If you suffer from edentulism, you have no teeth. And, if some lobbyists and legislators get their way, that could soon be precisely the condition of the new watchdog responsible for credit card regulation, the Consumer Financial Protection Bureau (CFPB).

Credit card regulation hotly debated

Whether you believe that credit card regulation is a good or bad thing is likely to depend on your general political outlook. There’s enough evidence to make the arguments on both sides credible.

On the one hand, there are plenty of examples of government interventions in markets having unintended–and sometimes seriously detrimental–consequences. On the other, there’s a growing consensus that the Credit CARD Act of 2009 was in totality a good thing (see Credit card law helps consumers, report says). Even some bankers see it that way. That blog quoted Peter Garuccio of the American Bankers Association, who told USA Today back in February: “…when you look at the regulations, it’s a net positive for consumers. But there have been some trade-offs.”

Credit card news not consumer-friendly?

If that support for past regulation was ever close to a consensus, it certainly doesn’t extend to future interventions. Last July, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, and this required the setting up of the CFPB. However, the new watchdog was in some eyes neutered from the start, because it was, under pressure from lobbyists, established under the auspices of the Federal Reserve, an institution not noted for siding with consumers against the interests of banks and credit card companies.

Just yesterday, the Fed bowed to pressure, and executed a screeching U-turn over debit card interchange fees (a.k.a. swipe fees), increasing its own original proposal, published in December, for a 12-cent cap per transaction to a base of 21 cents. This, with added allowances, would bring the fee for an average transaction (which comes in at $38) to 24 cents, or twice what was originally proposed. Today’s Financial Times reports that, as a result, shares in Visa climbed by $11.29 (15 percent) to $86.57, while MasterCard jumped $31.47 (11 percent) to $309.70.

National Retail Federation President and CEO Matthew Shay responded swiftly, saying in a statement:

We are extremely disappointed that the Federal Reserve chose to be influenced by special interests and ignored the will of Congress and American consumers. While the rate will provide modest relief, it does not go far enough… we take some comfort in knowing that we were able to shine a light on these deceptive practices and bring some relief to merchants and their customers. Even though this rule is specific to debit cards, we are hopeful that it leads to more transparency and relief from credit card swipe fees as well.

It’s unlikely that the executives who run credit card companies are losing much sleep over that distant prospect.

The watchdog loses its teeth

When the Fed estimated the budget that would be necessary for the CFPB to fulfill its role effectively, it calculated a figure of $500 million. Last week, the House Appropriations Committee met, and voted to slash that by 60 percent, reducing it to $200 million. The day after the vote, June 24, Center for Responsible Lending president Mike Calhoun issued an outraged statement that began:

The House Appropriations Committee yesterday voted for a return to policies that allowed predatory financial products to plunder our economy. Clearly some lawmakers have forgotten the lesson of today’s financial crisis, which continues at great cost to taxpayers, shareholders, retirees and, of course, tens of millions of families who have needlessly lost their homes or seen them plummet in value. Specifically, the committee voted to slash the Consumer Financial Protection Bureau’s budget and to subject the new agency to a politically charged funding process.

That budget cut must surely effectively remove the watchdog’s teeth. Of course, with the deficit the way it is, you could argue that such a cut is appropriate. But a toothless watchdog is little better than no watchdog at all, and it may have been more honest (and frugal) simply to euthanize the poor beast. Certainly, if you defanged your pooch in this way, your neighbor would call the ASPCA.

Your blogger leads a sadly unexciting existence, and has never seen a real-life listening device or time bomb. He has however, seen plenty of them in movies and television shows. And he’s constantly amazed that they all seem to go out of their way to advertise their presence. A secret agent pushes the on-switch as she plants a bug, and a red light starts flashing. What’s that for? To drain the battery or to make the gadget easier to find? Similarly, the count-down displays on time bombs are invariably so flashy and garish that they wouldn’t be out of place in a Palm Beach McMansion. Surely, in the real world time bombs are made to look as unnoticeable and innocuous as possible.

Credit card rates time bomb

Certainly, few seem to have noticed the credit card rates time bomb that’s currently, almost imperceptibly, ticking away. Yesterday, the Federal Reserve announced that, yet again, it’s maintaining the target range for the federal funds rate at 0 to ¼ percent. That’s hardly news; the target range has been at that level for so long that most Americans seem to have forgotten the pain that high interest rates can bring.

