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Thursday, November 12th, 2009

Federal Reserve Sets Limits for Debit Card Fees

Debit card users will have to opt-in to overdraft fees for ATM withdrawals and one-time purchases, according to a new set of ruled unveiled by the Federal Reserve Board.

The measures, which will take effect July 1, 2010, are part of a series of decision issued by the nation's central bank to limit abusive practices by banks announced over the past year.

Authorizing Fees

Under the new rules, all debit card holders must be given notice of the bank's policies, including those on overdraft fees, in plain language. Cardholders can sign up to be charged fees or not, and banks cannot change the terms of service afterward.

Banks will still be allowed to charge overdraft fees for recurring debt card purchases, such as recurring utility bills that are automatically charged, as well as on bounced checks.

The measure is mainly aimed at one-time debit card purchases or ATM withdrawals that can often result in fees greater than the purchase amount.

Protecting Consumers

"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke in a press release. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Declining Transactions?

Of course, those who overdraw their bank accounts won't be given free money by their banks.

Overdraft protection allows banking customers to make payments even when their funds are limited, and are charged a fee for the convenience.

Those who opt-out of overdraft protection may instead see their transactions declined if they attempt debit card purchases when their accounts are low. However, any overdraft transactions approved by the bank cannot result in fees.

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Posted in Bankruptcy and Predatory Lending, Financial Literacy | 5 Comments »

Wednesday, November 4th, 2009

Layoffs: Johnson & Johnson to Cut 7% of Jobs

Health care giant Johnson & Johnson announced Tuesday that it would eliminate up to 8,000 jobs worldwide, or 7% of its workforce, as a cost-savings measure, according to CNN.

Many of the cuts will come from management levels as the company revises its corporate structure. As a result, Johnson & Johnson expects to save between $800 million and $900 million this year.

Johnson & Johnson manufacturers household health and beauty products, like soaps and mouthwash, along with pharmaceuticals and medical devices. The recession has impacted both sides of J&J's business.

The majority of the job cuts will occur outside of the U.S., according to CEO Bill Weldon, and will occur across all aspects of the business.

Johnson & Johnson's restructuring has been occurring over the past few years, as it attempts to fight off competing drug manufacturers and generic versions of its own drugs. In July, 2008, J&J cut 4% of its workforce. In April, 2009, about 900 U.S. sales jobs were eliminated.

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Posted in Financial Literacy | 2 Comments »

Monday, November 2nd, 2009

Consumer Financial Protection Agency Moves Forward in House

Last week, the House of Representatives Financial Services Committee voted 39-29 for the creation of a federal agency that would provide consumer protection. The proposed agency (called in bills the Consumer Financial Protection Agency) has been in the news since its proposal earlier this year.

This vote is seen as an important step, but the bill must still face votes before the full House of Representatives and the Senate.

Who Wants It, Who Does Not

For the past few months, lobbyists from both sides of the debate have been pushing legislators to make a decision about the potential consumer protection group.

  • A Yea from consumer advocates: Generally speaking, supporters of consumer rights favor the agency's creation. If approved, the agency would regulate certain financial products like mortgages, credit cards and loans, and would provide oversight rules for some banks and lenders.
  • A Nay from big business: Supporters of large businesses and big financial firms oppose the agency, claiming that it would introduce too much government regulation into the business sector, thus hampering trade and profitability.

What The Agency Would and Wouldn't Do

Though many democrats and consumer advocates have reportedly lauded the Financial Services Committee's initial vote, the bill has apparently changed significantly since its introduction by the Obama administration.

Here's a look at what the House has outlined so far for the potential agency:

  • Limited regulatory reach: While the CFPA would be able to regulate certain lenders and issuers of financial products, the Financial Services Committee's version of the bill exempts many groups, such as lawyers, car dealers, cable companies, retailers, accountants and real estate brokers.
  • No state overrides: Though the original version of the bill would have allowed stricter state regulations to trump the national rules, this version does not.
  • Most banks can keep current regulators: Perhaps the most significant change to the bill from its earlier version was one that would allow the vast majority of American banks (about 98 percent, sources estimate) to keep their current regulators for overseeing enforcement of consumer protection laws.

Baby Steps Forward

Though passage of a House committee is only the first step in what may be a long journey, the forward motion of the bill can be viewed as a positive sign for American consumers.

While it's unfortunate that a massive collapse of the real estate industry and stock market was required to incite lawmakers to bolster consumer protections, it's good that they're taking action now.

Additional Resources

H.R.3126 (PDF)

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Posted in Financial Literacy | 9 Comments »

Saturday, October 24th, 2009

Beware of ‘Free’ Trial Offers from Online Ads

A recent report from msnbc.com tells the cautionary tale of online shoppers who were intrigued by ads offering "free samples" of a new kind of toothpaste. Many of these people clicked the ad to receive a sample – and instead lost hundreds of dollars.

