Fixing the College Credit-Card Mess, part 4 of 4

FIVE MEASURES THAT MAY PREVENT COLLEGE STUDENTS FROM BUILDING UP CRIPPLING CREDIT-CARD DEBT

But first, an overview of the problem.


House Bill Would Restrict Credit

Congress is voting this year on whether to pass bills that would work to reform an industry that critics argue is in need of supervision. Any federal regulation setting caps on interest rates, late payments, or access to college students would be a good thing, since there is virtually no regulation now.

Congress is hampered by plentiful political contributions from card issuers. The top three campaign contributors from the credit-card industry—Citigroup, JPMorgan Chase, and Bank of America—gave more than $2 million each in the 2006 election cycle.

Legislating the legislative-exempt zone

Credit-card companies have operated since the early 1980s in a legislative-exempt zone created after a series of Supreme Court decisions divested states of their ability to protect consumers by setting caps on interest rates and fees.

Now credit-card companies can export high interest rates from the states where they are located into the states where consumers live, even if those states have restrictions on interest rates or late fees.

That's why if you look on the back of your credit-card statement, you will see that the return address is most likely South Dakota or Delaware—states considered safe harbors for credit-card companies because they have no cap on interest rates or late payments.

Here are five practical steps that curb abuses and help college students and other consumers.

1. Protect students by limiting the amount of credit extended.

No one wants to take credit cards out of the hands of students or to stop credit-card companies from offering students valuable services. Credit in manageable amounts can be a wonderful thing for college students, allowing them to build credit histories and learn to manage money.

Too much credit can be devastating. Credit-card companies need to extend credit in some rational proportion to a student's ability to pay. Ultimately, students need to take responsibility for their own actions, including their credit-card spending.

Extending enormous credit lines to college kids with nominal income can only lead to substantial problems.

Credit limits appropriate to students' means will help them make more responsible decisions, allowing them to learn and make mistakes without devastating consequences.

2. Bring more clarity to credit-card contracts.

Current credit-card contracts hide their many terms and conditions in legalese. Credit-card companies should make key metrics more prominent and visible. Some example metrics are minimum payments, annual percentage rate ("APR," that reveals the true cost of borrowing), and annual fees.

College students often don't realize just how long and how expensive credit-card payments become when only minimum payments are made.

If a student pays only the minimum on a $5,800 balance at 27.99% APR, it will take longer than 27 years to pay it off!

3. Require schools to disclose lucrative contracts.

Universities and colleges nationwide are striking multimillion-dollar affinity contracts with credit-card companies, in which they jointly market cards to students, alumni, and staff.

The deals provide money to the schools in return for handing over marketing privileges, student information for direct mailings, and premier marketing locations at football games and the like to the credit-card companies.

Schools are making millions of dollars through these deals, with some schools earning nearly $20 million dollars.

With so much money at stake, students, alumni, and others should be able to find out the specifics of the contracts—how much money the school makes per year and what the credit-card company gets in return.

Often, schools get a bounty for each student who signs up for a card and they get more money the more the student is charged for interest on debts.

4. Eliminate the most egregious practices.

Credit-card companies zap college students and others with extra charges and fees. Congress and regulators should take aim at the most egregious of these practices.

Start with what's known as "double-cycle" billing. The practice works like this: Imagine a student bought a $1,000 laptop for school in August, and received a credit-card bill on Sept. 1. If the student pays $800 of that debt on time, the student will receive a bill in October that includes interest not only on the outstanding $200 dollars, but also for interest on the entire $1,000 amount. Interest, in the other words, is charged on debt that was already partially paid.

Again, borrow $1,000, pay off $800, and the credit-card company charges you interest on the original $1,000 plus $200, or $1,200! This practice generates interest from debts that were already partially or fully paid!

Another practice is called "universal default." Under universal default, a consumer who has two credit cards and never misses a payment on one card but fails to pay the other card on time can see the interest rates charged on both cards rise.

As of May 2007, a credit-card survey by the advocacy group, Consumer Action, found that 8 in 10 banks still practice universal default, despite public statements to the contrary. They lied, in other words.

There are also fees for what's known as "pay to pay." They charge a so-called convenience fee for transmitting a payment by phone.

Credit-card companies deserve to make a profit. They do, after all, provide valuable services. But card companies make money in numerous ways, from vendors as well as from customers, and credit cards have become the most profitable arm of the banking industry.

One reason for that is their nickel-and-dime practice of charging special fees and charges.

R.K. Hammer, a research and advisory firm, estimates that banks pulled in $17.1 billion from credit-card penalty fees alone in 2006.