Nowadays, few homeowners have adjustable-rate mortgages (ARMs), so they don’t have to worry about those when interest rates eventually begin to rise again. But many consumers have variable-rate credit cards, and they–at least those who carry credit card debt–should be aware of what they could be facing when rates do start to move upwards, as they almost inevitably must.

Credit cards and fixed/variable rates

Perhaps because rates are currently a non-issue, there are few studies about their impact on credit cards. However, when The Pew Charitable Trusts’ Safe Credit Card Project reported in October 2009, it highlighted the potential problems.

It acknowledged that the credit card regulation that had then just been enacted prevented issuers from arbitrarily imposing penalty rate rises except in exceptional circumstances. But it went on to report that fixed-rate cards had become “rare”. It found that in July 2009, fewer than 1 percent of bank credit card offers provided for fixed rates, down from 31 percent at the end of 2008, just months earlier. And it raised another issue:

As issuers move away from “fixed” rates, Pew’s research shows, there is a related and possibly troublesome trend emerging. A growing number of credit cards include terms designed to ensure that even variable rates will not fall lower than a fixed minimum. For these cards, issuers will benefit as interest rates rise according to operation of an index rate, but many cardholders will be prevented from enjoying the benefits of falling index rates due to the fixed floor limits set by issuers. We call this mechanism a minimum rate requirement.

No credit card debt, no sweat

Of course, if you have no credit card debt, you don’t have to worry. Rates are only an issue for those who pay them. But if you do carry forward significant balances each month, now might be a good time to pay them down.

Overall interest rates are only likely to increase (lifting those for credit cards with them) when the economy starts to recover fully. If you want to enjoy all the benefits of that recovery, you can contain your future outgoings by reducing now your exposure to rate rises. In other words, you have the opportunity to start defusing your personal time bomb today, well before that flashy display nears zero hour.

Regular readers are likely to know by now what “interchange” (aka “swipe”) fees are. They’re the cut of the transaction value that merchants have to pay to MasterCard, Visa and other payment processors every time a debit or credit card is swiped. Those payment processors keep only a small percentage of the fees, and most of the money is passed on to banks and credit card companies.

That’s set to change on July 21, when new Federal Reserve rules are due to cap swipe fees on debit cards at 12 cents per transaction. However, credit cards are exempted from the change, and the interchange fees on these look likely to continue into the foreseeable future at current levels.

Credit cards costly at UCLA

Perhaps the spotlight that fell on interchange fees when Congress discussed capping them alerted the University of California at Los Angeles (UCLA) to just how high they can be. This week, the university authorities announced that they would be imposing a 2.75 percent “convenience fee” on students who pay using certain credit cards for tuition and fees, housing costs, parking permits and so on. There are even suggestions that Visa-branded cards may be refused completely.

Emily Resnick, who is president of the Undergraduate Students Association Council was outraged, commenting in a press release:

Especially at a time when tuition is increasing substantially and steadily year after year, forcing students to pay yet another additional fee is unnecessary. While I understand that budget cuts compel the university to make changes, levying additional fees on UCLA students in this climate will put students in an even worse financial position. I will work with all parties involved to make sure that we have a solution that meets the needs of our students

However, Marsha Lovell, UCLA’s director of Student Financial Services, made an equally valid point when she told UCLA Today, a news resource for faculty and staff: “The change will save the campus more than $6.5 million a year while allowing the university to continue to offer the convenience of payment via credit card to those who choose that method without requiring all students to subsidize the option.”

Credit card companies’ case

This particular squabble illustrates a central problem with interchange fees: both sides make too much sense. On its website, the American Bankers Association argues about next month’s cap on debit card fees, and no doubt would propose the same points if it were ever to be suggested that credit cards should be similarly regulated:

According to the law, the Fed can only consider individual transactions and is specifically precluded from considering various other costs such as infrastructure and overhead expenses and account management and maintenance costs when establishing interchange rates. It’s like saying an airline can only price tickets based on the cost of fuel and have to ignore the cost of paying their pilots, the cost of buying and servicing their planes, the cost of air traffic controllers, and other expenses that make air travel possible.

