Friday, October 2nd, 2009

Bank of America Trims Overdraft Fees

In late September, Bank of America announced in a press release that it has modified its policy for charging what it calls overdraft fees, but what some critics classify as abusive overdraft loans.

In some cases, "overdraft fees" and other credit card fees and practices cause some people to file bankruptcy.

What are Abusive Overdraft Loans?

In the era of debit card usage, it’s far too easy to spend more money than we have. And most banks allow customers to make transactions even if they don’t have sufficient funds in their accounts – but each such transaction results in a fee.

The so-called fee is, essentially, a super-short term loan: the bank covers your purchase and you repay the amount plus $25 – $35. This may not sound like much, but if you make several over-limit purchases in a day, it can add up.

Bank of America’s New Policy

Earlier this year, BoA introduced fee increases, but apparently changed their plans in light of the negative publicity credit cards have received recently (Credit Cardholders’ Bill of Rights, anyone?).

Here’s a summary of what the new BoA policies will look like beginning October 19th:

For overdrafts totaling less than $10 in a single day, Bank of America will not charge any overdraft fee, as long as the account is settled within five days. (A $35 fee will be levied if the account remains unbalanced after that period.)
The bank will set a limit of four overdraft charges in a single day. (This is a change from the policies introduced earlier, which raised the cap to ten.)
BoA will also modify the opt-out process so consumers can choose not to have “overdraft protection” on their accounts. For the time being, you may have to go to a physical bank location to do this, though the bank is reportedly setting up a phone service.
BoA will outline fees and charges in what it calls “Clarity Commitment” – apparently this will provide a plain-language explanation of their overdraft system.

Protecting Yourself from Abusive Overdraft Loans

If you aren’t sure whether or not your bank offers overdraft protection, be sure to find out. In most cases, opting out of such programs is a good idea. By eliminating the service, you will likely be denied when you try to make a purchase or withdrawal from your account when you have insufficient funds.

For most consumers, the temporary embarrassment is a better bargain than the permanent fees.

Additional Resources

Summary: Credit CARD Act of 2009 (PDF)

Study: Overdraft Protection Programs: The Emerging Battleground for Bankers and Consumer Advocates (PDF)

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Tags: bank fees, bank of america, BoA, overdraft fees
Posted in Credit and Bankruptcy | 2 Comments »

Friday, October 2nd, 2009

New Restrictions from the Fed Limit Credit Card Companies

In a press release September 29th, the Federal Reserve introduced rules for implementing the Credit CARD Act of 2009. Specifically, the rules provide strategies for credit card issuers to follow in order to comply with the terms of the Credit Cardholders’ Bill of Rights, which was enacted earlier this year and takes full effect in 2010.

The rules outline appropriate actions for the following areas.

Proof of Income at Application

Currently, most credit card issuers do not require applicants to provide proof of income when they apply for cards. But the Credit CARD Act calls for proof that applicants will be able to make timely payments, so the Fed’s new rules require potential cardholders to show:

Income from salary, wages, bonuses, part-time work, military work, self-employment, tips, commissions and seasonal/irregular jobs
Income from investment dividends, interest, retirement benefits, public assistance, child support, alimony and other types of maintenance
Savings accounts and/or investments
Credit reports and/or credit scores

These rules address problems in the credit card industry that also manifested themselves in the subprime mortgage lending industry during the real estate boom that peaked in 2007.

Restrictions on Younger Applicants

Because credit card debt for college students has gotten attention as it has increased in recent years (the average 2008 graduate owed $3,173, according to Sallie Mae), the Fed’s proposed regulations address this issue as well.

Specifically, the Federal Reserve’s guidelines indicate that:

Credit card companies cannot lure college students with free items in exchange for filling out an application within 1,000 feet of a college campus.
Card issuers can still offer free items to college students, but they may not make receipt of these items contingent upon filling out an application.
Potential cardholders younger than 21 must provide proof of income or have a cosigner on their application. According to the Fed’s rules, the cosigner can be anyone 21 or older (broadened from the Credit CARD Act’s specification that this person must be a parent or guardian).

When It All Happens

The first changes from the new law took effect on August 20.
On February 22, 2010, most major elements of the law (including regulations on rate hikes and younger applicants) will take effect.
In August 2010, the remainder of the provisions will become effective.

