issues traditional credit cards and owns a card-processing network that competes with Visa Inc., MasterCard Inc. and Discover.
AmEx agreed in October 2012 to pay $46 million in fines to federal bank regulators and reimburse $85 million to about 250,000 consumers to resolve allegations it charged illegal late fees and discriminated against card applicants, among other questionable practices.
A few months later, the company said that it had identified another $153 million in customer reimbursements.
In fact, a new study released by the Mercatus Center, “Bitcoin: A Primer for Policymakers,” details some of the innovative applications in the Bitcoin economy that the public debate may not fully appreciate. Before regulators rush to mitigate anticipated harm, they should first understand how this technology works and how it can improve lives.
First, Bitcoin is a promising way to lower transaction costs. Credit card companies charge merchant fees that are often prohibitively expensive for small businesses. Small-business owners face the hard trade-off of either refusing to accept credit card payments and losing business or accepting card payments and losing money by eating the costs. Transaction fees with Bitcoin are negligible and can save money for cost-conscious businesses.
Consumers, too, could benefit from these lower transaction costs in the form of lower prices. This is the business model of the Bitcoin Store, an online electronics retailer that only accepts Bitcoin transactions. Bitcoin allows sellers to charge only $436 for a Samsung Galaxy Note at the Bitcoin Store that currently sells for $517 on Amazon.
Similarly, these lower transaction costs will greatly benefit people who send global remittances to their relatives in developing countries. Traditional wiring services, like Western Union and MoneyGram, may charge steep fees of up to 10 percent of the amount transferred and take days to process. With instantaneous transfers and fees of less than 1 percent, Bitcoin could significantly lower the cost of sending remittances—which amount to more than $400 billion annually.
Second, Bitcoin may provide affordable access to financial services for the world’s unbanked population. With Bitcoin, accessing the financial world is as easy as downloading an application on your phone. The popular mobile payment system, M-Pesa, recently added Bitcoin payment options for customers in Kenya. The world’s less affluent may stand to gain the most from the ease and affordability of making Bitcoin payments.
Countries with poor monetary management will also benefit from Bitcoin. Strict capital controls and high rates of inflation led to a surge of Bitcoin downloads in Argentina. Some even suggest that the Eurozone crisis drove the use of Bitcoin in distressed countries. Bitcoin increases the number of monetary options available to people in dire situations.
Finally, Bitcoin could be a democratic tool to ensure a basic level of freedom of speech around the globe. Dissident activists in authoritarian countries now no longer need to fear that their government will block payments for blogging services. Bitcoin places power back in the hands of the people.
These are just a few of the innovations to materialize so far. Built within the Bitcoin protocol are capabilities to develop other financial innovations, like notary services, encrypted communications, and “smart” collateral contracts. Developers and businesspeople are still learning the myriad applications for this innovative technology.
Just as the public debate understates some of the benefits of Bitcoin, it also overstates some of the concerns. The hypothetical crimes that Bitcoin may enable are traditionally committed with cash, but policymakers would never dream of criminalizing cash. Instead, they regulate the use of cash. Regulations targeting Bitcoin could adopt this time-tested approach.
What’s more, Bitcoin may not be an ideal vehicle to commit these crimes. Bitcoin is not actually anonymous, but pseudonymous. Each Bitcoin transaction is verified and recorded in a public ledger by all computers running the Bitcoin network. Criminals using Bitcoin will leave a perpetual smoking gun in the public ledger that could tie their identities to the illegal transactions. For this reason, criminals may opt to continue using their favorite currency of choice, the U.S. dollar, instead of using Bitcoin.
Policymakers understandably worry about the risks stemming from a new technology, but effective policy will also consider the substantial benefits that Bitcoin may provide. The risk of lost benefits from overregulating this promising technology appears greater than the risk of its criminal use, and that is an outcome that no policymaker should want.
Visa / Mastercard Settlement Screws Customers / Merchants / Businesses
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