Hmmm. Like all analogies, this one is imperfect, and doesn’t stand up to close scrutiny. Airlines have one principal source of revenue: tickets. Banks and credit card companies, on the other hand, have many, including customer interest payments (have you seen credit card rates recently?), annual fees and penalty charges, as well as swipe fees. However, the central point, that it costs money to run card issuers’ businesses, remains true.

Credit card use subsidized

The real argument comes down to which of these you regard as the less unfair:

1. That hard-pressed youngsters who were relying on paying their tuition and other costs using their credit cards should suddenly be penalized.
2. That all UCLA students should subsidize to the tune of more than $6.5 million a year the credit card use of those who choose to pay by plastic.

Scale up that dilemma to national levels, and you have in a nutshell the great interchange fee debate.

Credit card companies started off looking down their noses at prepaid cards. According to Mercator Advisory Group, in 2008, Americans spent only $330 million on prepaid plastic. The research firm expects that figure to reach $552 billion next year. That’s nearly 170,000 percent growth in just four years, assuming that your blogger wasn’t overwhelmed by the number of zeros involved when he was making that calculation. No wonder everyone now wants a piece of the prepaid pie.

Why the growth?

There seem to be three main factors driving that growth:

1. State and federal governments are using prepaid cards to deliver tax rebates, unemployment compensation, disability benefits and so on.
2. Millions of Americans saw their credit scores take massive hits during the recession, leaving them unable to get mainstream credit cards or checking accounts.
3. Partly in response to the forthcoming cap on swipe fees (see Credit card companies likely winners in Senate battle this week), many banks have increased their charges and fees, and watered down their rewards programs, leaving checking accounts and their debit cards looking much less attractive.

Credit card companies and banks play catch-up

Last week, the Forbes website published a blog that explained how important those capped swipe fees are to credit card processors:

Card networks such as Visa and MasterCard have witnessed lost revenues due to declining fees charged per transaction after the Fed’s proposal in December last year to limit the debit card swipe fee at 12 cents per transaction. Prepaid cards can help Visa and MasterCard recover lost revenues as the Fed did not limit the swipe fees for most prepaid cards.

Meanwhile, earlier this week, American Express launched its own prepaid product. In a statement, Dan Schulman, group president of American Express’ Enterprise Growth Group, explained why it might appeal to consumers:

We listened to our Cardmembers and customers who told us that although they enjoyed the benefits of a prepaid card–safer than cash, no impact to their credit, no risk of overdraft–they felt having monthly and other maintenance fees undermined the value of the prepaid card. So the feedback from our Cardmembers really helped make a good product, great. We stripped away the nuisance fees and designed an everyday payment card with superb customer service and benefits.

Prepaid problems

Schulman put his finger squarely on the biggest problem with prepaid cards. They’re effectively unregulated, and don’t have to provide any of the safeguards and protections that proper debit and credit cards do.

Prepaids started off as “distress purchases” for people who had no access to mainstream financial products, and some unscrupulous card issuers saw these consumers as fair game. Those companies loaded their card agreements with hidden and often predatory fees and charges that could cripple the finances of many who were already vulnerable. It’s to be hoped that the entry into this market of ultra-respectable players such as American Express will force out less responsible providers.

Credit cards best

Unless your credit score is so battered that you have no choice, mainstream credit cards are likely to remain your best choice for most transactions. Legally speaking, the protections they must provide against fraud, loss, faulty goods and dodgy merchants are superior to debit cards, let alone prepaids. And, of course, they often come with generous rewards and other perks.

So credit card use is likely to make the best sense for most purchases, always providing you’re not one of those people who can’t resist the temptation of getting into unmanageable debt.

You’ve chosen your purchases, or you’ve finished your meal, or you’ve filled up with gas, and now it’s time to pay. You open up your wallet, and scan the different plastic products you can choose to use. Which are you going to pick?

Credit card use trends up

The chances are notably higher now that you select a credit card rather than a debit card than they were a year or so ago. Credit card use is picking up again (see Fantastic plastic! Credit cards come storming back), though it’s still not as popular as it was during the heady days before the Great Recession.

New research that covers credit card trends in May was published last week, and reinforces the message of other studies. The First Data SpendTrend® analysis shows that, compared with May 2010, the number of credit card transactions increased 6.5 percent that month, while the dollar value of those transactions jumped 8.8 percent.

