ECONOMIC M.O.A.B.
From the March 2003 Issue of CardTrak
      I t is not a pretty picture - - the U.S. economic landscape is littered with unemployment, reduced salaries, bankruptcies, expensive fuel, puny savings rates, anemic stock market, fiduciary misconduct, rising consumer debt, and tons of lawsuits. Add war and the picture gets real ugly. Impending combat with the "axis of evil" (Iraq, North Korea, and Iran), on top of an expanding assault on terrorism, could have a devastating impact on the U.S. economy.

The "thought of war" is already having an impact. Consumers are closing up their wallets, canceling travel plans, and postponing big ticket purchases. This month, an informal home page poll by CardWeb.com showed that one out of three consumers are holding back on a major purchase because of a possible Iraq attack. The "reality of war" will create real economic causalities. The travel industry, for example, will be hit hard if the impending Iraq attack drags on for more than a few weeks. International travel will immediately collapse and, if gas prices hit $3 or more per gallon in the USA, domestic travel will be driven to new lows. Already on the edge, United Airlines will bite the dust for good. Other major airlines will rapidly descend into bankruptcy court if the conflict is protracted. Hotels, car rental firms, restaurants will all suffer.

The credit card industry, already littered with the casualties of the bad economy, will also face serious challenges. The liquidation of United Airlines will have a significant impact on Bank One's credit card business. (United and Bank One run the second largest co-branded airline credit card program in the USA.) American Express, which has slowly recovered from the impact of 9/11, will experience a significant decline in charge volume. All bank credit card issuers will face reduced merchant fee revenues and rising losses.

This, of course, is the tip of the iceberg.

The "Mother of All Battles" could turn out to be the "Mother of All Bombs" for the economy.

CONSUMER CARD DEBT
At the end of 2002, American households owed an average balance of $8,940 on all credit cards, compared to $8,234 for 2001, and $7,842 for 2000. This figure is arrived by dividing total credit card debt of $750.9 billion by the 84 million American households that have at least one credit card. (If total credit card debt is divided by all 105 million American households, then the figure becomes $7,151 per household.) The $750.9 billion in credit card debt that consumers owed at the end of 2002 includes $660.9 billion for bank credit cards (VISA, MasterCard, American Express, and Discover) and $90 billion for retail credit cards (store cards, gas cards, etc). However, not all of the $750.9 billion owed at year-end 2002 incurs finance charges. About 18.5%, or $138.9 billion of this debt was paid off in January. Approximately 39% of American credit cardholders pay-off their credit card balance each month, and an additional 38% make more than the minimum required payment. Therefore the amount of debt that Americans actually paid interest on at the end of 2002 was $612 billion. Divided by 84 million households, the average credit card debt per household becomes $7,286. Divided by 105 million households, the figure is $5,829 per household. No matter how you slice or dice it, credit card debt was up 8.5% last year compared to 2001. Compared to 1997, credit card debt is up 36%, and compared to 1992, credit card debt is up 173%.

US AIR DILEMMA
Bankrupt US Airways Group says it may be forced to shut down at the end of this month because it will lose its credit card processor. National Processing has given US Airways a March 31st deadline to emerge from reorganization or face termination. However, the shutdown of US Airways' processing contract could have an impact on National Processing. National Processing could face a significant charge-back liability over tickets already issued by the bankrupt airline. In a 10K filing last month, the company reported the dollar value of tickets purchased, but as yet unused, was approximately $1.0 billion.

AEROPLAN U.S. MASTERCARD
Air Canada's Aeroplan and MBNA have launched the new "Air Canada Aeroplan Platinum Plus MasterCard." The program enables Aeroplan members, resident in the USA, to accumulate one "Aeroplan Mile" for every dollar spent on eligible purchases. There are 400,000 Aeroplan members in the USA. New cardholders will receive 5,000 bonus miles after using the card for the first time. They will also get two, free "Maple Leaf Lounges" passes. In addition, cardholders will receive a certificate to allow them to get a second airline ticket free when buying a ticket on any Air Canada flight in one of the eligible booking classes, for travel originating in the USA.

