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Business & Economics

Ebook Penalty Interest Rates, Universal Default, and the Common Pool Problem of Credit Card Debt

It is now reasonably well understood that unsecured credit such as credit card debt poses a common-pool problem. Since it is not secured by any collateral and since recoveries will be allocated pro rata under bankruptcy, each credit card issuer is motivated to try to collect from the “common pool” — and the attempt to collect by one issuer may pose a negative externality to other issuers. When a consumer becomes financially distressed, each credit card lender has an incentive to try to become the first to collect. For example, a lender may engage in aggressive collection efforts even if they may result in the consumer seeking protection under bankruptcy law: the benefits of collection accrue to this lender alone, while the consequences of a bankruptcy filing are distributed over all credit card lenders and other creditors.

This paper attempts to explore the recent proliferation of penalty interest rates and universal default clauses in credit card contracts. By a penalty interest rate, we mean the following: The fairly standard credit card offering in 2008 includes an introductory interest rate on new purchases of 0% for the first several billing periods, followed by a post-introductory interest rate on new purchases of 9.99% to 15.99%. However, if payment is received late once during the introductory period, the interest rate reverts to the post-introductory APR; and if payment is received late twice within any 12 billing periods, the interest rate reverts to a “default APR” of typically 23.9% to 29.99%. In addition to the increase in interest rate, the cardholder generally is also assessed a late payment fee of typically $39.

Accounting: The Key to Success

Wynne Powell is an accounting professional. He is also president and CEO of London Drugs, a business that has millions of dollars in revenues annually and a staff of approximately 6,000. It’s a highly stressful position, he admits, but Wynne finds it stimulating. The excitement is in making things happen: taking money and making it grow, providing a return to the owners. “It’s like a chess game; somebody makes a move and you carefully develop and adjust your strategy, positioning yourself for the win. It’s fun!” How do you make sure you win in business? According to Wynne, it’s pretty basic: you need a thorough understanding of accounting figures; that’s what allows a company to fail or flourish. The management team must fully understand how financial information is created; it’s only then that they can use it to their advantage. In Wynne’s opinion, businesses begin to fail because of inappropriate or late financial figures.

Advances in technology have ensured that accounting information can be available on a real-time basis. Technology has also triggered the evolution of a new breed of accountant whose focus has expanded to every aspect of the business in every corner of the world. “Accounting knowledge is the key,” says Wynne Powell. “It is the ‘language of business’ and as such is fundamental to your success in the business world.” Accounting leads the way.

Ebook San Diego State University Procurement Credit Card Handbook

San Diego State University (SDSU) utilizes the Procurement Credit Card (PCC) to reduce the traditional paper and labor-intensive procurement process for small dollar purchases. With the ease of a widely accepted MasterCard credit card, SDSU employees may make walk-in purchases, place telephone orders, place Web orders and receive and confirm purchases.

The procurement credit card should be the primary means to obtain approved goods, supplies or services costing $1,000 and less (including tax and shipping) per transaction. Cardholders are encouraged to use the procurement credit card for low value purchases to achieve cost savings and improve processing time. If use of the PCC is not practical, existing methods such as a standard requisition may be used.

Ebook Credit card processing as an example of distributed systems

Credit cards where first issued in the United States in the 1920s, where they were used to buy fuel at fuelling stations. In those days the credit card could only be used at the merchant issuing it. In the late 1930s merchants started accepting each others cards to provide more flexibility to the customers.

The concept of credit cards as it is known today was introduced by Frank X. MacNamara, founder of Diners Club, in 1950 – originally to consolidate the processing of multiple cards. Shortly after wards American Express entered the market. In 1958 the Bank Americard was introduced by the Bank of America
becoming VISA later on and in 1966 MasterCard was established.

Ebook CREDIT CARD: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers

Since about 1990, the pricing structures of credit cards have evolved to encompass a greater variety of interest rates and fees that can increase cardholder’s costs; however, cardholders generally are assessed lower interest rates than those that prevailed in the past, and most have not been assessed penalty fees. For many years after being introduced, credit cards generally charged fixed single rates of interest of around 20 percent, had few fees, and were offered only to consumers with high credit standing. After 1990, card issuers began to introduce cards with a greater variety of interest rates and fees, and the amounts that cardholders can be charged have been growing. For example, our analysis of 28 popular cards and other information indicates that cardholders could be charged.

