Archive for February, 2011

A recent report from the New York Times highlights a troubling change in the banking industry: according to the Times, banks across the country have taken to closing branches in middle- and low-income neighborhoods even as they maintained or opened new branches in wealthier areas.

Personal finance experts of all stripes are understandably upset about the shift – fewer available banks could have disastrous consequences for the financial health of families in affected areas.

The High Cost of Being “Unbanked”

Here’s a look at some of the potential ramifications closing banks in poorer areas.

  • Increased reliance on payday lenders and check cashers: Without nearby bank branches, families in effected communities will be pushed to rely for their financial needs on so-called “predatory” lenders such as payday loan stores, cash advance outfits and check cashers. Such organizations can contribute to a cycle of poverty by charging high interest rates and fees for their services without offering clients a vehicle for saving their money.
  • Diminished saving incentives and opportunities: Without ready access to savings accounts, people living in communities without brick-and-mortar banks have a slimmer chance at reaping the benefits of opening a savings account (including earning interest on their money). In the long term, this can make financial emergencies particularly devastating, and can lead to bankruptcy filings.
  • Damaged credit and decreased ability to get loans: One thing that a savings account does is to bolster a person’s credit rating – when lenders run a credit check, they can view the status of a potential borrower’s bank accounts. Those with accounts in good standing who have a cash cushion available to them are considered better credit risks than those without any cash reserves. This can affect interest rates a borrower pays and thus determine how expensive or inexpensive a loan is.

A Look at the Numbers

So how dramatic was the shift toward closing banks in lower-income areas in the last two years? Here’s a look at the numbers, as reported in the Times:

  • More closings than openings: 2010 reportedly marked the first year in a decade and a half that more banks closed their doors in the U.S. than opened them.
  • Number of closings: In 2009, the country boasted 99,550 bank branches; last year, that number had fallen to 98,517 branches, nearly a 1,000-branch drop.
  • Number of unbanked Americans: It seems that as many as 30 million Americans rely primarily or in part on “non-traditional” financial institutions like check cashers and payday lenders – that’s about 10 percent of the country.
  • Big banks participating: While some smaller banks reportedly closed branches as part of consolidation moves to survive serious debt, it seems that Bank of America also closed 25 branches in communities with moderate income levels and opened 14 in richer places.

So why is this happening? On proposed reason is that the Community Reinvestment Act, meant to improve financial opportunities in poorer areas, is being insufficiently enforced.

Wednesday, February 23rd, 2011

Checking in on the Credit CARD Act

A recent report from the Center for Responsible Lending suggests that the reforms introduced by the Credit CARD Act of 2009 are working to improve transparency in the marketing of credit cards to consumers.

In case you need a refresher course, the Credit Card Accountability Responsibility and Disclosure Act was designed to improve transparency from banks and other credit card issuers so that consumers could navigate the world of credit with greater ease and less financial distress. Here’s a look at just how much this consumer protection legislation has changed.

  • Advertised credit card interest rates: Before the passage of the Credit CARD Act, the CRL reports, the discrepancy between the rates advertised by credit card offers and those that consumers actually paid had reached unprecedented highs. In fact, according to the report, between 2004 and 2008, the difference between promoted rates and real rates was at its greatest ever.
  • Higher advertised rates means more honesty: Since the passage of the CARD Act, it seems, credit card offers have come branded with higher (and closer to actual) advertised interest rates.
  • More transparency in pricing: According to the CRL, new rules governing the way credit cards can advertise their interest rates has led to the exposure of as much as $12.1 billion in annual fees. In other words, credit card companies are now presenting more honest pictures of how much their products cost consumers.
  • Interest rates on credit cards constant: Despite the increases in advertised interest rates, the report shows, consumers have not actually paid more in interest since the passage of the CARD Act. This suggests that, rather than increasing the cost of credit card products, the new laws simply made those costs more readily apparent to consumers.
  • Credit card offers constant: The CRL notes in its report that direct-mail offers of credit products have been extended at a volume “consistent with economic conditions,” suggesting that, while the overall total may have fallen since boom times, the drop-off can be attributed to the tight economy and not to restrictions imposed by the new law.

What Does Better Transparency Mean for You?

As a consumer, how can you expect to benefit from the changes that have been spurred by the passage of the Credit CARD Act? The CRL lists a few ways:

  • Better transparency means more competition: According to the CRL, improved transparency among credit card issuers will spur positive competition – as banks abandon the trends of hidden fees and deceptive pricing, more banks and lenders should follow suit, which should eventually translate to lower consumer costs.
  • Tighter rules do not mean less available credit: Though some critics of the CARD Act suggested that the restrictions on lending and increased disclosure requirements would mean a decrease in overall credit availability, numbers from actual research have not borne out those predictions.

