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Saturday, February 27th, 2010

Shortcomings of Credit CARD Act

This week saw the much-anticipated date (February 22) on which the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) took full effect. And, while it theoretically introduces many new consumer protections, it leaves plenty room for “creativity” from card issuers.

Center for Responsibility Lending Responds

The Center for Responsible Lending released a humorous (though cynical) animated video that highlights some of the areas not addressed by the new act—and illustrates ways in which credit card issuers have adapted their policies to maintain profit levels. These include:

  • Interest rate hikes: To compensate for lost revenue, some card issuers have already raised users’ interest rates. Even users in good standing may be “forcibly eligible” for this, as the video claims.
  • Over-limit fees: If you accidentally exceed your credit limit, your cardholder likely charges a fee. And, with new restrictions in place on other charges they can assess, you might see this fee jump.
  • Inactivity fees: On the other hand, if you use your card too infrequently, you might see a fee for that, as well, because that means you’re less profitable for the company.
  • Increased minimum payments: Another technique some card issuers are using is to up the minimum amount you can pay each month. This could be profitable for those who won’t be able to afford the increased payments and can be charged an under-payment fee.

The Regulation-Creativity Relationship

As the video illustrates with a graph, more consumer protection may seem like a good thing, but in practice, it often means that card issuers just get more “creative” with fees they charge reasons they charge them.

If you’re thinking now is a good time to get out of credit cards altogether, you’re not alone, but, before you cancel your cards, consider this:

  • Your credit score: Part of your credit score is based on age of accounts (older ones are better); another part is based on diversity of credit (so eliminating one type entirely would hurt you).
  • Your reentry: If, at some future time, you decide you want a credit card again, you’ll likely have to contend with uber-high interest rates (above 70 percent) because you won’t have any recent credit card history.

The video exaggerates a little (by mentioning, for example, a “legibility fee” for left-handed users), but by doing so draws attention to the more serious matter of how significantly your credit card could change.

Be sure to read all correspondence from your card issuer, even mailings that seem like junk: some of them might contain important details about the new rates and fees you may have to pay. These statements will also come in handy if mounting fees and interest force you into bankruptcy.

Additional Resources

Credit CARD Act

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Posted in Credit and Bankruptcy | 5 Comments »

Thursday, February 25th, 2010

More Mortgage Relief in Proposed Changes to Obama Plan

FOX Business recently reported that it obtained a document leaked from the federal Treasury Department that outlines proposed changes to the Making Home Affordable program - also known as the Home Affordable Modification Program, or HAMP. The plan is part of the Obama Administration’s attempt to provide some home foreclosure help.

Some experts suggest the rules are unlikely to pass because they would mean more work, and potentially less income, for many mortgage lenders and loan servicers. This issue, according to some, highlights the core problems with that industry.

The Proposed Mortgage Rule Changes

Here’s a look at what alterations have allegedly been suggested and what they reveal about the way HAMP and the mortgage lending system in general is currently working, and how it could better work to help people avoid bankruptcy and stay in their homes:

1. Introduction of a 30-day “borrower response period.” This period would begin after a borrower was denied a mortgage modification; during the 30 days, mortgage lenders would be prohibited from foreclosing on properties. The aim is to provide a window in which borrowers can determine whether their denial resulted from mistakes in their application.

Those in the know suggest that this proposed change is necessary because a number of borrowers are being denied modifications because of mistakes in their application – not because they don’t actually qualify.

2. Prohibition of foreclosures for borrowers who have not been proven ineligible for modifications. In other words, banks would be required to offer borrowers an alternative to foreclosure (namely, modification) and would not be permitted to foreclose on a home if a borrower proved eligible for that modification.

According to sources, this type of language already exists in some form in HAMP – in fact, that’s part of the whole purpose of the program. The inclusion of this as a proposed modification suggests that mortgage lenders are not taking adequate steps to avoid foreclosing on properties.

3. Suspension of all foreclosure action once a borrower has been approved for a 90-day trial modification. HAMP requires a trial period. In this 90-day window, approved borrowers make payments under a modified mortgage plan. If they adhere to the terms, they should qualify for a permanent modification.

The fact that a new rule expressly prohibiting foreclosure action during the trial period has been proposed suggests that lenders are disregarding modification agreements and proceeding to foreclose regardless of a borrower’s status.

4. Written verification (from a trustee or lawyer) that a borrower does not qualify for HAMP before foreclosure can proceed. In other words, this rule would require banks to have proof that they can go ahead and foreclose.