If you're struggling with credit card debt, bankruptcy may be one way to eliminate excessive financial burden. Consider talking with a local attorney about your options, including filing bankruptcy.

Additional Resources

Federal Reserve’s Proposed Rules for Implementation of the Credit CARD Act of 2009 (PDF)

Sallie Mae Study: How Undergraduate Students Use Credit Cards (PDF)

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Tags: credit, credit cards, federal laws
Posted in Credit and Bankruptcy | 6 Comments »

Thursday, September 24th, 2009

Does Your Address Affect Your Credit Limit?

A recent report from msnbc.com suggests that your state of residence could affect your borrowing capability. A California man reportedly received a letter in the mail from one of his creditors informing him that his credit limit had been cut – simply because he lived in California

Since the economic crisis began more than a year ago, Americans have seen their credit limits slashed for a variety of reasons – a company’s economic distress, job loss, late payments, filing bankruptcy – but basing limit cuts on where someone lives seems unnecessary.

How It Happens

If you’re like the man in the article, you’ll receive a letter from your creditor informing you that your limit has been lowered. A call to a customer service representative may reveal the reasons why. But there may be no warning signs.

Generally, creditors cut limits for a variety of reasons:

Missed or late payments: If you have a history of not getting payments in on time, your card issuer may limit your ability to charge.
Universal default: If you default on another (unrelated) line of credit, some card issuers may see this as a warning sign and cut your limit. (New credit laws will end this practice in February, 2010)
Approaching your limit: Ironically, if you begin to approach your credit limit, you may be viewed as a riskier consumer and therefore have your limit cut.
Your credit score: If your credit report or score reflects risky behavior (missed payments, increased interest rates, other lowered limits), card issuers may cut your limit.
Financial struggles: As the recent economic situation has illustrated, your limit may be cut simply because your card issuer wants to cut its risk.

The recently introduced Credit Cardholders’ Bill of Rights may end some kinds of credit limit lowering, but most of the provisions of that law won’t take effect until 2010.

Is My State at Risk?

To know whether or not to be on the lookout for residence-based credit limit changes, you may want to check out the findings of the Corporation for Enterprise Development, which recently released economic data on all fifty states.

The group’s website includes an interactive map that allows you to view economic indicators for your states and compare it to other states to get an idea of where you fall in the national rankings.

The Lesson: Read Your Mail

Whenever you get mail from a credit card issuer, be sure to read it carefully – it could have important information about your credit future or cause you to file bankruptcy!

Additional Resources

Credit Cardholders' Bill of Rights (Summary) (PDF)

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Tags: credit, credit card debt, credit limit
Posted in Credit and Bankruptcy | No Comments »

Sunday, September 6th, 2009

Back to Basics with the AmEx Charge Card

We’ve seen the old is new again trend in fashion, hair styles—even the VW bug made a comeback. So I guess no one should be surprised that American Express is making a bold push for its “new” charge card.

The Original Charge Card

Ever wondered where the idea of credit cards came from?

As the legend goes, a businessman named Frank McNamara took some clients out for a fancy dinner in 1949. At the end of the meal, he realized—to his great embarrassment—that he hadn’t brought enough cash to cover the check.

And so plastic cards were born.

Charge Card Vs. Credit Card

Though the terms are occasionally used interchangeably, charge cards and credit cards are actually two different things.

A credit card is a source of revolving credit, meaning that you pay for purchases over time and accrue interest on whatever balance you leave unpaid. You have the option of purchasing well beyond your current means and making payments gradually.
A charge card essentially allows you to take out very short-term loans, usually for a month. At the end of each month, you must pay your balance in full. Should you fail to pay in full, you could be heavily fined or have your card canceled.

In other words, charge cards put significant pressure on users to purchase only within their means, where credit cards do not.

American Express’ New Advertisements

Though charge cards have been around for decades, they’ve fallen out of popularity with the rise of credit cards. But now, what with financial responsibility all the rage, American Express has launched a new ad campaign touting the benefits of its charge card.

The ads, apparently already showing up in newspapers, encourage users to spend responsibly. They further suggest to Americans: Don’t take chances. Take charge.