Monday, February 21st, 2011

The Changing Face of Mortgage Loans

Since the start of the mortgage foreclosure crisis in 2007, the mortgage industry in the U.S. has changed significantly. And, according to a recent piece in the Wall Street Journal, one of the latest changes being noted is a push by banks for larger down payments on mortgage loans.

Here’s a look at what that might mean for potential homeowners, the housing market and the recovery of the U.S. economy.

More Money Down = Fewer People Buying Homes?

The WSJ reports on how the home-buying landscape has changed in recent years:

  • Down payments at all-time high: One online real estate information base,, has apparently been keeping track of median down payments required by lenders since 1997, and this year’s median (22 percent of the home’s value) is the highest that number has been since the tracking began.
  • Steep rise in required down payments: What’s more, sources report, that 22 percent figure marks a doubling of the median down payment required just three years ago! In other words, banks have reacted swiftly and decisively to the turmoil in the housing market.
  • Higher stakes for homeowners: It seems that the push for higher down payments has been largely driven by lenders, as a reaction to findings that homeowners with more of their money on the line (i.e. those who make larger down payments up front) are less likely to default on payments or go into foreclosure than those with less money at stake.
  • Alternative lending assistance sought: The Journal notes that, because many potential homebuyers cannot afford a 22 percent down payment, there’s been an uptick in applications for mortgage assistance programs designed to help select groups of people (including veterans).

A More Realistic Picture of Homeownership?

While owning a home has long been considered part of the “American Dream,” the real estate bubble’s devastating effects on the housing market has left some people questioning whether homeownership is in fact for everyone.

Considered from a broad perspective, tightened mortgage regulations could well be a good thing for the U.S. economy as a whole: with lending practices that require more fiscally conservative borrowing and spending, the housing market will have less of a chance to spiral out of control and create another boom-and-bust cycle like the one we’re currently digging out of.

Worried about Your Mortgage?

If you’re currently saddled with an unaffordable mortgage (or one that’s gotten out of your reach because of job loss or reduction), you may be able to benefit from the foreclosure-prevention power of Chapter 13 bankruptcy, which may allow you to catch up on your mortgage payments or sort out your living arrangements without the pressure of creditors breathing down your neck.

A new report from Javelin Strategy & Research uncovers some potentially troubling numbers about the changing face of identity theft. Here’s a look at the report’s findings and some reminders about what you can do to protect yourself, your identity, and your credit.

  • In total, fewer people were victimized by identity theft in 2010: The number of identity theft cases dropped by a reported 28 percent from 2009 to last year - reports in 2010 dipped to the 2007 level. Additionally, it seems the average dollar amount of fraud committed by identity thieves dropped slightly (from $4,991 in 2009 to $4,607 last year). The group speculates that a decrease in corporate data breaches can be credited with the per-case drop-off.
  • More expensive fraud for individuals: While the total number of identity theft cases decreased last year, the cost of such incidents for victims rose. In fact, Javelin reports that the jump was large – 63 percent – up to $631 from $387 in 2009. This suggests that the types of identity theft being favored now are those that cost victims more (in the form of covering fraudulent debts, paying legal fees, etc.).
  • New account fraud most popular: The report shows that new account fraud, one of the most difficult types of identity theft to detect, accounted for a whopping $17 billion last year, the largest amount in any category. New account fraud occurs when the thief opens a new bank or credit account with the victim’s identifying information; the other type of fraud, existing account fraud, dropped in popularity last year, to $13 billion dollars’ worth, from $23 billion a year before.
  • There’s a better chance you know the thief: It seems that in 2010, there was a seven percent increase in fraud perpetrated by thieves who knew their victims (including family members, friends and roommates). The report notes that those ages 25 to 34 are most likely to be victimized by this type of fraud.
  • Sign of the times: The Javelin report suggests that, because identity theft crimes have changed in direct opposition to changing retail sales, the increase in identity theft could well be an indicator of economic hardship.

How Bad Can Identity Theft Be?

If you aren’t convinced by these numbers that identity theft can be a pain in the neck (and in the wallet). A story from ABC News detailed the saga of a man who battled for 17 years against an identity thief living across the country.

The victim found himself responsible for debts he never took on and even ended up in jail for a crime he didn’t commit. If that’s not reason enough to take steps to protect your sensitive information, consider this: despite federal protections, some bankruptcy filers still cite identity theft as one of the factors that pushes them to the bankruptcy court in the first place.