This suggests that mortgage lenders have not been following this rule on their own, and have perhaps been foreclosing on properties even when a borrower qualified for a modification.

Bottom Line For Anyone Needing Mortgage Relief

If you are at risk of losing your home to foreclosure, you may want to contact a bankruptcy attorney. These proposed rules suggest the cards may be stacked against you.

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Posted in Mortgage Foreclosure | 4 Comments »

Tuesday, February 23rd, 2010

Your Car in Bankruptcy

For many people considering filing for bankruptcy, it’s important to know whether they’ll be able to get on with their lives afterward—and for many, that will be determined by whether or not they have a car.

And, with car issues in the news pretty often these days, they’re certainly on our minds. Here’s a little crash course on what you can expect to happen to your car if you file for bankruptcy.

Chapter 7 & Chapter 13 Bankruptcy

Whether you file under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code, you can expect an automatic stay to take effect. This stay prevents debt collection, wage garnishment, lawsuits related to your finances, foreclosure and repossession.

The automatic stay remains effective until the court discharges your case.

Cars in Chapter 7 Bankruptcy

Chapter 7 bankruptcy offers filers a complete discharge of many unsecured debts. Your car loan, though, is a secured debt (it’s attached to property—your car). If you file a Chapter 7 case, you’ll have three options for your car loan:

  • Redeem: This option involves one lump sum payment to your creditor for the car’s current fair market value. If you can afford to do this, it may make life easier in the future, since you’ll have eliminated car payments. But because most people file for bankruptcy at a time when cash is not handy, it may not be a viable option for many filers.
  • Reaffirm: This option allows you to essentially continue making payments on your lease or loan as you did before you filed for bankruptcy. In reaffirming your debt, you agree a second time to continue making payments according to a schedule agreed upon by both you and your creditor.
  • Surrender: If neither continuing payments nor redeeming the car will work for you financially (for example, if you owe more on the car than it’s currently worth), you can also choose to surrender your vehicle to your creditor and have the remainder of your debt discharged.

Cars in Chapter 13 Bankruptcy

If you file under Chapter 13 bankruptcy, your car’s future will depend on when you bought it.

  • Newer cars: If you bought your car within 910 days of your bankruptcy filing, you’re required to pay the full value of the car loan, though your interest rate may be reduced.
  • Older cars: If you purchased your car more than 910 days before filing for bankruptcy, you’re only required to repay the car’s current fair market value.

Additional Resources

Understanding Vehicle Financing (PDF)

Understanding Vehicle Repossession (PDF)

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Posted in Legal Info | 1 Comment »

Monday, February 22nd, 2010

New Consumer Credit Card Rules Take Effect

Good news for credit card holders—the final set of provisions under the Credit Card Act of 2009 take effect today, offering some important consumer protections.

For those who use credit cards responsibly, the new laws will provide more time to pay bills and less likelihood for fees, penalties and interest rate changes. For those struggling with credit cards or facing bankruptcy, the laws may prevent fees from adding up and provide a little breathing room.

Here's a look at some of the key provisions that are now in effect:

  • Expanded Statements: Your monthly card statement will have a few new features, including broken down fees and penalties and a chart showing how long it will take to pay off the charges making only the minimum payment (and how much it will cost). Your statement will also arrive at least 21 days before the due date, a full week earlier.
  • 45 Day Notices: Your credit card issuer must give advance warning of any changes to your account, particularly interest rate changes. This will give you more time to consider the changes, negotiate with the credit card company, or, if necessary, pay off the balance and close the account.
  • No Rate Increases for 1 Year: The new law prohibits "arbitrary" rate increases for the first year you hold an account. Lawmakers hope this will curb "universal defaults", in which one card issuer raises interest rates due to late payment on a card issued by a different bank. Some actions could still trigger a rate increase, such as being more than 60 days delinquent.
  • Over-Limit Opt-in: You will only be charged over-limit fees if you agree to it. While this may seem like a blessing, it also means more transactions may be declined.

While these changes went into effect, many cardholders have seen changes to their account over the past year, since the law was introduced. Credit card companies have been preparing for the law to go into effect, and in many cases have not been acting in consumers' best interest.

Many credit card companies have been raising interest rates and introducing new annual fess (which are permitted in the new law) in order to prepare for the revenue losses that could come under the Credit CARD Act.

For more information, visit the Federal Reserve's credit card site.

