Credit Cards Offered by the Banks - Essay Example

? “Financial Product” The credit card is issued by a Bank to its s whether they have the saving account in the same bank not. These cards help the consumers to make payments on credit which are later paid in addition to some other charges. They are usually used in case of online buying or telephone buying. The credit card act of 2009 has given some ease and security to the credit card holders. Previously the banks and the credit union used to fool the innocent card holders by imposing sudden change in interest rates and by giving strange deadlines. The credit cards involve much risk such as theft, fraud, misuse of personal information, etc. however these risks can be managed by paying just a little attention to once financial position and the purchasing power. The card holder must communicate his rights and obligations to the issuing authority which strengthens their relationship and reduces risks (Anderson & Schroder, 2010). Credit cards offered by the Banks Credit cards are offered by the Banks to their customers, through whom they can make payments for online products, in shops, products available with the telemarketers, for paying bills of hotels and resorts, for paying fare, etc. As indicated by name they are based upon the credit system, the user of the card would have to pay interest to the bank whenever he makes payments through the credit card. The issuer of the card is the Bank itself which allows the consumers a continuous balance of debt with the interest payments. The idea of a credit card was emerged somewhere in 1887. The concept of the modern credit card was based on the idea of merchant credit schemes which were used among the companies to make payments. Later the horizon of the card become wide and it became available to the local public. Initially these cards were made of celluloid plastic but these days mostly polyvinyl chloride (PVC) is used. The credit card holder does not require having an account in the bank. Since the whole process revolves around the concept of credit therefore it is better to say that the card owner borrows some amount from the bank to make purchases which are later paid with an additional amount of interest. People often make purchases without considering their payback power that either they would be able to pay the credited amount to bank or not. Just in case if they are unable to pay their credits then they face the consequences of credit card debt. Whenever a purchase is made the card holder enters the personal identification number (PIN) on the basis of which he will pay the Bank in future (Crouhy, Galai & Mark, 2010). Credit cards are often attached with lots of free goods and services that the consumers enjoy on their side whenever they make payments. These services are provided by the banks and different companies. For instance, if you use a credit card of the certain bank, then it will give you several transactional benefits and also easy payment methods. While on the other hand the companies give discounts or additional services to purchase their product. But to enjoy the extra services customers need to make purchases up to the required limit (Carrol, 2010). Now there are electronic devices available to check the balance and the purchasing power of the card holder instantly. The purchasing power of the card holder can also be analyzed by the security code printed on the card. This is usually done in online purchases or the one that are made over the telephone where the sales person verifies that either the customer is able to make the payment or not. Every month the card holder receives a bill indicating all of his purchases and the final amount that he has to pay to the Bank. If the card holder is also having an account in the same bank then the unpaid balance is deducted from their otherwise he can choose to make the payment later with a late fee or additional interest amounts. Regulatory aspect of credit cards: In 2009, President Barrack Obama signed the credit card act with the following changes in the regulation of the cards. This act has provided several benefits to the consumers and now they can be fooled by the banks or credit unions whereas the work for the credit card issuer has become somewhat difficult as they are now under the check by the credit card act. Previously the credit card issuers used to target the college going students. These students were given the credit cards which they would use and end up bearing the loan to be paid to the bank which they were usually unable to pay. The act has now imposed a policy over the card issuers that they cannot issue cards to students under 21 years and they are also required to assure that there is some elderly person with these students who may be able to clear the dues (Gregoriou, Hoppe & Wehn, 2010). The cards issuers used to change the interest rates with giving a chance to the card holder to think about it. Now they are required to inform the card holder 45 days before the increase in interest rate. The card holder is also give the opportunity of cancelling the card if he do not feels comfortable with the increased interest rates (Bhattacharya, 2010). Now the consumers do not have to follow the deadlines given by the card issuers. According to this act the payments cannot be made before 5pm on holidays and weekends. Previously the credit card companies were using the double-cycle billing method in which the interest was calculated on the current and previous balance. This act has put an end to this practice. Now the bill has to be mailed to the consumers 21 days before the due date and the credit card issuers are required to suggest the consumers the best way to clear their debt. Companies cannot charge an extra amount to the consumers for making payments over the internet or telephone (Sutton, 2010). Risk aspect of credit cards: There are various risk attached to the credit cards. The consumer might don’t know that their personal information is has leaked or someone else is using their card for which they are making they are making payments. There can be a mistake in calculating the balance amount by the card issuers as well. Following are most common risk that the consumer and the merchant who is receiving payment through a credit card faces. From the merchant’s point of view credit is risky in several ways