Can Charge Cards Help You?

If you’re trying to build or rebuild your credit (after filing bankruptcy, for instance), charge cards have certain benefits:

You can’t spend more than you can repay
You’re forced to pay in full each month, which can help with budgeting
If you adhere to the rules, you won’t be charged interest
Positive payment action can help improve your credit

In short, charge cards may work well for you, but remember that American Express isn’t the only company that offers them. As with any major decision, be sure to research a variety of charge cards before signing up for one.

Additional Resources

Types of Credit and Charge Cards (PDF)

Federal Reserve Bank of San Francisco’s Brochure Credit and Charge Cards (PDF)

If you have problems with credit card debt, consider talking to a local attorney about bankruptcy.

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Tags: charge cards, credit, credit cards
Posted in Credit and Bankruptcy | 2 Comments »

Monday, August 10th, 2009

Reclaim Your Credit: What to Do When Your Credit Shrinks

As you may already know, credit card companies are responding to the recent passage of the Credit Cardholders’ Bill of Rights by slashing limits, raising interest rates and even closing cards for many customers.

Here’s what you can do if one of your card issuers gives your account the ax (or even the pruning shears).

Ask the Right Questions on the Phone

The most important thing to remember is that you don’t have to take changes to your credit lying down.

As soon as you notice altered terms on one of your cards, take action:

Do your homework. Before calling the credit card company, make sure you know as much as you can about your account: how long it’s been active, your former and current limits, your former and current interest rates, your balance. You’ll be better able to negotiate when you prove yourself knowledgeable about your circumstances.
Look outside the box for solutions. Be sure to visit www.annualcreditreport.com to get a copy of your credit report before calling. Inaccuracies on your report could lead to changes in your credit card terms and other problems. Take steps to correct any mistakes you find.
Get an explanation. When you call your card issuer, ask for the reasons your account was altered. Common reasons include account inactivity, increased credit risk or diminished profitability – regardless, you have a right to know why your terms have changed.
Show off what you know. Here’s where all your work will come into play: if you’re in good standing with the company, emphasize that and your other positive credit action (as displayed on your credit report).
Bargain. If your issuer is willing to raise your limit OR lower your interest rate, be ready to accept the compromise. A lower interest rate will likely be best for those who carry a balance; a higher limit may work well for those who pay in full each month.
Push it a little. If the representative you’re speaking with won’t budge, ask to talk to a supervisor – as long as you have a reasonable case to support your request.

A bankruptcy attorney may help advise you in your credit situation.

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Tags: credit, credit card, Credit Cardholders Bill of Rights Act
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Monday, June 29th, 2009

Got Credit? Is Your Credit Card Limit Going to be Cut?

Many credit card companies are cutting credit limits for many borrowers, according to a recent BusinessWeek.com article.

For many Americans, access to credit could decrease even more at a time when credit is already notoriously tight.

The reason? They're reacting to increased unemployment rates and card defaults. Too many people are missing their payments.

Even if you've made all of your payments on time, you may still see your spending limit cut.

Why Credit Reductions Traditionally Happen

Traditionally, credit card issuers have reduced customers’ borrowing limits for one of the following reasons:

Bouncing checks: When done consistently, this shows carelessness and suggests a borrower may not have enough money to make regular credit card payments.
Making late payments: Though such payments may earn card issuers extra money in the form of late fees, late payments are dangerous if they become too late… that is, if they never arrive.
Collecting unemployment: Unfortunately, job loss generally signals income loss. Though layoffs in this economy are often beyond an employee’s control, they may still push card issuers to limit borrowing ability.
Taking cash advances: Besides being a terrible way to borrow money, cash advances (often in the form of payday loans) can signal to your card issuer that you’re in over your head financially.
Living in the "wrong" neighborhood: Unfair as it may seem, your address may trigger a limit cut. If property values near you are falling, your credit card company may decide to slash your spending power.

Why More Credit Reductions Are Happening Now

Thanks to the unstable credit market, some people are seeing their limits cut for other reasons as well, including:

Defaulting on another card: Universal default is the phenomenon that allows your action on one account to affect all your other accounts. In this case, a late payment on one card may cause your limit to be cut on another.
Not using your card: Inactive or hardly active accounts seem to be getting hit by limit decreases, even when borrowers are in good standing.
Running a low balance: Though this has traditionally been a positive move for credit building, sources report that these accounts have seen some cuts as well.