After entering their credit card numbers for "shipping costs," victims found that monthly deductions of $58 showed up on their accounts.

Warning Signs & Red Flags

This scam had elements in common with other online scams we've written about here before. Generally speaking, any of the following should signal to you that the "free" offer in question is most likely a way to take your money.

  • Minimal payment upfront. In the case most recently documented (in the article), victims were asked to pay a five dollar shipping charge.
  • Use of credit card. If an offer requires you to enter your credit card information, close that screen and walk away from the computer. Any truly free offer should not involve payment.
  • Fine print. Many Internet users skip right over "terms of agreement" texts, often because they're long and boring-looking. But that section contains important information – and it may reveal the "free" offer to be a costly deal.

The Internet can be difficult to navigate, because nefarious links often appear on otherwise trustworthy sites – in fact, in the msnbc.com story, victims reported just such an occurrence.

So take caution: Just because you trust a site doesn't mean you can trust the ads that appear on it.

What to Look Out For

Online scams often sound tempting to consumers because they're designed to appeal to our weaknesses. Products commonly seen as part of online scams include:

  • Beauty and weight-loss products: Supplements, diet systems and even whitening toothpaste may be presented in "free trial" form.
  • Work at home offers: Bogus opportunities for self-employment (with guaranteed hefty paychecks) crop up frequently.
  • Fads and trends: Products or services that allow you to sample a new trend for "free" can be fraudulent, too.

Remember: if something is really worth having, it's worth paying for. And if you wouldn’t pay for it in the first place, you really don't want to overpay in hidden costs and "membership fees" that offer you little or no real benefit.

Additional Resources

How to Avoid a Scam (PDF)

Avoiding Online Fraud (PDF)

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Posted in Financial Literacy | 3 Comments »

Thursday, October 22nd, 2009

MoneyGram to Pay $18 Million to Settle FTC Charges

The Federal Trade Commission announced this week that MoneyGram International Inc., a leading U.S. money transfer service, will pay $18 million in consumer compensation for what seems to be its compliance with fraudulent money-wiring schemes. This can be seen as a minor victory for consumers.

According to the FTC, MoneyGram was complicit in schemes that cheated people out of money by doing the following:

  • Alerting them of false winnings or opportunities: Consumers were told (often via mail) that they’d won the lottery, been chosen for a “Secret Shopper” program or been guaranteed a loan.
  • Prompting them to transfer money: In order to “collect” their money or activate their accounts, customers were required to deposit a check (which had come in the mail with the notification) and wire some of the money to a third party.
  • Taking the money: In these schemes, the checks that consumers were given to deposit were fraudulent and worthless. The money transferred, then, came from consumers’ own accounts.

More than $84 Million Lost

Consumer complaints indicate that as much as $84 million was lost to such schemes, though the FTC’s site indicates that the actual total is likely higher, since many cheated consumers never file complaints.

The FTC’s charges reportedly include that MoneyGram was aware of the fraudulent activity but did almost nothing to stop it, and that 95 to 96 percent of complaints filed about the company were against 131 of the company’s 1,200-plus agents in from 2006–2008.

In addition to the $18 million in consumer redress funds, MoneyGram has agreed to include anti-fraud and agent-monitoring policies in its future operations. Because part of the charges levied by the FTC include MoneyGram’s active ignoring of reports of agent fraud, new agents will be required to complete background checks before being hired.

What to Watch Out For

In general, the FTC warns that wire transfers can be dangerous, and sets these guidelines:

  • Never wire money to a person you don’t know, in the U.S. or another country;
  • Never wire money to someone requesting to keep the transaction a secret;
  • Don’t wire money to those who claim that money transfers are the only acceptable mode of payment; and
  • Don’t wire money to someone who asks you to deposit a check and wire a fraction of that amount.

Additional Resources

Money Transfers Can Be Risky Business (PDF)

U.S. Postal Inspection Guide to Avoiding Mail Fraud (PDF)

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Posted in Financial Literacy | 4 Comments »

Friday, October 16th, 2009

A Cure for Impulsive Investors?

A recent report from the Associated Press announces the development of a device that could help everyday investors avoid making emotionally driven decisions about their financial moves.

Called the Rationalizer, the device could prompt users to slow down and consider their motives before making hasty purchases or sales.

Background: Irrational Financial Decisions

As mentioned in a previous blog post, researchers have found that levels of testosterone can influence the financial decisions we make.

Traditional wisdom offers a similar diagnosis: greed prompts us to buy too-expensive stocks, while fear prompts us to sell stocks with falling prices, causing some to lose their investments and file bankruptcy.