such as the customer may cancel the purchase for any reason related to the product quality or service this is done by authorizing a charge back. The association, credit card issuer and the merchant, all of them have different rules. At times it happens that the merchant faces difficulty in receiving the actually amount for the product sold. In case of theft the credit card holder is safe in a way that he is liable to pay $50 only on behalf of the thief’s purchases whereas the merchant loses a lot of money if in case the thief have made expensive purchases (College Of Occupational Therapists, 2010). The merchant faces greater risk when dealing in international sales because different countries have different rules and regulation related to credit card payments and in some countries fraud is very common due to which the merchants have difficulty in receiving payments through credit cards (Valsamakis, Vivian & Du, 2010). From the credit card holder’s point of view there are risk associated with the credit cards such as theft in which the card is stolen by the cardholder and it is then used by someone else to make purchases. The security code also needs to be protected because it contains the personal information of the card holder which can be misused in many ways. Another type of risk is that the consumer is unable to clear his dues on time which leads him to pay greater interest amounts in future or in case the cardholder have the saving account in the same bank then the balance of his purchases is detected from there. Management aspect of credit cards: Credit cards can be managed in several ways. First of all the credit card holders must not keep too many cards at the same time as it would be difficult to debt payments and also the risk of theft increases. For convenience two cards can be kept at the same time one for making day to day purchases and another for buying expensive items. One also needs to manage the monetary outflow because at the time of payment to the retailers we do not realize that how much debt we have owed to the bank but later when the bank sends a bill it becomes difficult to pay the dues. The monthly budget can easily be managed by keeping a check on the purchases made through the card. The credit cards make the card holder to feel that he has more money or that he is financially stable whereas in reality the case is opposite to that which leads to mismanagement of the actual income and expenses. One must communicate even the smallest details about his right related to the card. The consumer should try to ask for the lowest interest rates and also for the margin of late payments. This will really help in management the card and the expenses. The companies usually do not want to lose their customers so there are chances that if your card is in good condition then the company will agree to your terms and conditions. Try to find the credit card issuers who do not ask for the annual payments rather they have bonus for the customers and other similar facilities. Keep a close eye on the bills before paying them consciously check the balance amount and purchases made. Do not further use your credit card if you have gone already out of budget so that you don’t face difficulty in paying the debt (Hopkin, 2010). Conclusion Credit cards are a great source of many purchases continuously but like any other financial product they also involve certain risks which are required to be managed thoroughly. It the card holder fails to do so then he might face difficulty in paying back his debts. The recent credit card act signed by the President Obama have lowered the burden of card holders as it gives them several advantages and ease in payment methods. The cards holder would know the deadline for payment at least 21 days before and the card issuers would also be suggesting them regarding the payment solutions. Despite of this act, still there are many risks associated with the credit cards both in terms of merchant and the card holder. The biggest of them is the risk of theft or the misuse of the security code. The easiest way to manage the credit cards is to first analyze your own financial position that how much you can pay to the banks or the credit unions. Do not keep too many cars simultaneously as it would be difficult to handle them and also to pay the debt. Discussion In the last few decades the credit cards have become more common and the problems attached to them are also rising. These problems include the issues related to the debt payment, the credit cards management, rising interest rates, theft, protection of the security code, deception, etc. Several measures have been taken to control these issues some of them are following: Now credit companies cannot impose extra changes to the card holders neither they can increase the interest rates without a proper notification to the consumers (Diebolt, Doherty & Herring, 2010). The practice of double-cycle billing is stopped by enabling the card issuers to apply all the additional charges to the highest interest balance first. The contract should be made in clear and understandable terms and conditions with consensus. The youth under 21 years may not be issued the credit cards. Credit card companies are now accountable for their action to the government. References Top of Form Diebold, F. X., Doherty, N. A., & Herring, R. (2010). The known, the unknown, and the unknowable in financial risk management: Measurement and theory advancing practice. Princeton, N.J: Princeton University Press. Bottom of Form Top of Form Hopkin, P. (2010). Fundamentals of risk management: Understanding, evaluating, and implementing effective risk management. London: Kogan Page. Bottom of Form Top of Form College of Occupational Therapists. (2010). Risk management. London: College of Occupational Therapists. Bottom of Form Top of Form Valsamakis, A. C., Vivian, R. W., & Du, T. G. S. (2010). Risk management. Sandton: Heinemann. Bottom of Form Top of Form Crouhy, M., Galai, D., & Mark, R. (2010). Risk management. New York: McGraw-Hill Professional. Bottom of Form Top of Form Andersen, T. J., & Schroder, P. W. (2010). Strategic risk management practice: How to deal effectively with major corporate exposures. Cambridge, UK: Cambridge University Press. Bottom of Form Top of Form Carrel, P. 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