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Posted in Bankruptcy and Predatory Lending, Credit and Bankruptcy | No Comments »

Saturday, February 20th, 2010

Consumer Protection Alert: Scammers Using BBB Name

The Better Business Bureau (BBB) is a private company that works to promote honesty in the marketplace so that both buyers and sellers can conduct business in a trusting environment. The various branches of the BBB assess businesses on their dependability and warn consumers about scams.

Unfortunately, according to msnbc.com, a new scam cropping up has been using the BBB’s logo to swindle people out of money. Here’s what you need to know to protect yourself and your money.

  • It starts with an email or phone call. Like many similar scams, the one using the BBB’s logo reportedly involves a scammer contacting you and indicating that you’ve won a lottery or contest.
  • It pays attention to detail. Some victims have noted that scammers used names of real BBB employees and even included in their emails links to bios on real BBB websites.
  • A check will arrive. When it does, the scammers will ask that you deposit it and wire them a certain amount of money to cover taxes or fees or some other imaginary cost associated with the imaginary contest.

If you deposit the check, it may clear, but that doesn’t mean the scam is legitimate. If you wire away money, consider it gone forever—this is a classic maneuver some scammers make.

Protect Yourself: Know the Facts

While this scam can be devastating for those who lose money, it’s entirely avoidable. The following are classic warning signs that what you’re being offered is a scam:

  • Unknown contest: If you’ve been told you’ve won something you don’t remember entering, ignore it. Hang up the phone, delete the email and walk away. Consider filing a complaint with the FTC.
  • Money wires: Any time you have to pay to collect your winnings, know that something is up. Federal law prohibits charging to join sweepstakes and any legitimate organization would take out taxes and fees before sending you a check – how do they know you’d send the money back?
  • High emotions: Many scammers rely on drumming up excitement or fear in their victims because when we’re in elevated emotional states, even the savviest among us can make poor financial decisions.

Be on the lookout for any of these signs or anything else that strikes you as off. Sources indicate that some scammers have gotten very sophisticated and use realistic-looking seals, watermarks and color printing, but remember: legitimate offers will still be good after you review them with a trustworthy source.

Be sure to check out businesses on the BBB web site. Legitimate businesses will also let you know their BBB rating. Total Bankruptcy has a BBB A+ rating, its highest rating.

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Posted in Financial Literacy | 8 Comments »

Friday, February 19th, 2010

Medical Bills: Beware of Discount Health Coverage Scams

As healthcare costs continue to skyrocket in comparison to household earnings, many Americans are looking for ways to save on medical bills. However, not every deal is worth pursuing, and the Coalition Against Insurance Fraud reports some healthcare scams currently plaguing the nation.

Background

Because health insurance in the U.S. is most commonly linked to jobs, a high rate of unemployment means higher numbers of people are going without health coverage. And, thanks to lowered income for many households, affording healthcare can be a huge stumbling block.

According to sources, some companies are apparently taking advantage of vulnerable Americans by offering discount health products, which may not be a very good bargain.

Discount Plans vs. Health Insurance

Health insurance, as many people know, works like this: you pay a certain amount of money each month (called a premium) and when you need access to medical care, you only pay a portion of the price (called a deductible) because you’ve insured yourself against doing so.

Discount plans, on the other hand, offer discounts on the normal full price of medical services. They are usually restricted to specific caregivers and specific medical facilities. After receiving consumer complaints about some discount plans, investigators reportedly found that discount plans tended to:

  • Overstate benefits: Advertisements for some plans misled consumers with claims about potential savings. For example, a plan might advertise itself as offering savings up to 60 percent, but provide a 60 percent discount on only one service.
  • Offer insufficient savings: Those with chronic health problems or who make frequent doctor’s visits may see little or no financial benefits from these plans.
  • Provide incorrect information: Some plans apparently guaranteed access to medical professionals who were no longer affiliated with the plan.

Making the Decision

If you don’t have access to or cannot afford health insurance, you may benefit from signing up for a discount plan – the important thing to do is research the plan before committing to it.

These precautionary steps to anyone considering such a plan:

  • Read everything. Look at the forms you’d be required to fill out and scrutinize the fine print. Make sure you know exactly what the plan includes – and leaves out.
  • Don’t jump the gun. Before opting out of another insurance plan, make sure the new plan you’re looking into will offer the kind of protection you need.
  • Make some calls. Ask for the list of physicians that you’d have access to and call to make sure they’re still participating.

Remember: commercials tell you only what they want you to know so do a little digging before choosing any new medical product.

