Earlier this month the Senate Banking Committee began a process that will take a long, hard look at the way American banks handle the credit card industry. Some of the items on the agenda include annual fees, credit card expiration dates, universal default pricing, double-cycle billing and late payment policies (to name a few). Each of these banking practices plays a major role in the way issuers handle your account, and the changes may very well impact your favorite credit card program. For the next few days, we’ll take a look at what each of these industry terms mean and how they affect your everyday life.
Day Two: Shorter Expiration Dates on Credit Cards
Another credit card attribute up for discussion at the aforementioned Senate hearing is the duration of expiration dates; specifically, why shorter expiration dates should become the standard as opposed to the usual three-to-four year span to which we are all accustomed. Today we talk about why credit cards usually expire 4 years after the month it was issued, and why you would benefit from a shorter expiration date.
Expiration Dates: A History
When you visualize a credit card in your head, what do you see? Embossed numbers? A Visa, MasterCard, American Express or Discover logo? The all too familiar shape and texture? Are you missing anything?
Yes – the magnetic strip! (Learn more about magnetic strips here.)
A magnetic strip what makes your credit card your credit card to the millions of machines out there that could potentially process a purchase; the trouble is, the magnetic strip has a shelf life of (you guessed it) three to four years if used gently. Keep in mind this standard was developed way back when credit cards were first introduced and it hasn’t necessarily evolved to the credit card-based economy that we know and love today, so the primary reason a credit card expires after four years is simply a means of getting you a fresh credit card strip since yours is likely to be worn out. (These days credit cards last about 18 months on average, so the old ways are already grossly out of date.)
What Does the Expiration Date Do Now?
63% of all consumers report that they order a new credit card well before the expiration date rolls around, so why have an expiration date at all? Why can’t we just let the credit card run its course and let the consumer decide when to get a new one?
The answer: cardholder verification. (Sort of.)
Credit card companies have shifted the importance of an expiration date from the simple convenience of a stress-free swipe to a means of verifying that the cardholder actually has the card in their possession. This is handier for non-electronic transactions since both the credit card number and expiration date are recorded on the magnetic strip, so once again the expiration date is becoming more obsolete as everything is processed either online or through an electronic payment processing system.
Credit Card Expiration Dates: Protecting Your Consumer Rights?
At last we arrive at the new crux of credit card controversy – expiration dates as a means of safeguarding consumers against the “predatory lending practices of credit card issuers,” as was phrased by one of the advocacy groups testifying at the Senate Banking Committee hearing.
The argument: expiration dates no longer offer convenience by anticipating the breakdown of the magnetic strip (they fall short by several years); they no longer protect against point-of-purchase credit card fraud (92% of all credit card purchases are handled electronically in the United States); why, then, could we not use the expiration date as a means to regulate the contract between the cardholder and the creditor?
Why is this important?
The financial climate has altered significantly from the inception of an “ideal relationship” between a lender and a borrower, so the credit card industry practice that exists is not only completely advantageous to the issuer, it also keeps the cardholder largely in the dark about changes to their accounts that could easily impact them in a very big way. Here are some examples:
- Most credit card contracts allow the issuer to change the terms of an agreement with just 15 day’s notice; this means promotional balance transfer APRs or other special rates could change in the middle of a billing cycle, thus costing you added interest expense without giving you adequate opportunity to move the balance elsewhere if you chose to do so.
- Credit card contracts are the only instance in the United States common law where the party with the superior position can change the contract at any time for any reason without mediation.
- Contract/rate changes are often included in very light print on the back of a credit card statement, making a seemingly normal credit card bill morph into a codified document of acceptance without the obvious indicators of a legal document.
The consumer advocacy groups argue that credit card expiration dates ought to be shortened to a year, and at that point a consumer could review the current state of the lender/borrower agreement and make sure it meets their expectations; if it didn’t, they would be given plenty of time to seek other creditors. They would also be proactively replenishing the life of their magnetic strip and protecting themselves on the rare occasion that they did need to use the expiration date for verification purposes.
Wrap Up – Aspire to Expire
This is much less controversial than the previous post about mandatory annual fees for credit cards, since it just makes sense to reduce the expiration dates to meaningful number that keep a credit consumer in the know about their account rates and status. If you are interested in having your voice heard on this particular issue, tell your senator and they will forward your opinion to the Senate Banking Committee.
Team Your Credit Network