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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 »

Sunday, December 27th, 2009

Eighty Percent Interest on a Credit Card

The Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009, which will take full effect in February, limits many practices now common in the credit card industry. Some, however—like issuing a card with an interest rate near 80 percent—will still be permissible under the new law.

Subprime Credit: Still a Bad Idea

The subprime lending boom and the “unconventional” lending techniques that accompanied it were major factors in the housing market’s explosion and collapse, and thus the current recession.

But just because people have grown more wary about some types of subprime lending doesn’t mean it’s disappeared entirely. In fact, according to an MSNBC article, some of the worst credit cards on the market are still as costly as ever.

The First Premier credit card reportedly provides a source of credit for people with limited or shaky credit histories – that is, the so-called subprime borrowers. But, because of the potentially high risks associated with having a blemished credit history, this card comes with some shockingly expensive terms:

  • Initial limit of $300: Users of the First Premier card will have access to only $300 in credit when they open their accounts, an increase from the card’s former limit of $250. But that’s not even as much as it seems.
  • Maximum permissible fees: The Credit CARD Act prohibits issuers from charging fees that total more than 25 percent of a card’s limit, and the First Premier charges exactly that: $75 in fees each year. Formerly, the first year’s fees totaled $256 – on a $250 limit.
  • Astronomical interest rate: Presumably to make up funds lost from the limited fees, the First Premier issuers jacked up the interest rate on their card to a whopping 79.9 percent. The new law sets no limit on credit card interest rates, so while shockingly high, this limit is legal.

Avoid the Trap: Wait It Out

Naturally, getting tangled up with a card that carries a nearly 80 percent interest rate is not a good idea, no matter how badly you want to start rebuilding your credit after a bankruptcy filing or other financial stumbling block.

If you currently have a rough or limited credit history and don’t think you’ll qualify for a credit card with more favorable terms, your best bet may be to simply wait a while. With a few months or years of responsible and timely bill paying, you may qualify for much better credit products.

Additional Resources

Credit CARD Act of 2009 (PDF)

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Posted in Credit and Bankruptcy | 9 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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Posted in Credit and Bankruptcy | No Comments »

Monday, August 3rd, 2009

Financial Update: Three Things You Need to Know Right Now

It’s a fast-paced world out there and it may seem like things change too quickly to keep track of. Here are three important updates to help you stay on top of your finances:

1. Big-Time False Charges on Credit Cards

Credit.com reports that two customers in recent months were charged $23 quadrillion for small credit card purchases (like a pack of cigarettes)!

Although your credit card company would most certainly alert you if such a monster charge showed up, you might not be informed if the charge amount was slightly less egregious.

To make sure you aren’t being charged more than necessary:

  • Check and save receipts: Before signing a credit card receipt, make sure the dollar amount is what you expected. And hang onto receipts from debit and credit card buys. That way, you’ll have your own record to check against bills. You may be surprised at what you find.
  • Scrutinize your bills: Set aside a time to open mail from your bank and card issuers and check each item carefully. As soon as you spot an incorrect charge, alert the proper authorities so it can be corrected.

2. Teens Scrambling to Get Credit Cards

When the Credit Cardholders’ Bill of Rights goes into effect next year, those younger than 21 will require parental permission to open credit cards.

This means that 18-, 19- and 20-year-olds will have to jump through some hurdles if they want to have plastic of their own.

  • The plus side: This provision may protect many college-age teens from racking up enormous credit card debt without fully understanding their financial obligations and will likely put an end to card issuers aggressively marketing on college campuses.
  • The downside: Without a credit card, it’s hard to establish a credit history, which may mean young adults may not be able to get a lease, utilities, a car loan or other essentials.

Under-21s who think they’d like a credit card should apply now – but only after making sure they understand how their card operates and how to stay out of debt.

3. More Food for Same Price

Msnbc.com reports that, thanks to lowered ingredient prices, many supermarket buys (especially those found in the snack aisle) have increased in value recently.

Last year, many food manufacturers reduced package sizes rather than increasing prices (noticed a change in your cereal boxes?), but now that the economy is struggling and prices for basics like corn and oil are lower, the opposite is happening.