Pump prices prevent people purchasing

These figures need to viewed in context. Growth in both debit and credit card spending slowed that month, according to Silvio Tavares, a senior vice president of First Data Information and Analytics Solutions, who went on to observe in a statement: “High gas prices and stubbornly high unemployment constrained growth in most merchant categories.”

So high pump prices may be encouraging consumers to fill up less frequently, but to pay more each time they do. And they could be reducing the amount people have left over to pay for other purchases.

Credit card trends set?

Another report, also published last week by First Data, identifies how and when the popularity of credit cards returned:

Since the beginning of 2011, consumers have begun to spend using their credit cards again. First Data industry figures show that, in February 2011, credit card dollar volume year-over-year growth surpassed that of signature or PIN debit for the first time in over two years. This reverses a fundamental trend away from credit cards and towards signature and PIN debit…

Interestingly, the report goes on: “First Data Advisors believes that this return to credit is a permanent shift back towards greater credit usage…” There’s a strange use of language here, because the study’s authors make clear that they’re not necessarily expecting a return to previous levels of credit card debt. So it’s not credit use that they’re describing in that quote; it’s credit card use–without the debt.

Credit card companies and banks behind shift?

Yesterday, when the Digital Transactions website reported First Data’s SpendTrend figures, it quoted a comment on the data from Goldman Sachs & Co., which described the shift from debit to credit cards as “issuer-driven”:

We believe a pullback in issuer support for debit programs ahead of Durbin implementation shifted debit share to credit, as shown by still-improving credit/transaction volume growth despite declining U.S. revolving credit balances [credit card debt]. We believe the credit-mix shift also drove the up-tick in average ticket size, as credit tickets are often larger than debit.

In other words, Goldman Sachs reckons that banks and credit card companies are actively driving consumers away from debit cards in the hope of minimizing the impact of regulations that could see interchange fees dramatically cut. This topic was covered by this blog on June 6 in “Credit card companies likely winners in Senate battle this week.”

So are banks and credit card companies manipulating their customers? Well, maybe. But the outcome for consumers of any such machinations are likely to be generally positive (see 7 ways in which credit cards beat debit cards). So any manipulation should prove generally benign.

If you read tabloid newspapers, you’re probably used to journalists working themselves–and their readers–up into frenzies on the slimmest of excuses. But you expect the somewhat more sober ladies and gentlemen of the fourth estate who write for some of the nation’s (and the world’s) greatest papers to be immune to the temptations of sensationalism.

Not so, it seems. Because The New York Times, The Washington Post and The Modesto Bee (no, really) all carried stories about the recent hacking of Citi’s credit card account database that could have come from Harold “the-end-of-the-world-is-nigh” Camping’s pen.

Credit card companies highly secure

So let’s try to put this story into perspective:

1. Only about 1 percent of Citi’s customers were affected: roughly 200,000 people out of the estimated 154 million Americans who have credit cards.
2. Citi says that only names, account numbers and contact information such as email addresses were potentially compromised.
3. Customers’ social security numbers, dates of birth, and card expiration dates were not accessed.
4. Critically, card verification value (CVV) numbers (the three digit code on the signature strip that is usually required for “card not present” transactions) were also not accessed.
5. Fraudsters lacking a card, an expiration date and a CVV are unlikely to get very far.
6. Even if someone did manage to charge a transaction to your card, your liability is capped by law at $50, and, in reality, it seems inconceivable that Citi wouldn’t fully compensate you.
7. Citi says that it “has implemented enhanced procedures to prevent a recurrence of this type of event.”
8. It is also issuing new cards to those at risk.

Credit card regulation rears its head

On Thursday, The New York Times described a number of legislators as “outraged” by the Citi hacking, and reported that some are planning new credit card regulations that would enforce higher standards of security across the industry. Now, this blog is generally–though by no means invariably–supportive of regulation when it protects the interests of vulnerable holders of credit cards. But how sensible would it be to use the law in this instance?

To start with, it’s credit card companies, rather than consumers, that are more likely to be the victims of hacking. They’re the ones whose money is on the line. And, secondly, it’s tough enough to draft laws that have definable goals without trying to legislate for the vague aspiration of improving anti-hacking measures.