Additional Resources

Medical Bills and Bankruptcy

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Posted in Financial Literacy | 2 Comments »

Tuesday, February 16th, 2010

Online Scams on Reputable Web Sites?

If you're committed to managing your finances, you likely know how to spot questionable offers. However, simply shopping at trustworthy web sites may not stop you from seeing surprise charges.

A recent press release from the office of New York Attorney General Andrew Cuomo details an online scam that seems to be shockingly widespread among big name, well respected online retailers.

According to the press release, Cuomo has subpoenaed 22 companies for information about their relationship with companies executing the scam. Here’s the deal.

The Scam: Sharing Your Card Info

The online scam reportedly works like this:

  • You make an online purchase. You buy something at one of your favorite web sites. As part of the transaction, you enter the number of either a debit or credit card.
  • You proceed to checkout. Once you’ve completed your purchase, you’re offered a promotional or discount deal for future purchases.
  • You follow a link. In order to redeem the offered "deal," you must navigate away from the web site of the company with whom you just did business.
  • Things get murky. Once you’ve clicked a link that takes you away from the initial shopping site, you don't have to enter any more information. You may only have to click an "accept" button, or do nothing at all.
  • Your bill has unexpected charges. Next time you receive your bill or statement, you may notice charges on it that you don’t recognize.

What has apparently happened during the "murky" stage is this: trusted retailers sell your card information to third party sites, which offer you a membership or subscription to something you probably don’t want.

Because you never have to re-enter your credit card details, you likely will not realize you ever signed up for anything. And the details about the terms and costs of the service or product are likely hidden in fine print on the third party website.

What's Being Done

Luckily, Cuomo’s office has taken steps to address these practices (though, according to sources, no law currently exists that prevents retailers from selling your card information to others).

The New York AG’s office reports that the following companies have been contacted for information related to this scam (though they have not been charged with anything): Barnes & Noble, Orbitz.com, Buy.com, Ticketmaster.com, MovieTickets.com, FTD.com, Shutterfly.com, 1-800Flowers.com, Avon.com, Budget, Staples.com, Priceline.com and more (see site).

Bottom line: Proceed with caution when shopping online. When in doubt, don’t click on any link, especially those offered at checkout. And if you suspect foul play, file a complaint with the FTC.

Additional Resources

Online Identity Theft: Changing the Game (PDF)

Types of Scams (PDF)

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Posted in Financial Literacy | 7 Comments »

Saturday, February 13th, 2010

Protecting Your Best Financial Interests

Part of becoming truly financially responsible and independent involves accepting responsibility for your financial situation. Not only do you have the power to improve your finances, you’re the only person who can (and will) consistently watch out for your rights as a consumer.

This point was driven home once again in this post from CreditBloggers.com, in which the author examines one aspect of banking that people probably don’t realize can cost them serious money.

Understanding Overages

Here's a look at how you could end up losing a couple thousand dollars in a few minutes (without even realizing it):

  • You go into your bank to apply for a mortgage loan. A loan officer presents some numbers to you and offers you a loan, which comes with an interest rate that is determined largely by your credit score.
  • If you’re lucky, you were offered the lowest interest rate that your credit status qualified you for.
  • If you’re unlucky (as many thousands of Americans are), you were offered an interest rate with an "overage"—an interest rate slightly higher than the best rate your credit score allowed.

Why would lenders even offer such loans? Because it can be profitable for them:

  • A higher interest rate equals a more profitable loan (because you, the borrower, pay more in interest).
  • A more profitable loan is more attractive to investors (because they can collect more money on it).
  • The bank gets a higher price for the loan, some of which goes to the loan officer as a reward.

According to the post, issuing loans with overages is fairly common, even at some large, well-established banks, which is why you must act as your own advocate when investigating significant purchases.

Protecting Yourself and Your Money

If you aren’t already monitoring your credit report, consider doing so. At the web site annualcreditreport.com, you can view a free copy of your credit report from each of the Big Three reporting bureaus once per year.

And, if you’re getting ready to apply for a mortgage, you may want to pay to view your actual credit score (visit MyFico.com). To determine what mortgage rate you’re likely to get, do some online research or speak with a financial guru you know before hitting the banks.

Additional Resources

Choosing the Mortgage that’s Right for You (PDF)

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Posted in Financial Literacy | No Comments »

Friday, February 12th, 2010

What Could You Cut in a Pinch?