MIDWEST MILES
Midwest Airlines, which has a co-branded program with Juniper Bank, has re-launched its frequent flyer program under the name "Midwest Miles," and is unloading partnerships with Northwest Airlines and Virgin Atlantic, and adding new partnerships with American Airlines and Air Jamaica. The program re-launch coincides with the February 28th delivery of the first of 25 new Boeing 717 aircraft, featuring a quieter cabin and newly designed Recaro seats with headrests and footrests for additional comfort.

TOTAL DEBIT REWARDS
While some banks are offering rewards only for signature debit card purchases, one major bank is offering rewards for both signature and PIN debit card transactions. Chase is the only institution offering "Continental One Pass Miles" on both signature and PIN debit card transactions. Chase recently launched a 30-day sweepstakes to offer individuals who open a new Chase checking account, between now and March 25th, the chance to win 250,000 "OnePass Miles." Chase says that cardholders of its cobranded "Continental Airlines MasterCard" debit card earned over a billion miles last year. In early February, Cleveland-based KeyCorp introduced a MasterCard debit card offering Continental "OnePass" miles for off-line purchase transactions.

MORE DEBIT INCENTIVES
MasterCard this month announced its most significant debit card promotion to-date. The "Priceless Night on the Town" sweepstakes offers consumers a chance to win a night on the town anywhere in the USA by using their debit MasterCard card between April 1st and May 31st. MasterCard will award 100 winners the grand prize, a $2,500 value, for an evening for two in any U.S. city of their choice. MasterCard will also award 1,000 first prize winners with a $200 prepaid "MasterCard Gift Card."

DEBIT CARD WINNER
TCF Bank has awarded a Minnesota man $20,000 as the grand prize winner in its "Share The Holidays" check card sweepstakes. During the promotion, which was held between November 1 and December 31, 2002, cardholders were automatically entered in the "Share The Holidays" sweepstakes every time they used their TCF Check Card to make purchases. T. Smith was randomly chosen by VISA among the thousands of TCF customers in Minnesota, Wisconsin, Illinois, Michigan and Colorado.

MEMBERSHIP REWARDS
American Express has added a home improvement reward category to its "Membership Rewards" program following a deal with The Home Depot. Other new significant retail partners include Bailey Banks & Biddle Fine Jewelers, Cingular Wireless, Staples and Toys"R"Us. The program also added The Capital Grille as a restaurant partner as well as the U.S. Film Festival Circuit, which provides access to tickets, passes and packages to a host of U.S. Film Festivals. New travel options permit cardholders to redeem points for LanChile Airlines, Dollar Rent A Car, Thrifty Car Rental and Rail Europe, two new resort experiences through American Skiing Company and Vail Resorts and two travel services consolidator tools designed to help enrollees manage miles and plan trips: "MileageManager" and "Award Planner."

VESPA STARBUCKS
Starbucks Coffee Company, which recently signed a co-branded VISA deal with Bank One, has teamed with Piaggio USA, manufacturer of the "Vespa" motor scooter, to launch a sweepstakes for holders of its stored value cards to win loaded Italian vacations and prizes. Starbucks Card holders can enter to win prizes in the "Starbucks Stirs You, Vespa Moves You" Sweepstakes by making purchases or reloads on their registered Starbucks Cards between now and April 22nd. Each registered card transaction will automatically enter customers in weekly drawings for loaded "Starbucks Cards" and for the overall drawing to win Starbucks Cards, Vespa motorscooters and Vespa-themed prizes.

KIDZ CARD
Boston-based Kidz Card has launched the first national medical emergency, identification and prepaid phone card for children. The new "Kidz Card" contains the child's medical information, emergency phone numbers and contacts, and 10 minutes of prepaid phone service provided by Sprint on an identification card. San Diego Chargers' quarterback and Heisman Trophy winner Doug Flutie is serving as a "Kidz Card" spokesperson. Sun Life Financial, Papa Gino's restaurants and CodeAmber.org are some of the company's first partners. Kidz Card memberships are annually renewable for $19.99 for each child, and additional companion cards are available for $5 each. Each membership provides three identification cards, one for the child and two for parents and/or caregivers.

TARGET VISA
Target's credit card profits increased nearly 42% to $150 million for the November to January period, compared to one year ago. Target, now the nation's 18th largest issuer of bank credit cards, reported that outstandings for its "smart VISA" program have topped $3.7 billion, a 140% increase over 4Q/01. Over the same period, Target's "Guest Card" store credit card program outstandings declined from $1,063,000,000 to $827,000,000, a 22% drop.