With IT security being a cat-and-mouse game that’s constantly played at dizzying speeds, successfully creating an act of Congress to address the issue is likely to prove about as effective as a drunk trying to contain a vodka spill by encircling the rapidly spreading puddle with thumb tacks. That mixed metaphor is, of course, based on the premise that dizzy and drunk cats can use thumb tacks, which seems unlikely given that, if they could, Mark Burnett would most certainly have already snapped up the concept’s reality television rights.

Credit report monitoring

None of this is intended to understate the importance of foiling identity thieves by keeping personal information as secure as possible. However, it may be that you’re much more vulnerable to such theft through your own careless use of your cards and personal information than through your credit card companies being victims of hacking incidents. If you haven’t already, read “10 ways to avoid being a victim of credit card crime” for key strategies to protect yourself.

In particular, those who are nervous of identity theft can consider closely monitoring their credit reports on a continuing basis through services such as Equifax Credit Watch Gold with Score Power and TransUnion-Three Bureau Credit Monitoring. These can alert you to a threat before it becomes too serious, and are likely to be way more effective than any new credit card regulation that Congress can devise.

“Swipe fees” (a term that’s, er, interchangeable with “interchange fees”) are the cut of the transaction value that merchants have to pay to banks every time a debit or credit card is swiped. Research from a 2010 Federal Reserve Board survey showed that the average interchange fee on debit swipes was about 1.14 percent of the transaction total, and a bit higher for credit card transactions.

With the dramatic rise in the last decade of electronic transactions over paper checks, the level of interchange fees set by credit card networks have become a topic of hot debate–and big business, to the tune of $16.2 billion in bank revenues for debit interchange fees in 2009, according to the Federal Reserve Board.

Interchange fees were created to compensate and incentivize issuing banks for the trouble of taking debit and credit transactions, but merchants and their allies argue that the fees have become a gravy train for banks.

This week, the debate over interchange fees on debit cards heats up in Congress.

Credit card companies and banks up in arms

Last July, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. This included a requirement for the Federal Reserve to review swipe fees, and to determine what a reasonable interchange fee might be. (This directive to the Fed excludes credit cards and only applies to interchange fees on debit cards.)

In December 2010, the Fed proposed rules that would cap debit card interchange fees at 12 cents per transaction. Given the revenues involved, it’s understandable that the banking sector is deeply unhappy. Its lobbyists are currently working overtime to delay, if not kill, this cap.

This week, their efforts may come to fruition if the Senate gets a chance to hear an amendment introduced by Senator John Tester (D-MT). Sen. Tester’s amendment would delay any changes to the fees and direct the Fed to study them further.

The banking lobby is one of the most powerful in the country. But this time it’s up against more than the usual worthy-but-dull not-for-profit consumer advocacy groups. That’s because big and rich (and small and poor) retailers and other merchants hate interchange fees with as much passion as banks and credit card companies love them.

Credit card use set to gain?

There are no prizes for guessing whose side Patrick S. Jury and John Sorensen were on when they were given space in Saturday’s Des Moines Register to argue their case. The first is president of the Iowa Credit Union League, while the second is CEO of the Iowa Bankers Association. They made a powerful argument:

Debit cards have become one of the most popular forms of payment for American consumers. More consumers now have debit cards than credit cards–and consumers use debit cards more often than cash, credit cards or checks. Unfortunately for all consumers, this convenient and preferred method of payment is about to get more expensive unless Congress takes action before July 21.

But if debit card use becomes so expensive that consumers avoid swiping them, what do Messrs Jury and Sorensen think will happen? Do they believe that people will start carrying around wads of cash? Or go back to using checks? Or return to gold coins or barter? What’s more likely is that credit card use is going to rise to fill the gap.

Credit card offers more

This might be a good thing for consumers, at least for those who can manage their finances responsibly. Last December, this blog demonstrated 7 ways in which credit cards beat debit cards. Credit cards provide better fraud liability and purchase protection, give you an interest-free period before repayment, can help you boost your credit score, and can offer perks such as credit card rewards, travel insurance and extended warranties. The average credit card offers more than a debit card to you as a consumer.