Why It Matters

Part of your credit health (as quantified in your FICO credit score) is determined by your debt-to-credit ratio.

In other words, a comparison of how much money you’re currently borrowing (debt) to how much you could borrow (credit).

Staying well under your limits is one way to strengthen your credit.

What to Do if Your Credit Limit Has Been Cut

First, be sure to read all mailings from your card issuer carefully.

If you receive a notice that your limit has been cut, don’t accept it without a fight.

Call and question your card issuer, particularly if you believe your account is in good standing and doesn’t merit such an action.

--Was your credit limit cut because you were slipping behind on the bills? Learn about the filing bankruptcy option.

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Tags: credit card, credit card companies, credit card limit, credit limit, credit limit cut, credit reductions
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Thursday, May 28th, 2009

Save Money on Your Credit Card Bills With Your Phone

Financially speaking, being “average” in this country means hefting around a fair amount of debt.

According to some sources, the average American household has $8,000 in credit card debt alone. And some experts warn that that figure might be misleading because many people carry no debt on their plastic, meaning that those with any debt at all may have significantly more than $8,000.

Luckily, there may be one way to save money you haven’t tried yet – and it won’t cause any serious sacrifice on your part – it won’t even require you to leave your house.

Step 1: Do a Little Digging

You’ve probably received credit card offers in the mail that offer temporary 0 percent interest rates on transfer balances or other attractive terms. Card issuers advertise in this way to encourage those carrying a balance on current credit cards to switch to their card.

Often, these offers are not as attractive as they initially seem, so actually transferring your funds may not be a good idea. But, if you can find an offer like this one, either online or in your mailbox, you could use it as a bargaining tool with your current credit card to get lower rates now.

Step 2: Dial Your Credit Card Company

Yes, we know: voluntarily contacting your creditors may sound about as appealing as eating a box of cigars. But consider this: a relatively brief phone call could save you serious money if you’re carrying a balance on your credit cards.

Before making the call, though, consider the following:

Are you current on payments? If you’ve missed or been late on several payments, your creditors may not be willing to work with you. Consider stepping up your payment efforts for a few months and then proceeding.

Do you know your current interest rates? It’s important to know exactly what your current situation is so you know what would, and what would not, be realistic to ask for. You can find this information on your latest bill.

How much money are you looking to save? If you’re currently paying 19 percent interest on a card, figure out how much you’d save if you were paying 15 percent interest, 10 percent interest, etc. If one card company is particularly difficult to deal with, you can write them off and move on to a card where you stand to save more cash.

What other offers are out there? Drop the names of other card companies and offers you’ve found. A threat to transfer your balances will seem more real if you can provide specifics.

Are you considering bankruptcy? If bankruptcy is a real option for you because of your current debts, be sure to mention this to your card issuer. The company will likely benefit more from cutting your interest rate than from having you discharge your debts by filing bankruptcy.

Step 3: Just Ask

When you’re on the phone, simply ask for a interest rate on your credit card – it’s that easy. The worst that could happen is that your interest rates will remain the same and you’ll pay what you were prepared to pay before you made the call.

And, in a best-case scenario, you could save yourself hundreds of dollars in interest payments! So go get your phone and see if you can cut your credit card bills.

How to Save Money from Your Phone

Financially speaking, being “average” in this country means hefting around a fair amount of debt. According to some sources, the average American household has $8,000 in credit card debt alone. And some experts warn that that figure might be misleading because many people carry no debt on their plastic, meaning that those with any debt at all may have significantly more than $8,000.

Luckily, there may be one way to save money you haven’t tried yet – and it won’t cause any serious sacrifice on your part – it won’t even require you to leave your house.

Step 1: Do a Little Digging

You’ve probably received credit card offers in the mail that offer temporary 0 percent interest rates on transfer balances or other attractive terms. Card issuers advertise in this way to encourage those carrying a balance on current credit cards to switch to their card.