  • up to three different interest rates for different transactions, such as one rate for purchases and another for cash advances, with rates for purchases that ranged from about 8 percent to about 19 percent;
  • penalty fees for certain cardholder actions, such as making a late payment (an average of almost $34 in 2005, up from an average of about $13 in 1995) or exceeding a credit limit (an average of about $31 in 2005, up from about $13 in 1995); and
  • a higher interest rate—some charging over 30 percent—as a penalty for exhibiting riskier behavior, such as paying late.

Economic Consequences of the Sarbanes-Oxley Act of 2002

In response to the collapse of a number of high-profile firms since late 2001, Congress passed the Sarbanes-Oxley Act (the Act or SOX hereafter) in July 2002 to enhance corporate governance and thereby restore public confidence. The Act has introduced significant changes in both management’s reporting responsibilities and the scope and nature of the responsibilities of the auditor. When President Bush signed the Act into law, he characterized it as “the most far-reaching reform of American business practices since the time of Franklin Delano Roosevelt.”

The major provisions of the Act established the Public Company Accounting Oversight Board (PCAOB), prohibit auditors from performing certain nonaudit services for their audit clients, impose greater criminal penalties for corporate fraud, and call for more detailed and timely disclosure of financial information. Further, Section 404 of the Act requires that management assess internal controls and that auditors report on the internal controls of their clients. By requiring deeper oversight, imposing greater penalties for misconduct, and dealing with potential conflicts of interest, the Act aims to prevent deceptive accounting and management misbehavior.

Ebook Undergraduate Students and Credit Cards in 2004

Nellie Mae’s 2004 credit card usage study is the fourth in a series conducted since 1998. The first study was prompted by concern over increasing credit activity among college students applying for our credit-based, alternative student loans. As part of Nellie Mae’s student loan approval process, a credit bureau report for each student applicant is obtained from one of the major credit reporting agencies. In each of our previous three studies, we extracted data directly from the credit bureau reports for a randomly selected group of student applicants. We did not survey our students directly, and did not use any self-reported data.

For the 2004 study, in addition to analyzing the credit bureau data on the student applicants, we added a survey component. Student applicants who were placed in the study pool were sent emails requesting that they complete an online survey on behavior related to credit card use. A total of 1,413 students between the ages of 18 and 24 attending public and private four-year undergraduate institutions were included in the credit bureau analysis. The online survey was sent to 1,260 students and 132—approximately 10%—responded.

Ebook Agricultural Credit Card Innovation: The Case of Financiera Trisan

The purpose of this paper is to analyze a program that extends credit cards to agricultural input suppliers and rural producers in Costa Rica and to determine whether this program is financially viable and potentially replicable in other rural areas of Latin America.

A credit card program is very innovative and unusual for a rural setting. Normally, credit cards have been promoted in urban areas with business firms and salaried employees who have steady cash flows. Credit cards in rural areas are not as common because potential clients, especially agricultural producers, have more seasonal and uncertain monthly cash flows. This paper seeks specifically (1) to recount the genesis of an agricultural credit card program (section 2); (2) to describe the product, the typical client, and service delivery methodology section 3); (3) to analyze the financial performance of this product (section 4); and (4) to conclude with outstanding challenges facing the expansion and aplication of the product (sections 5 and 6).

Ebook The Credit Card Guidebook

Credit cards are now an indispensable part of the American way of life. According to the Federal Reserve, 74.9% of all U.S. households have a credit card, and 46.2% of all families carry a credit balance. In 2006, 666.3 million signature-based, general purpose cards were in circulation. The average household has $7,000 to $8,000 in credit card debt and pays 14.9% of disposable income in consumer debt payments. The average household with a 14.9% interest rate on a $5,100 balance pays $760 per year in interest payments. The median family income is now $43,200, and the typical family’s credit card balance is now almost 5% of its annual income.

APR (Annual Percentage Rate) is a yearly fixed or variable interest rate that measures the cost of credit. It reflects the total yearly cost of the interest on a loan, expressed as a percentage rate.

Ebook Using ClickPay

In order to enable SSL-secured transactions, you must obtain and install a digital certificate on your IIS server. See the ecBuilder Pro User’s Guide for more on digital certificates.ecBuilder provides support for payment processing through plug-in extensions known as payment gateway modules (PGMs).PGMs encapsulate the interface to a third-party payment processor, and allow the ecBuilder-generated sites to forward merchant-authentication information from a transaction gateway to therespective payment processor.

The merchant Authentication information is secured via public-key technology and embedded within the HTML pages generated by ecBuilder. At the time of purchase, the ecBuilder shopping cart forwards the encrypted processing information through a payment gateway module, where it is decrypted and used in conjunction with an SSL-secured order form to then log in to the payment processor and facilitate the credit card authorization process.

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