5. Keep students informed.

One common clause in credit-card contracts is known as "any time for any reason, including no reason."

If a credit-card company plans to raise the interest rate it should be required to send a letter clearly explaining the change and giving the student the opportunity to pay off the balance. The note should also explain why the interest rate is being raised. Typically now, credit-card companies bury this change in the student's next bill.

Pending legislation, if passed, will help alleviate the student credit-card mess. The onus, however, is on the students. It won't be easy for them. They're bombarded with offers of credit, besieged by marketers on their campuses and at their football games. They're offered free T-shirts, bike rides, coupons, and sometimes iPods.

UNTIL THIS ABUSE IS CURTAILED, many students will continue to struggle to get out of, sometimes, large amounts of debt that could potentially harm their chances of getting a good job or an apartment.

There are many potential solutions. Some advocates suggest more financial literacy programs in high school and required personal finance courses in college. That's a very good idea.

Others think universities and colleges should take a more active role in limiting marketing to college kids.

And plenty of activists say it's high time that elected officials and regulators take steps to address the issue of credit cards on campus, especially as the problems of indebted students grow every year.

THE DIRTY SECRETS OF CAMPUS CREDIT CARDS

Issued under affinity contracts, they represent sweetheart deals between card companies and the colleges. It's the students who pay the price.

IT WAS THREE YEARS AGO and Irene Leech still remembers the shock clearly. An associate professor at Virginia Tech who specializes in consumer affairs, she read the terms of the credit card that her school, together with JP Morgan Chase, was marketing to students, alumni, and staff.

Behind the card's shiny surface, featuring the football stadium at sunset, the so-called "affinity" card offered some of the most unfavorable terms around for card users. Among other things, the card had what's known as "double-cycle" billing, where interest is calculated over two months instead of the typical one, resulting in higher finance charges. "I was shocked," she says. The experience convinced her to take a stand.

She has been speaking out against the conflicts of interest that universities face when they strike business agreements with credit card companies.

CHASE ULTIMATELY DROPPED DOUBLE-CYCLE BILLING on the Virginia Tech card, as it did for all cards earlier this year. But Leech warns that schools that get money from credit card companies through affinity contracts or other marketing agreements face intractable problems, in which the school's financial interests are in direct conflict with those of students and alumni. "Students assume that if the university has an affinity contract with a bank to offer a credit card, the university will surely look after them," she says. "But these contracts are really money-makers for the school, and not about services to the students."

Million Dollar Relationships

Leech isn't just taking on Virginia Tech, which takes in seven figures from the Chase deal. Nearly every major university in the country has a multi-million-dollar affinity relationship with a credit card company. The deals can be worth nearly $20 million to a single university. Schools, especially public universities supported by state revenues, are coming under increasing financial pressure to generate new revenue these days, and deals with credit card companies can provide a steady stream of income. And in most cases, the worse the card terms are for students and alumni, the more profitable they are for the schools.

DATA CENTERS, PART-4

Real-world Downtime for each Tier

This was taken inside a rented cage inside a data center. This is a colocation site.

This is Part-4. Click here to read Part-1. A new tab or window will open.

“Uptime” refers to the end-user's uninterrupted access to his or her data. “Downtime” refers to any disruption to this access.

Both uptime and downtime are measured from the end-user perspective. Downtime, for example, is measured from the start to the end of the disruption. Downtime is always longer than the period of the actual disruption. This is due to the aftereffects that occur downstream of the point of disruption. Let's say a Tier-2 center experienced a power outage for 30 seconds. Database servers in the middle of multiple transactions would suddenly die. The database would probably not get corrupted thanks to the built-in safeguards of the database application. Still, it'll take time for the database administrators to confirm this. Assuming the best, end-user access will be restored.

These empirical statistics came from a control group of 16 data centers studied by The Uptime Institute, the creators of the Tier standard.

Tier-1 centers typically experience two separate 12-hour periods of downtime a year because of preventive maintenance. These sites also experience 1.2 failures a year of its components or paths. Tier-1 centers average 28.8 hours of downtime a year (equivalent to 99.67% uptime).

Tier-2 sites typically experience three scheduled maintenance periods every two years and one unexpected outage each year. Tier-2 centers average 22 hours of downtime a year (equivalent to 99.75% uptime).

Tier-3 centers typically experience four hours of downtime every two and a half years—or 1.6 hours a year (equivalent to 99.98% uptime).

Tier-4 sites typically experience four hours of downtime every five years—or 50 minutes a year (equivalent to 99.99% uptime).