Tuesday, February 15th, 2011

A Look at Consumer Debt Where You Live

Though the U.S. economy is certainly not in top health just yet, a number of indicators suggest that we may be pulling out of this recession – but that may be a mixed blessing for many consumers.

Two recent reports (one from the Federal Reserve and one from CareOne Services) suggest that Americans have started spending more, which may be good for the economy overall, but could be a bad thing for individual debt loads.

Consumer Debt, State by State

The CareOne Services report examined 135,000 people across the country who were active in some sort of debt management program in 2009 or 2010 and found that, among that group, the average debt load was more than $10,000 in every state.

Here’s a look at the top of the heap for unsecured debt in the U.S.:

  • Delaware: Average consumer debt is $20,233, spread over seven creditors.
  • Rhode Island: Average consumer debt is $20,130, spread over seven creditors.
  • Maine: Average consumer debt is $19,454, spread over six creditors.
  • Alaska: Average consumer debt is $19,225, spread over six creditors.
  • Colorado: Average consumer debt is $18,811, spread over six creditors.
  • South Dakota: Average consumer debt is $18,707, spread over seven creditors.
  • North Carolina: Average consumer debt is $18,536, spread over six creditors.
  • Connecticut: Average consumer debt is $17,334, spread over six creditors.
  • Wisconsin: Average consumer debt is $16,903, spread over five creditors.
  • Alabama: Average consumer debt is $16,591, spread over seven creditors.

The ten states that had the lowest debt totals for those seeking debt settlement or debt management services are:

  • California: Average consumer debt is $12,801, to five creditors.
  • Michigan: Average consumer debt is $13,328, to five creditors.
  • Mississippi: Average consumer debt is $13,512, to six creditors.
  • Vermont: Average consumer debt is $13,707, to five creditors.
  • Missouri: Average consumer debt is $13,737, to six creditors.
  • Indiana: Average consumer debt is $13,945, to five creditors.
  • Kentucky: Average consumer debt is $14,028, to six creditors.
  • Iowa: Average consumer debt is $14,099, to five creditors.
  • Virginia: Average consumer debt is $14,194, to five creditors.
  • Tennessee: Average consumer debt is $14,222, to six creditors.

Increased Spending, Increased Debt, Increasing Need for Debt Relief?

During the holiday season, many economists seemed cheered by the increases in consumer spending, but personal finance advocates may find the same numbers troubling. The Fed’s report shows that our nation’s revolving debt (which basically means credit card debt) rose by 3.5 percent in December of last year.

Further, though our total amount of revolving debt apparently dropped in 2010, it dropped by a smaller amount than in 2009. This could mean that people are optimistic about the job market and the economy in general, but it could also mean they’re turning to their credit cards for necessities they can no longer afford thanks to rising prices or decreased income - and risk taking on more debt than they can handle and heading towards bankruptcy.

Wednesday, February 9th, 2011

The Latest on the Foreclosure Crisis

Since the housing boom of the early 2000s, the housing picture in the U.S. has changed dramatically, as anyone struggling to make mortgage payments each month already knows. But exactly what is the state of mortgages and foreclosures right now in the country? Here’s a look at some indicators that say a lot.

Lowest Homeownership Rate In More than a Decade

Recent data released by the Census Bureau show that home ownership in the United States has dipped to its lowest level since 1998:

  • In the fourth quarter of 2010, 66.5 percent of Americans reported owning their own home.
  • In 2009, 67.2 percent of the nation claimed homeowner status; the drop reflects the continued effects of the recession on income and ability to make mortgage payments.
  • At its peak in 2004, as many as 69.2 percent of Americans reported owning a home.

Just as subprime loans were found to disproportionately affect non-white home buyers, it seems that foreclosure rates are currently higher among that segment of the population: in 2007, the number of African Americans that owned a home was reported at 48 percent; a year later, the number had already fallen to 44.8 percent. Similarly, among Hispanic families, 50 percent reported homeownership in 2007, but only 46.8 percent did in the last quarter of 2010.

Perhaps the most troubling aspect of these numbers is their apparent explanation: while the first wave of foreclosures resulted largely from the resetting of subprime loans, this wave seems to be more a result of long-term job loss hindering homeowners’ ability to make their (otherwise affordable) mortgage payments.

Homeowners on their Own to Fight Foreclosure?

In a related story, The New York Times recently reported that, more and more, Americans are having to fight the foreclosure of their homes without legal representation or outside help. According to the article, areas of the country with high foreclosure rates are holding how-to workshops for individuals and couples interested in contesting foreclosure in the courts.

New reports apparently show that foreclosure is shifting its face in the court system: what was once a process that involved mostly paperwork now, it seems, involves more and more people actually visiting the court to make their case for keeping their homes.