And an increase in credit card use could benefit the banks too. They’d still receive the same credit card swipe fees that they currently do on each transaction (unless financial reform turns its eye beyond debit cards). There might also be a small bump in the balances carried forward each month, providing them with additional revenue from the credit card rates they levy.

Of course, therein lies a danger. People use debit cards because they want to avoid credit card debt. And nobody wants to see a return to the bad old days when plastic was seen as a way to finance an irresponsible lifestyle. However, surely both consumers and banks have learned the lessons of the credit crunch, and won’t allow credit card debt to reach unmanageable proportions again.

Or will they? What do you think? Please do leave your comments below.

As a rule, legislators have been loath to extend to businesses consumer protections normally available only to private citizens. When Congress passed the Truth in Lending Act of 1968, one of the first examples of credit card regulation, it followed that principle, with many arguing that government should have no role in contracts between private companies. Similarly, the Credit CARD Act of 2009 specifically excluded business credit cards.

Credit card regulation proposed for business cards

One congresswoman feels strongly that this should change. According to the website of Representative Nita Lowey (D-NY):

…over 60 percent of small businesses owners are forced to use their credit cards to meet their capital demands. Yet small business owners are not protected under the same consumer protections that individuals enjoy. Lowey introduced HR 1137, the Small Business Credit Card Act of 2011, which would extend the important new consumer protections from the CARD Act to small businesses with 50 or fewer employees. Small businesses should be given the support they need to create jobs and rejuvenate our economy, not be subject to unfair interest rate changes, deceptive practices, and unnecessary fees.

Credit cards for small business capital

It’s not clear where Nita Lowey got that figure of more than 60 percent of small business owners borrowing on cards to fund their capital needs. A 2010 report from the Federal Reserve suggests that, at the end of 2009:

• 83 percent of small businesses used credit cards for transactions.
• 64 percent used cards designed for businesses.
• 41 percent used personal credit cards.

However, the Fed said that only 18 percent of small business owners admitted to actually borrowing (carrying forward balances) on credit cards. It seems unlikely in equal measure either that borrowing on cards has suddenly shot up from 18 percent to more than 60 percent (although, given the reluctance of banks to lend to small businesses, it may well have risen considerably), or that Rep. Lowey would use an unreliable figure. Perhaps the two studies’ methodologies were different.

Credit card debt liability

Last week, Scott Shane, who is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University, Ohio, blogged on the Businessweek web site on this topic. And he made a compelling argument. The IRS, he says, reports that 72 percent of all businesses in this country are sole proprietorships, which means that their owners are ultimately liable for all credit card debt. And, in any event, credit card companies almost always insist that individual owners accept liability for such debt, even if the business is a company rather than a sole trader.

A further blurring of the line between personal and business cards was highlighted on this blog on May 19 (Business credit cards can be a bad idea for consumers), when it revealed the extent to which some credit card companies target private citizens with potentially unsuitable business credit card offers.

Perhaps Professor Shane had a point when he concluded: “As a basic principle, applying the CARD Act to any credit card for which the holder is personally liable for the debt seems fair.”

The Pew Charitable Trusts‘ Safe Credit Cards Project yesterday published a revealing report into the business of business credit cards. Many of these credit cards are great for corporations and small businesses, but applying for one as a consumer can be a costly mistake.

Credit card regulation askew

When Congress passed the Credit CARD Act of 2009, it excluded credit cards aimed at businesses, which generally have “corporate,” “business” or “professional” in their names. That was a perfectly reasonable move, and follows a precedent set by legislators back in the 1970s. The reasoning behind the legislation? Two companies (one the card issuer, the other the business client) have a more equal bargaining position than a bank and a consumer. After all, consumers generally lack the legal advice and business savvy of a business client.

That’s great in theory, but Wednesday’s Pew document (”U.S. Households at Risk from Business Credit Cards”) sheds new light on the practice. Nick Bourke, director of Pew’s Safe Credit Cards Project, observed in a statement:

“Every month more than 10 million business credit card offers are mailed to households at all income levels. The sheer number of offers that are sent to homes all across the nation represents a risk to millions of American families.”

In other words, huge numbers of consumers are constantly being tempted to sign up for products that are completely beyond the reach of existing credit card regulations.

