Story Filed: Friday, September 24, 1999 9:50 PM EST

Sep. 24, 1999 (ITEM PROCESSING REPORT, Vol. 10, No. 19 via COMTEX) -- First USA Crisis Raises Concerns About Timeliness Across Industry

A recent media blitz linking check processing holdovers to erroneous credit card late fees may spark a renewed effort across the industry to enact more uniform guidelines for posting payments on time.

Under the gun for charging late fees to customers who have made their payments on time, Wilmington, Del.-based First USA nailed part of the blame on its former processing vendor, National Processing Co., for not posting payments on time.

Much of the controversy has centered on First USA's potential violations of laws governing truthful lending and fair credit. However, in an Aug. 31 episode of ABC's Nightline, a First USA executive said many of the more than 2,000 customer complaints filed against the bank could be attributed to the check processing vendor failing to post payments to customers' accounts on time.

First USA now does all of its check processing in-house. What's The

Problem?

First USA decided to bring all of its processing in-house last October - long before it experienced any problems with its third-party processor - when its parent company, Chicago-based Bank One [ONE] merged with the former First Chicago. First USA maintains that while it was converting all of its processing to in-house facilities, some glitches in its outsourcing facility caused payments to be posted late and resulted in customers being overcharged. First USA now is facing lawsuits from angry cardholders.

"When the problems arose in the Phoenix facility, we accelerated the effort to move all of our payment processing in- house," says First USA spokesman David Webster.But bringing processing in-house won't necessarily prevent delays, most experts agree, because remittance holdover is a growing problem across the industry, not just for third-party processors.

First USA's woes simply draw more attention to the issue. "The result of this could be a refocus on benchmarks and comparative metrics in the industry," says Steve McNair, president of FTP Consulting, located in Southlake, Texas.

Fearing public scrutiny and legal battles, credit card processors are searching for reference points to prove that their turnaround times on check processing are in line with industry averages. Because of broad interpretations of the Truth In Lending Act, which requires all payments to be processed on the day they are received, a wide range of benchmarks are being deployed across the industry.

Adopting a more uniform approach to dating mail and processing payments could help credit card companies avoid legal tangles, says an executive from a major credit card company who asked not to be named.

"Companies need to define the playing field a little better, and create some better guidelines," the source says. "Then there would not be any basis for lawsuits. Establishing uniform cut-off times and set timeframes for processing payments could be [the answer]."

Technological Blunders

From the vendors' perspective, the fix for holdover in the industry is the right technology.

"Holdover work in the remittance business is a function of a lot of factors, including system performance, hardware configuration and operations management," says Mark Brousseau, marketing director at Lanham, Md.-based ImageScan Inc., a processing software provider.

"The unfortunate result of the Nightline episode is likely to be some sort of congressional inquiry. We'd like to think that one of the positive outcomes will be an increased focus on the performance of software and a larger investment in systems in order to bring them up to capacity standards," he says.

But the recent wave of remittance delays across the industry can be attributed more to the consolidation of financial institutions than inadequate guidelines and outdated technology, says Bob Kirk, vice president of business development at Vicor, a software vendor based in Palo Alto, Calif.

"This is a consolidation issue because the organizations have gotten so large that companies are faced with processing millions of items per month versus tens or hundreds of thousands," Kirk says. "This requires far greater attention to detail."

Problems created by consolidation are exacerbated by staffing shortages. "Every city I have been to in the last two years is talking to me about unemployment in their areas in the low single digits. None of these processors with entry-level jobs can acquire enough staff," Kirk adds. (Mark Brousseau, ImageScan, 301/306-0700; Bob Kirk, Vicor Inc., 972/985-7414; Steve McNair, FTP Consulting, 817/949- 1052; David Webster, First USA, 302/985-7160.)

The Check Point

Check fraud hit the West coast last week when authorities arrested a total of 25 suspected participants of a check fraud ring in Spokane, Wash. on Sept. 15 and 16.

The check fraud ring allegedly used computers and check quality paper to manufacture checks. Spokane authorities suspect the ring may have circulated $1 million worth of fraudulent checks. Authorities still are searching for eight other suspects. Source: The Spokane Review

Copyright ) 1999, Phillips Publishing International, all rights reserved.

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Related article:

Man wins credit card late fee award

-- Homer Beanfang (Bats@inbellfry.com), September 27, 1999

Answers

Yep, my husband was hit by First USA with late charges etc. etc. Expect I sent it in way in advance. They checked and agreed it came in way in advance but was posted 2 weeks late. They took the charges off. Also watch out for Fleet Bank, they uped my rate from 12.9(after being with them for 3 years) to now 25.6 percent. They say it was because of something in my credit report. Got my report this weekend, it is clean as it can get.. I called the Office of the Comptroller of the Currency (federal agency to file complaints about credit card companies and banks)1-800-613-6743 (they said credit card companies can up your rate to the states maxium at any time, some states have it up to 39%, so watch out people).

-- Cassandra (American_Storm@usa.net), September 27, 1999.

(1) I recently ran into the same problem with another bank. I suspect that they were holding the payments, then posting them late...the late fee would be far more than the lost interest! My research found that they deposited my check when they received it, then posted several days later...after the "deadline" and charged me a late fee. I cancelled the card and am going after them to refund the late fees. If no joy, I intend to prosecute. This (possibly deliberate) "error" is tatamount to fraud.

(2) Thanks for posting the # for the Comptroller of the Currency.

-- Mad Monk (madmonk@hawaiian.net), September 27, 1999.

Jeez...

I figured I wasn't the only one....

Over the past 1 1/2 years (since I started prepp'n) I kept getting tagged with late fees from First USA....

I was PISSED...so I paid the balance off with a check from another card company...

Then, they kept calling me asking me why I paid off my balance....I told the Lady all about my late fees...she never stuttered...must have heard this before.

Anyways...I've got to get involved in any Class Action Suit over this....to the tune of like $200...

Thanks for the link....these guys are CROOKS...real BAD GUYS!

-- Nailbender (Nailbender@I mailed it early.net), September 27, 1999.