With unemployment levels still high, many people are looking for ways to trim their household budgets. Dealing with a sudden loss of income can be difficult, especially if you're used to a certain lifestyle. Whether you're dealing with unemployment, recovering from filing bankruptcy or just trying to create a nest egg, where you spend your money can make a big difference.

A recent post from DarwinsFinance.com encourages readers to explore the financial cutbacks they could make if they were laid off. The author crunched numbers and found that his household could save about a thousand dollars per month.

This concept is useful for a couple of reasons. First, it gives you an idea of what kind of emergency fund you ought to have, and second, it opens the door to potential ways to start saving that money more quickly. Here’s a look at some areas where you might be able to save.

  • Television: If you currently get a lot of channels, you could drop to a package with fewer frills. If you already have a fairly minimal setup, you could call your company and indicate that you're considering canceling your television service altogether unless they can offer a lower rate.
  • Internet and phone: Downshifting to a slower online connection may work if you don't use the Internet much, and there's a good chance you could trim your cell phone package. And remember: negotiating with your provider (or trying to) is always an option.
  • Subscriptions: Whether you receive newspapers, magazines or a cheese of the month, chances are your subscription isn't a bare essential. The good news is that if your subscriptions are mostly for reading material, you can likely find much of the content online.
  • "Cheap" out food: Cups of coffee, breakfast sandwiches or lunches out may seem inexpensive (especially compared with restaurant dinners), but when purchased regularly, they add up. Packing lunch and brewing coffee are both easy to do—although, if you do lose your job, you'll probably be less likely to be tempted by on-the-go food, since you won't be at work.
  • Clubs and activities: If you have children in extracurricular activities or you yourself have an expensive gym membership (or similar), you could always cut them in a pinch.
  • Groceries: If you haven't already explored the glorious world of generic food, now is a great time to start. Many store-brand grocery items are actually produced at the same factories as the name brands—and come at a significant discount.
  • Clothing: Dry cleaning can eat up serious funds, and so can shopping too often. And if you have difficulty resisting sales (or non-sales), consider avoiding your favorite shopping spots a bit more often.

Additional Resources

Should Households Establish Emergency Funds? (PDF)

The Decline in the U.S. Personal Savings Rate (PDF)

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Posted in Financial Literacy | No Comments »

Wednesday, February 10th, 2010

The Right Time to File Bankruptcy?

A refreshing article published recently in the Kalamazoo (Mich.) News underscores the role bankruptcy plays in helping filers overcome debt and draws attention to the oft-neglected question of when is the best time to file.

The article points out that too many people try to avoid filing bankruptcy at all costs and wait until they are financially desperate to file. Unfortunately, this is not always a good plan, as it may mean that filers use up retirement accounts (which are often exempt from creditors in bankruptcy court) and set themselves back for their post-bankruptcy life.

The article provides a helpful list of warning signs that filing for bankruptcy may be a good option sooner rather than later:

  • Borrowing money to pay debts: Whether you're using one credit card to pay another, relying on payday loans or hitting up family and friends for cash, this is a bad sign.
  • Dipping into retirement funds to pay debts: Again, your qualified retirement savings will likely be safe in bankruptcy court and heavily taxed if you take it out early. And once you spend that money, it's gone.
  • Falling short of minimum payments: If you cannot make even a minimum credit card payment each month, bankruptcy may be a good option.
  • Selling your goods to pay debt: If this is a one-time thing and you're shedding appliances you can do without, you may be fine. But if you're consistently scouring the house for stuff to trade for cash, you may be in trouble.
  • Getting contacted by bill collectors: Phone calls and mailings from your creditors, especially when they start to add up, can be halted by bankruptcy's automatic stay.
  • Having your wages garnished: If creditors are going straight to your employer to collect on debt, take it as a warning sign.
  • Dealing with increased tension or stress: Money can be tough on your home life. Whether you're having trouble sleeping, fighting more or just generally stressed out, you may need a serious solution for your debt.

A New Beginning

It's important to understand that filing for bankruptcy does not mean admitting defeat or failure. Rather, it is a proactive and difficult decision you must make to save your financial future. Filing for bankruptcy can:

  • Help you save your retirement fund so that you’re not destitute or a burden on taxpayers in your golden years.
  • Give you a chance to start over financially and the knowledge you need to make better decisions in the future.
  • Stop stressful contact from creditors.

Of course everyone's financial situation is different, and this post is not meant as advice for any one situation. If your finances are at their breaking point, considering contacting a local bankruptcy attorney for an evaluation.

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Posted in Setting the Record Straight about Bankruptcy | 2 Comments »

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