Often, these offers are not as attractive as they initially seem, so actually transferring your funds may not be a good idea. But, if you can find an offer like this one, either online or in your mailbox, you could use it as a bargaining tool with your current credit card to get lower rates now.

Step 2: Dial Your Credit Card Company

Yes, we know: voluntarily contacting your creditors may sound about as appealing as eating a box of cigars. But consider this: a relatively brief phone call could save you serious money if you’re carrying a balance on your credit cards.

Before making the call, though, consider the following:

Are you current on payments? If you’ve missed or been late on several payments, your creditors may not be willing to work with you. Consider stepping up your payment efforts for a few months and then proceeding.

Do you know your current interest rates? It’s important to know exactly what your current situation is so you know what would, and what would not, be realistic to ask for. You can find this information on your latest bill.

How much money are you looking to save? If you’re currently paying 19 percent interest on a card, figure out how much you’d save if you were paying 15 percent interest, 10 percent interest, etc. If one card company is particularly difficult to deal with, you can write them off and move on to a card where you stand to save more cash.

What other offers are out there? Drop the names of other card companies and offers you’ve found. A threat to transfer your balances will seem more real if you can provide specifics.

Are you considering bankruptcy? If bankruptcy is a real option for you because of your current debts, be sure to mention this to your card issuer. The company will likely benefit more from cutting your interest rate than from having you discharge your debts in a bankruptcy filing.

Step 3: Just Ask

When you’re on the phone, simply ask for a lower interest rate on your credit card – it’s that easy. The worst that could happen is that your interest rates will remain the same and you’ll pay what you were prepared to pay before you made the call.

And, in a best-case scenario, you could save yourself hundreds of dollars in interest payments! So go get your phone and see if you can cut your credit card bills.

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Tags: consumer debt, credit card debt, credit cards
Posted in Credit and Bankruptcy | 1 Comment »

Tuesday, May 26th, 2009

New Credit Card Law Just Passed ~ Why It Matters to You

President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act of 2009 on May 22, a sort of “Bill of Rights” for credit cardholders that’s been in the works for some time.

Keeping with his campaign-style messages of individual responsibility, Obama reportedly called on both consumers and credit card issuers to act responsibly and fairly with credit.

In earlier posts about this bill, we outlined some of its potential benefits and drawbacks. Here’s what the final form of the law does.

Prohibits Unfair Changes in Interest Rates & Modifications, including:

Universal default on existing balances and arbitrary increases to interest rates
No interest rate increases without periodic reviews of a borrower’s status and decreases to the interest rate if shown necessary by the review
Interest rate increases in the first year of a card’s activation
Introductory rates and terms that last less than six months.

Prohibits Unnecessary and Excessive Fees, specifically:

Fees for certain electronic and digital payments
Over-limit fees for transactions not okayed by the cardholder
Penalty fees that are unreasonable or disproportionate to the offense
General excessive fees and penalties on low-limit, high-interest cards

Demands Fairness in Timing & Application of Card Payments, specifically:

Payments over the minimum must be applied first to balances with highest interest rate
Early morning payment deadlines are banned
Bills must be sent 21, rather than 14 days prior to their due date

Protects the Interests of Responsible Credit Users by:

Prohibiting double-cycle billing
Prohibiting late fees for billing postponed by the card issuer
Demanding same-day credits for payments posted at local branches
Requiring that card issuers consider a borrower’s capability to pay before issuing a card

Requires Improved Disclosures on Card Terms & Conditions, specifically:

45-day notice requirement for fee and interest increases
Issuer-provided notices to borrowers upon card renewal of any modification to terms
Issuer-provided estimate of length of repayment period if only minimum payments are made
Full late-fee disclosure in each bill.

Increases Oversight of the Credit Card Industry by:

Requiring issuers to post terms & agreements on the web and distribute a copy to the Federal Reserve Board to post as well
Requiring the Federal Reserve Board to review the current state of consumer credit
Requiring the FTC to prohibit advertising “free” credit reports other than those available at www.annualcreditreport.com

Improves Protections for Young Cardholders by:

Requiring parents or guardians to effectively cosign card agreements for those under 21
Limiting pre-approved card offers to young people
Restricting interest increases for young people’s cards unless adult cosigner approves the increase
Improving student protection against cards marketed at universities.

