The current administration has passed several new pieces of financial reform legislation. First there was the CARD Act of 2009, reforming the credit card industry. Later, there was the Dodd-Frank act that tried to fix some of the causes of the 2008 financial crisis. It was widely recognized that both of these pieces of legislation could only fix existing problems, they could not foresee future issues. Therefore, the later bill contained a provision to create the Consumer  Financial Protection Bureau. The idea was that consumers should be protected against dangerous financial products in the same way that the government looks out for other consumer goods such as harmful toys and exploding toasters.

It Begins

After some wrangling over who was to head this new agency, it has finally gotten off of the ground. One of its first acts has been to create a portal for registering complaints against credit cards. This site allows customers to enter in the details of a dispute with their credit card company. Consumers can input information about billing disputes, fees, interest rates, payments, or virtually any other issue they are having. First, card holders are asked to contact their bank directly, in an attempt to work though the dispute. In all cases, they will be given a tracking number and the CFPB will perform an investigation to determine if any laws were broken. This system appears to be the pilot program for larger functionality that will cover complaints about other financial products. For the moment, they are jut collecting information about credit cards. After submitting your complaint, you can use your tracking number to follow up on the status and view the results.

How It Used To Work

While critics complain that this new agency is just another government bureaucracy, in fact, the opposite is true. In the past, consumers having issues with their bank were told to contact one of five different agencies. By streamlining this process through a single agency, consumers, regulators, and banks themselves should realized many efficiencies.

Will This New System Work?

I think so. I have seen these kind of government reporting systems be extremely effective in other areas. For example, the no-call list has a web-site to report violators and telemarketers live in fear of being cited for breaking this law. Whereas family dinners were always interrupted by these calls, today we note only the calls that are permitted, political calls and surveys. Another area that this kind of system works well in is aviation. Complaining to the Department of Transportation is the most certain way to get an airline to respond to your issue.

Conclusions

Cardholders love to complain about their credit cards. Here at AskMrCreditCard, that is subject of a substantial percentage of the mail we receive. Until now, there has never been a convenient way to report abusive or illegal practices to the regulating authority. That was the entire point of the old system, a one that banks fought hard against changing. In fact, the industry continues to lobby members of Congress against the implementation of the CFPB.  The fact that this web site has been created is a clear sign that consumers are winning this struggle. If you have a legitimate beef against your bank, I urge you to utilize this new form.

I have come to the conclusion that I will not sign up for a new credit card unless I am being offered at least $750 in value as a sign up bonus. It is not that I am greedy, I have just determined that this is the market rate for my business and that I am selling myself short if I accept less. That said, I was looking through the various hotel cards and offerings from Chase when I came across their Hyatt card. It’s sign up bonus is two free nights at any Hyatt in the world. How much is that worth? Well, the Hyatt in Milan is currently selling for an astonishing $1300 a night. That would equal $2600 in rewards right?

Valuing Your Rewards

Yes, if you were going to spend $2600 on a hotel room anyways. Since I would never do such a thing, its value is far less. Nevertheless, I will be visiting Milan later this year, and I did need two nights hotel there. I actually considered getting this card just to stay in that hotel, but then reason got the best of me. First, I was not going to spend that much on my hotel there, so I wasn’t going to save that much. The best alternatives that  I could find was still around $500-$600 for two nights. Since that is all I was going to be saving, I am still better off getting the Southwest card with the sign up bonus worth $830.

My next consideration in awards was whether or not to use some of my extremely valuable Starwood points towards my stay in Milan. I found the Sheraton Four Points in Milan for a mere 10,000 points a night. This included both breakfast and high speed Internet, a rarity in Italy. For example, the Park Hyatt charges 15 Euro a day for Internet access, almost as much as spend each month for my home service! When I considered that I would have spent $500 for two nights for a hotel in a much worse location than the Sheraton, the 20,000 Starpoints seemed like a no-brainer. Further sweetening the deal is the fact that as a Starwood Gold member, I am likely to receive perks like an upgraded room and a late checkout. Note that I received Starwood gold not because I travel with paid stays, but because I meet the spending threshold on my Starwood Preferred Guest card from American Express.

What Are Starpoints Worth?

Most travel experts consider Starwood hotel points to be the most valuable travel currency out there. This is because of their flexibility and bonuses you get when you use them. For example, 20,000 Starpoints can be redeemed for 25,000 airline miles, enough for a free flight. Unfortunately, it is hard to derive a lot of value from 25,000 miles as all but the least expensive awards seats cost more miles these days. In the end, I will receive far more value from these 20,000 points as a hotel stay, than I would redeeming them for miles. This hotel is selling for about $250 a night for the smallest room. Since I am likely to be upgraded, I will almost certainly receive a room that is selling for $400 a night or more, perhaps even a junior suite.  In the end, I will value this award at around $600, making it well worth my 20,000 Starpoints, but not worth opening up a new credit card over.

Conclusions

I have never been very interested in the proprietary award systems that banks have created to compete with airline and hotel loyalty programs. Most of them are very complex and simply don’t return the value that you can get from a international business class award ticket or a free night’s stay at a premium property. That said, I have started to take a liking to Chase’s Ultimate Rewards program, and the latest development increases my interest.