So far, we know these factors will cause unexpected disruptions:

1. Human activities
2. Infrastructure and equipment failures
3. Acts of God

The human factor

I encountered another factor that will definitely cause a center to shut down. Local authorities. Local fire and electrical safety codes may force sites, regardless of tier, to shut down for inspections and tests. Fortunately, these can be planned events.

How long does it typically take to restore access from momentary disruptions? Four hours. Tier level aside, a disruption will require human intervention. That alone takes time. Would you agree that four hours seem quick for Tier-1 and -2 but, at the same time, seem too long for Tier-3 and -4? It's about expectations, isn't it?

The higher tiers, -3 and –4, should be built and, more importantly, operated with the capability to withstand subsequent failures triggered by the first failure event. "Failure" should be interpreted broadly as you will see from these customer examples.

The first involved a Tier-3 center normally staffed by two operators. One of them was on extended leave. One morning, the remaining person called in sick. How did they deal with it? The manager spent the day there. She wasn't trained but fortunately nothing untoward happened.

The second occurred in an Tier-2 room. A cooling pipe beneath the raised floor had sprung a leak. It went undetected for a week until a floor tile was picked up for another reason. A rather wide puddle had formed in the sub-floor. The site had no operators per se. The analysts, programmers, and managers had to deal with it. It was discovered mid-morning and was not was resolved until close to midnight. Nobody was really responsible for the physical infrastructure and, consequently, nobody was trained.

Facility failures often reveal previously unknown architectural, hardware, or software issues. As you read however, more than anything else, disruptions expose human activity-related deficiencies. You have to train and practice and fill the roles properly otherwise the human factor will get you.

FOUR EARTHQUAKES HIT INDONESIA IN THE PAST
24 HOURS

September 12 to 13

First one - Wed. evening - magnitude 8.4
2nd - Thu. morning - magnitude 7.8
3rd - Thu. morning - magnitude 7.1
4th - Thu. afternoon - magnitude 6.2

Indonesia is a "wide" country that runs east to west. It spans three time zones and is, respectively, 12, 13, and 14 hours ahead of Chicago. The Philippines is a "tall" country and spans only one time zone. It is 13 hours ahead of Chicago. I'm writing this on Thu. morning in Chicago so the first earthquake occurred yesterday morning, Chicago time. In other words, these four events occurred in a span of 24 hours, from yesterday morning to this morning.

Richter Scale - Effects - Frequency of Occurrence

6.0 to 6.9 - Destructive within 50-mile radius - 120 per year
7.0 to 7.9 - Serious damage within 100-mile radius - 18 per year
8.0 to 8.9 - Serious damage within 200-mile radius - 1 per year

Click here for a map of these earthquakes.

Click here for the CNN news report of these earthquakes.

Click here for an explanation of the Richter Scale.

MAJORING IN CREDIT CARD DEBT, part 2 of 4

CONFESSIONS OF A CREDIT-CARD PUSHER

One student's story of how he was recruited to peddle credit cards on campus and the troubles he found for himself.


It all started as a way to make some quick cash. In 2002, at the beginning of his freshman year at the University of Pittsburgh, Ryan Rhoades needed some extra spending money. So when his friend told him about an Internet ad offering Pitt students a way to make some cash in a couple of hours, he didn't hesitate. Rhoades rounded up some of his buddies and headed over to the designated classroom at the student union.

What he saw in that room offers a view of how creative credit-card companies have become in marketing their services to college students.

GRAMMAR LESSON

"i.e."
-- or --
"e.g."

Although commonly confused and misused in colloquial English, e.g. (exempli gratia) and i.e. (id est), both from Latin, are not equivalents.




Exempli gratia, which means "for example", is used before giving examples of something:

I have lots of favorite colors, e.g., blue, green, and hot pink.

Id est, which means "that is" or "in other words", is used before clarifying the meaning of something when elaborating, specifying, or explaining rather than when giving examples:

I can't decide on one favorite color, i.e., I have many favorite colors.

A common mnemonic for English speakers is:

i.e. = "in effect" and e.g. = "example given"

REFERENCES

• Wikipedia
• About

MAJORING IN CREDIT CARD DEBT

Aggressive on-campus marketing by credit-card companies is coming under fire. What should be done to educate students about the dangers of plastic?




This story is the first in a series examining the increasing use of credit cards by college students.

Seth Woodworth stood paralyzed by fear in his parents' driveway in Moses Lake, Wash. It was two years ago, during his sophomore year at Central Washington University, and on this visit, he was bringing home far more than laundry. He was carrying more than $3,000 in credit-card debt. "I was pretty terrified of listening to my voice mail because of all the messages about the money I owed," says Woodworth. He did get some help from his parents but still had to drop out of school to pay down his debts.