The Other Consumer Protections

The new credit card law also includes protections for small businesses, rules about gift cards and provisions for promoting financial literacy.

If you're struggling with credit card debt, consider filing bankruptcy.

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Tags: chapter 7 bankruptcy, credit card, credit card law
Posted in Credit and Bankruptcy | 2 Comments »

Tuesday, May 26th, 2009

Credit Card Borrowing Is Down – Are You Getting the Benefits?

Americans cut back on our credit card borrowing in February by $7.5 billion dollars, which was apparently more than the money mavens on Wall Street expected, according to a recent Wall Street Journal.

February’s decline marked the fourth in the last sixth months, which could mean either we’re collectively tightening our belts (yay!) or we’re just having trouble getting people to lend us money (boo!).

You May Benefit from Lowered Borrowing

If you’re one of Americans contributing to the decrease in credit card use, your credit rating may improve because of it.

But, according to a study done by the U.S. Public Interest Research Group (PIRG) in 2004, as many as 25 percent of Americans have serious mistakes on their credit reports.

How can credit report errors hurt me? Incorrect information on your credit report could affect your ability to borrow.
What type of borrowing can be hurt? Serious errors cause your credit score to fluctuate from 20 – 100 points, which could mean higher interest rates on loans. Over the life of a loan, this could translate to your thousands of extra dollars to borrow money.
How do I know if my report has mistakes? There’s only one way to find out, but luckily it’s free and easy: visit www.annualcreditreport.com and take a look at your credit report. You can view one free report each year from each of the Big Three bureaus.
How do I fix the mistakes? You need to contact the reporting bureau in writing about the mistakes you find. For more information about submitting consumer complaints, check out the FTC’s Web site.

High Credit Card Debt? Take Control of Your Finances

You know you’re the only one who can improve your financial situation.

It’s encouraging to see that we might be borrowing less on credit cards as a nation, but make sure you’re reaping the benefits of any financial steps you take.

But if you' ve tried everything and are still struggling, it may be time to consider filing bankruptcy.

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Tags: bankruptcy, credit card, credit card debt, credit cards
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Thursday, May 21st, 2009

The Impact of the New Credit Card Regulations

Earlier this week we reported on the new credit card regulations passed by the Senate that could be signed in to law as early as Memorial Day. This is good news for consumers tired of seeing their rates jacked for no reason and with no notice.

Many banks and credit card companies cried and complained, saying they needed to be able to change rates at will to stay profitable. Abusing your customers is no way to make money, and it seems Mark Gimein over at The Big Money agrees.

He's got a nice read today about why credit companies should take better care of their customers.

For a single bank to raise rates to a sky-high level is a dangerous strategy. When many banks adopt it, however, it gets much worse. Customers who see the rates on all of their credit cards rise become much less able to pay any of them.

We see it all the time: A temporary financial setback can be severely compounded by fees and fines.

Fortunately, the credit companies will have to change their ways.

And for anyone facing the fees and fines, there are other debt relief options available, such as filing bankruptcy.

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Tags: credit, credit card debt
Posted in Credit and Bankruptcy | 1 Comment »

Archive for the ‘Credit and Bankruptcy’ Category

What are Abusive Overdraft Loans?

Bank of America’s New Policy

Protecting Yourself from Abusive Overdraft Loans

Additional Resources

Proof of Income at Application

Restrictions on Younger Applicants

When It All Happens

Additional Resources

How It Happens

Is My State at Risk?

The Lesson: Read Your Mail

Additional Resources

The Original Charge Card

Charge Card Vs. Credit Card

American Express’ New Advertisements

Can Charge Cards Help You?

Additional Resources

Ask the Right Questions on the Phone

Why Credit Reductions Traditionally Happen

Why More Credit Reductions Are Happening Now

Why It Matters

What to Do if Your Credit Limit Has Been Cut

Step 1: Do a Little Digging

Step 2: Dial Your Credit Card Company

Step 3: Just Ask

How to Save Money from Your Phone

Step 1: Do a Little Digging

Step 2: Dial Your Credit Card Company

Step 3: Just Ask

The Other Consumer Protections

You May Benefit from Lowered Borrowing

High Credit Card Debt? Take Control of Your Finances

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