And even if you aren’t the type to fiddle with your investment portfolio in your spare time, you’ve probably felt the thrill of an impulse buy you never intended to make.

But impulse decisions are rarely wise – and they can prove costly and financially damaging.

Monitor Your Moods with the Rationalizer

Phillips Electronics, producer of the Rationalizer, portrays the product as a sort of cure for impulsive financial decisions. In fact, it’s a little more complicated than that. Here’s how it works, according to reports:

  • Sweat-sensing bracelet: When you’re making stock trades at your computer, you can wear a bracelet that essentially monitors your levels of perspiration.
  • Radio-signal communication: The information from the bracelet is then transmitted to a bowl-like structure that glows in a variety of colors.
  • Color coded identification system: Lights in a bowl vary from yellow (low emotional levels) to orange (moderate levels) to red (high emotions). This lets you know whether or not you’re in a good state of mind to make financial decisions.

Analysis: Controlling Impulsive Decisions

While the device may be useful for those with a history of making emotionally-charged decisions about their finances (or anything, really), it’s probably not a winner for everyone:

  • Limited portability: For people who have problems with impulse buying in stores, this bracelet would be of little help – the bowl requires a flat surface to be set up. Online shoppers, though, may benefit.
  • Cost: If your problem is buying gadgets that you don’t need, the Rationalizer may contribute more to the problem than the solution.
  • Accuracy: No research exists yet to verify the accuracy or effectiveness of this contraption. It may offer insight about your emotional state, but it offers no indication about whether these emotions are positive or negative – and it hasn’t been linked to any success or failure.

The bottom line? The Rationalizer is certainly a cool innovation, but taking a few deep breaths, going for a walk or calling a friend may be better impulse buying deterrents for most people.

Additional Resources

Determinants of Planned and Impulse Buying (PDF)

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Posted in Financial Literacy | 7 Comments »

Saturday, October 10th, 2009

Long Live the Gift Card?

When gift cards turned plastic, they seemed like the perfect present – convenient, easy to keep track of, and flexible for the recipient. But some gift cards – especially those issued by credit card companies – have been charging fees for card value unused after a certain point.

American Express: No More Dormancy Fees

Whether or not the move is part of a reaction to government attacks of credit and debit card fees is not clear, but American Express has announced that it will no longer charge monthly fees for gift cards that go unused.

On its website, AmEx announces that the elimination of monthly fees began September 30 and applies to all gift cards – those in stores, online and already in people’s wallets. Taken alone, this is good news. But American Express’s move may not cause others in the industry to follow.

  • Visa cards are more widely accepted among retailers, which means that they may not feel motivated to adopt a similar no-dormancy fee policy.
  • Chase cards come with a monthly fee of $2.50 beginning a year after the card is issued. The company hasn’t made any announcements about fee changes.
  • American Express cards still cost between $2.95 and $6.95 to purchase and activate.

Credit Card Reforms and Gift Cards

The recently passed Credit CARD Act, which will bring various credit card reforms early next year, also has some provisions that will regulate gift cards. These include:

  • Dormancy fee limits: Inactivity for at least one year is required before card issuers can charge dormancy fees to a card.
  • Fees on packaging: Issuers must “clearly and conspicuously” identify all activation and other fees on the packaging of the card.
  • Bans on early expiration dates: Gift cards will be prevented from expiring within five years of their issue.

Take Home Lesson: Proceed with Caution

If you’re interested in giving gift cards to your loved ones, consider getting store-specific cards, which generally don’t have activation fees or dormancy fees. Further, you can rest assured knowing it will be accepted at the outlet you have in mind.

Additional Resources

Notice on Prepaid Cards in the Credit CARD Act of 2009 (PDF)

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Posted in Financial Literacy | 3 Comments »

Thursday, October 8th, 2009

FTC Updates Endorsement Regulation Guidelines

On October 5th, the Federal Trade Commission announced an update to guidelines for advertisers who use testimonials. To clarify, no new legislation is involved; the FTC simply updated the suggestions for staying in compliance with the FTC Act.

Last modified in 1980, the guidelines refine the requirements for advertisers using testimonials and endorsements to sell products and services.