New: Double Points On ALL Airfare and Dining

The previous policy was that cardholders received on point per dollar on all purchases, with double points on travel booked through Chase’s Ultimate Rewards website. Since I prefer to book my travel directly with the company I am using, I wasn’t much interested in this option. Now, they are offering double points on all travel and triple points on travel booked through their site. In reality, there is even more points at stake, as Chase offers another 7% of your points earned as a bonus at the end of the year.

When it comes time to redeem points, they can be worth one cent each as a statement credit, or 1.25 cents each towards travel purchased from…. wait for it… Chase’s Ultimate Reward’s website. Did I mention there is a sign up bonus of 50,000 points, worth $625 when booking with Chase?

What This Means

There are two possibilities here. First, Chase makes some great commissions from travel booked through their site, that must be clear. Either these profits come from the companies they book you with, or they come in the form of fees and higher prices. Not having used them, I can’t say. Ultimate Rewards points can also be redeemed for points and miles in a handful of programs including Continental and British Airways. I do not know if Chase will allow transfers to United once Continental’s program disappears at the end of the year. Another great thing about the Preferred version of the Sapphire card is that they have jumped on the bandwagon of products that no longer charge a foreign transaction fee. Regular readers know that these fees are completely unjustified, and that many cards aimed at international travelers no longer carry such a fee.

As for earning opportunities, I can envision a situation where a business traveler books $1,000 worth of travel through their web site, and earns 3,000 points. Those points are then worth $37.50 towards travel purchased though the site. Business travelers who are getting reimbursed for their expenses would have little concern if the travel purchased was not such a great deal. Upon redemption, it would still be in their interest to use the website where their points are worth 1.25 cents each. If you imagine that the price through their website is marked up by 7%, an amount equal to the end of year bonus miles, this traveler would still be getting 3.75% of value from their credit card spend towards any travel purchase. That’s pretty good stuff. Even when used for mileage transfers, this traveler would still be getting three miles per dollar spent, far above what they would get, even for airline purchases using a co-branded card.

Conclusions

Chase is trying hard to make their Ultimate Rewards program compete with others. In doing so, they are not going for gimmicks like “exclusive access” to some restaurant or concert (although they do offer that), they  are going for pure value, which is actually my weakness. In the end, the value of this card is becoming more closely linked to the quality of the Ultimate Rewards travel agent. Unfortunately, I have no experience with this aspect of their program, so it is somewhat of an unknown.

As I love to say, we are very lucky to live in a place and time when banks are tripping over themselves to offer us more valuable reward cards. Here is a case where existing card holders are actually getting a better deal than they originally signed up for, while new applicants have a strong incentive to consider this product.

I write a lot about credit cards. I write here and in many other places. When I review a credit card, I can’t merely disclose a single number in order to inform my reader’s of that product’s interest rate. I have to cite the fact that the interest rate received is equal to the Prime Rate plus X.XX%  Typically, the fine print reveals that your rate is tied to the Prime Rate as published in the Wall Street Journal.  That rate is currently 3.25%, and it has been so for some time.

What Does This Have To Do With The Debt Ceiling Debate?

The current crisis in Washington is all about what will happen if the the United States defaults on our debt obligations. I won’t bore you with the details that are better covered elsewhere, but the consequences won’t be good.  Last night, the President addressed the nation to address the stalemate in the negotiations. In his speech, the subject of credit cards came up in two different ways. First, was the simple analogy comparing our national debt to credit card debt. This is a useful rhetorical device to allow average Americans to relate this abstract problem to something they use in their daily lives. More substantively, the President raised this possibility:

For the first time in history, our country’s AAA credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet.  Interest rates would skyrocket on credit cards, on mortgages and on car loans, which amounts to a huge tax hike on the American people.  We would risk sparking a deep economic crisis -– this one caused almost entirely by Washington.

What Does This Mean?

Defaulting on our debt will cause our country’s bond rating to fall, raising interest rates on everything, just like the President said. When the Prime Rate increases, so will everyone’s credit card interest. This will put a lot of Americans in big trouble. If you are one of the wise cardholders who always pays your balance in full, there may also be some implications that affect you.

What could be expected following a default is the following. First, the economy will suffer dramatically. It could be a short blip or a real crash like 2008 or worse. While the last crash was mitigated by the already low interest rates, victims of this crisis will not be so lucky. Higher interest rates on everything will take their toll eventually, but variable interest rates on credit cards will skyrocket each month. Higher rates and fewer jobs will mean a lot of defaults on personal debt, mirroring our national situation. In these times, banks flee risk and chase stability. Cardholders could see rates go up beyond the corresponding increases in the Prime Rate as banks hope to cash in on struggling customers before bankruptcy. On the other side, customers with excellent credit who always pay their balances in full will be seen as the least risky group. Banks will continue to shower them with sign up bonuses, rewards, and rebates. While this is not quite the same thing as the rich getting richer and the poor getting poorer, it si almost the case. Those who are the most responsible and stable will reap more rewards, while those who are struggling the most will be put under ever increasing pressure. It will be ugly.

Conclusions

As someone who practices what he recommends by always paying my full balance on my credit card statement, it is possible that I could gain somewhat from increased rewards as I become an even more desirable customer to the banks. Nevertheless, I want no part of that windfall. I cannot imagine the needless harm a default would inflict upon the United States, and then think for a moment how I personally could benefit. Fortunately, I am confident that, like the government shutdown agreement, the parties will play games until the last minute before reaching a deal. To do otherwise will be terrible for most credit card holders and the country as a whole.