CONVENIENCE CARD
7-Eleven has launched the new "7-Eleven Convenience Card," which includes a smaller keychain version. Available at participating 7-Eleven stores, the card may be loaded with any cash-value amount between $5 and $500. To reward card-users, any customer who loads or reloads a card with at least $25 will receive a free 16-ounce cup of 7-Eleven coffee, 22-ounce "Slurpee" or 32-ounce "Big Gulp" fountain drink. The new re-loadable stored-value card will feature collectible graphics. The designs will feature "Slurpee," coffee, gasoline and a 7-Eleven logo card. New designs will be introduced throughout the year including holographic images and cards featuring X-treme sports. The card may be re-loaded online or by calling a toll-free number using a credit card. Customers may also register their card on the 7-Eleven Website to protect against a lost or stolen card. Customers may also check their "Convenience Card" balance at any store, online or by calling a toll-free number. 7-Eleven does not charge any transaction fees for loading or reloading the cards. However, if a card is inactive for 12 months, a $2 per month service fee will be assessed until the card is used again.

BANKRUPTCY 2003
A credit ratings firm has predicted that bankruptcies will increase by roughly 8.0% in 2003 to a level of 1.65 million. Fitch Ratings also expects consumer credit quality to be challenged in the months to come. Bankruptcy filings hit a record 395,129 for the final three months of 2002. For all of 2002, total bankruptcies filed were 1,577,651, up 5.7% from 2001. Previously, the largest number of bankruptcies filed in a single 12-month period was in the period between October 1, 2001-September 30, 2002 when it hit 1,547,669 filings. According to the Administrative Office of the U.S. Courts, of the total number of bankruptcy filings for the 12-month period ending December 31, 2002, there were 1,109,923 Chapter 7 filings, up 5.2% from the 1,054,975 Chapter 7 filings in the same period in 2001. The next largest group of filings was Chapter 13 filings at 455,877, up 7.2% from the 425,292 filings in calendar year 2001.

CARD SCAM
Insurance giant Nationwide issued a credit card warning to consumers this month. The company says a firm doing business as Nationwide Credit Corp., Nationwide Information Services Group and/or Skyrise Marketing, has been contacting individuals and offering secured credit cards for a fee. According to customer complaints received by Nationwide, as well as more than 100 complaints received by the Better Business Bureau, the company contacts individuals by phone and offers a secured credit card in exchange for a $219 fee. However, the individuals did not receive the credit card and have been unable to collect a refund. The company claims to be based in Corning, N.Y. but has given contact information in Toronto, Canada. The Federal Trade Commission has been on the trail on many cross-border credit card scams. In January, the FTC opened a new Web site devoted to fighting cross-border fraud which includes advance-fee loan scams and unnecessary credit card loss protection offers.

ARIZONA SCAM
The Federal Trade Commission reached a $525,000 settlement with a pair of Arizona brothers who allegedly offered nonexistent advance-fee, low-interest credit cards, and bogus identity theft and telemarketing fraud protection services. According to the FTC, the Sloniker brothers employed large numbers of telemarketers trained to deceive consumers. From their "contract rooms," the defendants allegedly telemarketed nonexistent advance-fee, low-interest credit cards, and bogus identity theft and telemarketing fraud protection services, often on behalf of third-party client companies. The scam operated under the names: Corporate Marketing Solutions, Inc.; Corporate Industries, Inc.; ATM Machine Wrap, Inc.; Bankcard Recovery Services, Inc.; Direct Wireless+, Inc.; National Consolidation Foundation, Inc.; and Sierra Management Properties, Inc.

INTERNATIONAL SCAM
The Federal Trade Commisson obtained a preliminary injunction against an international telemarketing network that offered advance-fee credit card packages. The alleged network enabled fraudulent sellers in the USA to hide behind bogus Canadian front men as they telemarketed illegally through boiler rooms running from the Caribbean, United States, Canada and India. The ring was allegedly run by Kyle Kimoto, president of UT-based Assail, Inc. The firms involved include NV-based Summit Communications International/Advantage Capital; FL-based Capital First Benefits; ID-based Premier One Benefits; UT-based Infinium; UT-based Market-Reps.com; and TX-based Specialty Outsourcing Solutions.