How Can I Fight Foreclosure?

Whether you’re struggling from job loss, job reduction or an unaffordable mortgage loan, you may be able to fight foreclosure with the help of a Chapter 13 bankruptcy filing. Thanks to its three- to five-year repayment plan, Chapter 13 helps many homeowners catch up on their mortgage payments by rearranging the amount and type of debt they’re responsible for paying each month.

With Valentine’s Day around the corner, many Americans are likely thinking about ways to treat their loved ones, or considering their options for meeting a romantic partner. And in the age of online dating and connections, the Federal Trade Commission has issued a guide for keeping your personal information (and money) safe from identity thieves while you enjoy all Cupid has to offer.

Here’s a look at some of the FTC’s Valentine-specific warnings.

Know the Warning Signs for Valentine’s Day Scams

  • Online dating & social networking: Online venues for meeting and interacting with people have ballooned in popularity in the last several years, but that doesn’t mean they’re always safe. The FTC suggests proceeding with caution when engaging in any sort of online relationship, especially if you notice any of these identity theft warning signs. The important thing to keep in mind is not to let your guard down even if you’re feeling particularly sentimental around the holiday.
  • Flower delivery scams: Another warning the FTC has issued concerns flower delivery services – obviously a classic choice for February 14th. According to the FTC, some flower delivery scams involve telemarketers offering their services over the phone for more money than a local florist’s shop would charge. Naturally, that’s not a good deal for anyone. If you’re thinking of sending blossoms to a loved one this year, make sure you know you’re working with a legitimate company and paying a fair price.
  • Financial habit compatibility: While financial matters may not seem like the most romantic topic to broach during a Valentine’s dinner, they are important to any serious relationship. Luckily, the FTC offers a fiscal compatibility quiz for partners interested in seeing how their spending, saving and budgeting habits match up. (Hint: offering to do this quiz together for a Valentine’s Day date might not go over well if it’s the most romantic thing you’ve got planned.)
  • Magazine subscription and renewal scams: Thinking of giving a gift that your valentine can enjoy all year long? Be careful if you choose a magazine subscription, because some scammers have begun sending phony renewal notices to subscribers in hopes of tricking these people into sending checks they think are to maintain their subscriptions. Instead, visit the web site of the magazine you want to share with your loved one and make sure that web site is a secure place to enter any financial information.

The Relationship between Love & Money

Americans tend to think of love and money as unrelated subjects, but any serious relationship demands a consideration of financial matters from both partners. After all, the stress of debt problems can wreak havoc on a relationship, so show your partner you care by putting financial matters on the table this Valentine’s Day!

Wednesday, February 2nd, 2011

Spend Smarter to Save Time & Money

As anyone recovering from bankruptcy, trying to eliminate debt or otherwise reshaping their finances knows, shopping and buying new things can be a source of stress – after all, we all need stuff now and then (whether it's a new part for a car, a new refrigerator or new shoes for our kids). But we shouldn’t have to worry that our purchase will turn into a nightmare if something goes wrong.

A recent post from outlines what it calls a “Customer Bill of Rights,” which offers suggestions for what ordinary consumers should look for in their purchasing to make sure they won’t be scammed or led into a labyrinth of red tape should something malfunction.

Know What to Look for in a Company

Here’s a summary of how to better navigate your spending and buying experiences.

  • Look for contact information. If a company doesn’t readily display contact information (with email addresses or phone numbers on a web site and actual representatives in a store), you may not want to shop there. After all, if you can’t easily communicate with the company, you’ll probably be in for some serious headaches if you want to ask about a return or repair policy down the road. Before you spend your money, make sure you know how to ask the vendor questions.
  • Know your timeframe. If the first person you speak with can’t help you resolve a problem, ask for a manager. It’s easy during customer service calls to get frustrated and give up, but remember that you spent your money on this company’s product, and you need help with it. Customer service reps shouldn’t act like this is a burden; if they do, you’ve learned one company not to buy from in the future.
  • Know the policies and ask about changes. Return and warranty policies change frequently at some retailers. Be sure to read such policies and ask how a company handles changes: if, for example, you buy something and the policy changes before you need it fixed, what will your options be?
  • Be wary about warranties. Many stores offer expensive warranty deals that are not worth your money. Instead, consider looking at online warranty vendors (like or simply setting aside a fund for all your appliances – that way, you have somewhere to draw money from if you need repairs.
  • Do some homework. In an ideal world, we wouldn’t have to worry about whether a retailer would treat us respectfully if we needed to make a return, but in the real world some vendors have better reputations than others. A quick online search should yield lists of companies that have high and low ratings for their customer service. You can also look at forums where customers chat about their experiences.