Credit card rates and rewards that look great

Credit card offers for business products ARE tempting. According to IndexCreditCards’ credit card rates monitor, the average annual percentage rate (APR) today for a business rewards card is 16.21 percent. The same figure for consumer rewards cards is 17.48 percent.

And credit card rewards programs on many business cards can be exceptionally generous. For confirmation, check out the Capital One Venture for Business offer or Chase’s Ink Cash and its $100 bonus cash back deal.

Credit cards that suit you

Private citizens can be forgiven for yielding to temptation by signing up for low rates and great credit card rewards without realizing that they are also signing away their legal rights to consumer protection. When this credit card news blog covered business plastic last September (Corporate credit cards for consumers), it highlighted just how dangerous these products can be. In that blog, it recounted the story (which first appeared in The Sacramento Bee) of Misty Seeley of Rancho Cordova, Calif.:

“(Seeley) told the Bee that her issuers had shortened the time she has to get in a payment after receipt of her statement from 25 days to 14 days. And they have increased her late fees from $29 to $50. Neither of those moves would be legal for consumer cards under the Credit CARD Act of 2009.”

However, the blog went on to say that consumers who don’t need protection (those who are never late paying no matter how often a card issuer juggles with dates, who never go over their credit limit and who can absorb any penalty rates without finding themselves in trouble) can benefit from holding a corporate card.

It is those consumers who are less organized and less wealthy who still need to be protected from potentially predatory practices. Perhaps that’s why Pew advocates extending the provisions of the CARD act to “any credit card product that requires an individual to be personally or jointly liable for account expenses,” and forcing credit card companies to tell applicants if a product doesn’t carry normal consumer protections.

It wasn’t supposed to be this way. The CARD Act was going to remove temptation from college kids by sweeping banks’ promotions from campuses, banning freebies, and preventing those younger than 21 years old from making credit card applications without an adult co-signer unless they had their own income.

Credit card companies go back to school

Those should have been valuable protections, but, as The Wall Street Journal revealed May 7, they’re not. While abiding by the strict letter of the law, credit card companies are successfully circumventing all three regulations. As law Professor Jim Hawkins of the University of Houston told The Journal, “a ton of loopholes” allow issuers to undermine the spirit of the act.

Yes, card issuers no longer have stalls on campus, tempting students to sign credit card applications with free slices of pizza or T-shirts or Frisbees. The stalls have moved, sometimes just yards off-campus, to paths that students use heavily. Or they remain on campus but market only checking accounts. Then, anyone who signs up for one of those check accounts is likely to start receiving credit card offers from their new bank through the mail. Or they have moved online, using email and social networking sites to reach kids.

And what of those pizza slices and Frisbees? They have been replaced with vouchers and statement credits, neither of which counts as a “tangible item as a gift” within the meaning of the Credit CARD Act.

Credit card applications that don’t need co-signers

None of this would matter too much if every application had to be co-signed by a responsible adult. But that’s not the case either. To begin with, any adult will do, so a fellow student who’s over 21 can sign.

However, it’s unlikely that many bother to find a senior to provide a John Hancock. Why would they? The law says that those under 21 can sign on their own providing they have an independent income, a provision intended to allow youngsters with jobs or trust funds from being disadvantaged. But, as this credit card news blog observed last August (Student credit cards-still hard lessons to be learned), banks seem willing to treat pretty much anything, including allowances from parents and student loans, as independent income.

Yes, that’s right. Kids can count the money they’re borrowing in student loans to borrow more money on credit cards. In fact, when Professor Hawkins polled 300 students last year, 29 percent of respondents said they’d used student loan debt as “income” on their credit card applications.

They needn’t have gone to the trouble because card issuers don’t routinely check income claims on applications. So some student credit cards may be the equivalent of so-called “liar loans”, which caused so much damage to the mortgage market back before the credit crunch.

Student credit cards can be good

So what’s a parent to do? For those with financially responsible offspring, the best plan may be to find good student credit cards before their kids head off to college, and to warn them off taking on any new ones. For example, the Journey Student Rewards from Capital One offers a 25 percent bonus every time the cardholder pays on time. That could be good training in taking responsibility.

Another is the Citi Dividend Platinum Select Card for College Students, which has a good rewards program, a zero-percent introductory APR for those who qualify, and would look great (doesn’t all platinum plastic?) in any student’s wallet.