Over the next month, 17 million college students flood the nation's campuses will be greeted by swarms of credit-card marketers. Frisbees, T-shirts, and iPods will be used as enticements to sign up, and marketing on the Web will reinforce the message. Many kids will go for it. Some 75% of college students have credit cards now, up from 67% in 1998. Just a generation earlier, a credit card on campus was a great rarity.

Congressional Oversight Weighed

The role of credit-card companies in helping to build these mountains of debt is coming under great scrutiny. Critics say that as the companies compete for this important growth market, they offer credit lines far out of proportion to students' financial means, reaching $10,000 or more for youngsters without jobs. The cards often come with little or no financial education, leaving some unsophisticated students with no idea what their obligations will be. Then when students build up balances on their cards, they find themselves trapped in a maze of jargon and baffling fees, with annual interest rates shooting up to more than 30%. "No industry in America is more deserving of oversight by Congress," says Travis Plunkett, legislative director for Consumer Federation of America, a consumer advocacy group.

DATA CENTERS, PART-3

General remarks about Tier classifications

This photo was taken at one of Google’s data centers.

This is Part-3 about the subject of Tier classification. For Part-4, click here. A new tab or window will open.

To rewind to Part-1, click here. A new tab or window will open.

Would you like to learn the business factors that should be considered in selecting a Tier? Click here to read it. A new tab or window will open.

The tier of a Data Center is determined by the rating of its weakest system. For example, a center with a Tier-4 power configuration that has a Tier-3 cooling subsystem will yield a Tier-3 classification.

The center’s rank is always the lowest of its individual subsystems. It is not the average of the rank of its individual subsystems.

The MTBF (Mean Time Between Failure) of a center’s subsystems is irrelevant in determining the center’s tier. So is the number of components or systems. Here are two examples. The first example compares how a backup set of duplicate chillers can be added to a site. The backup set can be:

• arranged along the same cooling distribution paths, or
• arranged along a second, independent path.

The first arrangement fulfills a Tier-2 center’s criteria. The second arrangement fulfills a Tier-3 center’s criteria.

The second example compares how two separate in-line UPS batteries are controlled. The batteries can be controlled by:

• a common input or output switch, or
• separate independent switches.

Once again, the first arrangement fulfills a Tier-2 center’s criteria and the second arrangement fulfills a Tier-3 center’s criteria. UPS configurations that share the same input or output switch gear almost always require the server room to shut down for routine maintenance. In addition, a common switch creates another single point-of-failure. A Tier-2 center has a duplicate set of critical electrical and cooling equipment. A Tier-3 center has a duplicate set of all components and equipment that supports IT operations. The connectivity, electrical, and mechanical systems, for example, must be in duplicate.

Sites that will be built from the ground up should be designed for a future higher tier level, or at the very least, designed to anticipate future power requirements. The owner should take advantage of the relatively small cost difference between a Tier-3 and -4 infrastructure before the facility is built.

A Tier-4 Data Center can be summarily described as being fault-tolerant and concurrently maintainable. A Tier-4 Data Center will theoretically never go down regardless of the failure of any of its subsystems.

Personnel operations—the main factor in determining sustainability—play the biggest role in the uptime of a Data Center. For that reason tier ranking can only be performed objectively through the center’s topology, architecture, and components. Sustainability factors directly or indirectly account for 70% of all downtime. The performance of individual data centers within the same tier largely depend upon sustainability. The correct implementation of sustainability factors decrease the cost and risk of completing maintenance or hasten the recovery of the center from disruptions.

THE IMPORTANCE OF SUSTAINABILITY

Sustainability largely determines the uptime performance of individual data centers within the same tier. Sustainability factors make the difference between an easy maintenance procedure or a difficult one; between an inexpensive or costly one; and a convenient or awkward one. A difficult, costly, or awkward maintenance procedure increases the chance that it will be delayed or skipped. And missed maintenance increases the chance of equipment or component failure. This section provides examples of infrastructure characteristics that impact sustainability. These characteristics are details of design, IT architecture, or implementation.

1. The ability to switch the power source of all mechanical components so they continue running before starting maintenance work on an electrical panel.
2. The placement of a critical component in a cramped area when it could have been placed elsewhere.
3. The placement of engine power generators and switching gear inside the facility instead of outside will eliminate the effects of weather.
4. The decision to limit the aggregate load on any subsystem to 90% of rated capacity instead of 100% will improve stability and prolong equipment life.
5. Compartmentalization refers to the physical separation of the primary and secondary paths. Tier-4 sites have compartmentalized subsystems. Personnel can attack a fire in the primary path’s area if it's physically separated from the secondary path.