What You Need to Know

These changes are significant to consumers because they change what information advertisers are required to present about a product and how they’re required to present it. Here’s a look at what you may notice next time you’re watching TV or flipping through a magazine:

  • Typical results must be disclosed: You’ve probably seen ads for weight-loss supplements that show people losing enormous amounts of weight using a product – with small text that reads “results not typical.” Under the new guidelines, advertisers are required to explain what typical results may look like, as well, to give a more honest picture of what the product can do.
  • Material connections must be disclosed: The new guidelines require endorsers to reveal all incentives – cash and otherwise – they receive for pitching a product. This condition has become important since blogging became popular: in some cases, corporations pay seemingly independent bloggers to post positive messages about a product, effectively deceiving readers (morally bankrupt payday loan stores reportedly tried something of the sort not long ago).
  • Celebrities can take the heat, too: Under the old guidelines, celebrity endorsers ran no risk of being held legally responsible for any of the claims they made during their endorsement – all the culpability went to the company. The revised guidelines, though, place more responsibility on celebs, opening them to liability for the claims they make.
  • Non-traditional endorsements must be disclosed: The new regulations also require celebrities endorsing or promoting products in non-traditional advertising outlets (during a talk show, for example) to reveal any material connections they have with the company that makes the product in question.

How this Can Help You

Much of what the FTC does is designed to help you, the consumer, sift through the claims and promises made by large companies and advertising firms. While no regulatory body can stay ahead of innovations, it’s nice to know that the FTC continues to protect the people.

If you think you may have been victimized by deceptive or illegal advertising, you may want to fill out a consumer complaint form on the FTC’s web site.

Additional Resources

Text of the FTC’s Federal Register Notice (PDF)

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Posted in Financial Literacy | 1 Comment »

Wednesday, October 7th, 2009

Nebraska Football Star Filing Bankruptcy, Must Sell Rings, Trophy

Former Nebraska lineman Aaron Taylor is hoping to regain his NCAA championship rings and other memorabilia he surrendered after filing bankruptcy in an upcoming auction, according to a report by the Omaha World-Herald.

Taylor, who was part of three championship-winning teams in the 1990s, filed bankruptcy in Nebraska's western district last month, stemming from debt related to a restaurant he and other former NU stars opened in 2006.

As part of his chapter 7 filing, Taylor forfeited his three national championship rings, four district championship rings, and Outland Trophy. His petition listed assets of $5,300 and debts of about $110,000, according to the OWH article.

Because the value of the memorabilia is difficult for the bankruptcy trustee to determine, an auction is scheduled to take place Oct. 31 in Scottsbluff, NE, with proceeds going to pay Taylor's creditors. Taylor hopes that, with help from his parents and donations from fans, he will be the winning bidder for his college sports memorabilia.

Nebraska bankruptcy laws allow exemptions of up to $2,500 for "any personal property".

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Posted in Bankruptcy News and Events, Financial Literacy | 4 Comments »

Monday, September 28th, 2009

More Tips for Outsmarting Marketers (And Keeping Your Money)

Thank goodness psychologists keep researching human behavior – thanks to their studies, we can know how and why we spend money on stuff we don’t need. Here are some tips (adapted from the book Predictably Irrational) for avoiding classic marketing and behavior traps that may lead to bad financial decisions.

Admit It: You Procrastinate

We all put off chores if at all possible (this is why fast food exists). Rather than assuming your behavior will change anytime soon, plan for procrastination.

  • Avoid free trials. Most free trials automatically enroll you in a service you have to pay for when the trial ends. You could, of course, cancel the free service at some point – but that takes planning and effort. Either avoid such services or set up a system to remind yourself to cut them off.
  • Watch out for convenience store prices. Convenience stores are so called because they’re just that – convenient. While it may be tempting to grab a gallon of milk or a few bars of soap while you’re picking up a prescription, resist the urge. You’ll save money by shopping in regular grocery outlets, even if it’s a little more out of the way.

Keep an Open Mind

  • Rely on your own judgment. If you’ve heard good (or bad) things about a brand or an object, you may be more likely to interpret your experience in that framework. But try to keep an open mind – you may find a less-expensive version of something that suits your needs just fine.
  • Sift through the lingo. Products touted as premium or professional grade often tempt us because they sound like they’re high quality. But remember that these words have no quantifiable meaning – the way they work is what matters.

Remember: Cost Does Not Equal Quality

There’s a joke that goes, A man will pay two dollars for a one-dollar item he needs. A woman will pay one dollar for a two-dollar item she doesn’t need. While arguably sexist, this illustrates an important point.

  • Don’t equate price with value: An item is not a bargain if you don’t need it. Similarly, if you must have something, it’s worthwhile to spend money on it.
  • Know when you’ve erred: Sometimes, we don’t want to admit we spent too much for something. But doing so allows us to see our mistakes and hopefully improve our behavior in the future – and maybe even get a refund.

Make Your Money Work for You

Whether you're saving up money for a vacation, creating an emergency fund, or learning to stick with a budget after filing bankruptcy, it's important to make every dollar work for you. By avoid these common pitfalls, you may be able to reach your goals with your budget – and your sanity– intact.

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