Sources indicate that the shift will likely be most noticeable for chips and other snack-type foods.

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Posted in Financial Literacy | 1 Comment »

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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Thursday, June 25th, 2009

Credit Card Scam Alert: Unsolicited Calls from Machines

Receiving telemarketing calls can be annoying, but receiving unsolicited calls from non-human callers is even worse.

And, according to this recent report from MSNBC, one scam currently plaguing the U.S. and Canada could cost you significant money.

The Promise: Lower Interest Rates

Apparently, these calls work by alerting you that nothing is wrong with your credit card account, but that it is “urgent” or “imperative” that you contact the calling company to lower your credit card interest rates.

Here’s how you can tell calls like this are bogus:

  • Company not identified: The automated calls reportedly do not include the name of the company supposedly offering to help you lower your rates. Red flag number one – any legitimate company wouldn’t hide its identity.
  • Calls at strange hours: The Fair Trade Commission (FTC) has outlined strict rules for telemarketers, and one is that they cannot call after 9 pm local time. Any unsolicited business calls later than this are illegal and should be reported.
  • Demands for personal information: Legitimate companies do not require you to give your Social Security number or credit card account information over the phone. If anyone calls and asks for this sort of info, hang up – you have no way of knowing who’s on the other end of the line.

The Catch: Upfront Fees and No Real Services

Many consumers have already lost money to this type of credit card scam – and it’s no wonder, considering what it offers.

Many Americans could benefit from lowered interest rates on their credit cards, so the offer appeals to unsuspecting victims. Here’s how the scam works:

  • Upfront fees for “services: The companies charge fees in the ballpark of several hundred dollars, insisting that such fees are fully refundable if the consumer isn’t happy with results.
  • Consumer pays and loses: Unless you have a promise in writing that you’ll get your money back, you can expect to part with it forever. And, according to sources, some unfortunate individuals already have.
  • No work done: Unfortunately, the company isn’t likely to negotiate with your card issuers at all, meaning that you’ll have paid them for nothing. And, even if they do “negotiate,” they’re likely to do no more than call and ask for a lower rate – which you can and should do yourself (for free!).

What to Do if You’re Victimized by a Credit Card Scam

If you receive an automated call offering you lowered interest rates on your credit cards, take action by filing a complaint with the FTC.

Reports show that the three companies behind these calls (CSTR Solutions, Genesis Capital Management and Mutual Consolidated Savings) all have failing ratings from the Better Business Bureau.

And the FTC apparently knows about the scams, and has recently prosecuted other companies for similar violations of consumer protection laws.

Similar Scams Have Led to Some Folks Filing Bankruptcy

Unfortunately, some scams have led to people going broke and filing bankruptcy to get out of that "scam debt".

If you've been victimized by a scam and are considering filing bankruptcy, visit www.TotalBankruptcy.com to connect with a sponsoring bankruptcy lawyer for free.

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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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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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Tuesday, May 5th, 2009

Credit Card Issuers Cutting Us Some Slack?

Good news! After issuing a “Call to Action” last fall, the National Foundation for Credit Counseling has negotiated with some of America’s biggest credit card issuers on behalf of us, the struggling consumers.

While we wait for the Credit Cardholders’ Bill of Rights to work its way through Congress, this could help some of us ease our debt burdens.

Credit Card Debt Repayment Plans, Other than Filing Bankruptcy

Traditionally, some people with serious credit card debt have opted for a modified repayment plan with their card issuers rather than filing bankruptcy.

But, thanks to the recession, even negotiated plans are now out of many borrowers’ reach. Here are some sobering numbers from the NFCC:

• More than 405,000 Americans were rejected from repayment plans last year because they couldn’t afford even modified payments.
• Currently, only 25% of borrowers qualify for repayment plans, down from 33% just a few years ago.
• Last year, borrowers averaged $24,000 in debt, with only $39,000 in annual income.

Basically, what was happening was that fewer and fewer Americans were qualifying for repayment plans to eliminate their debt, and many of those “rejected” from such plans opted for bankruptcy protection instead.

Because credit card debt is often discharged completely in bankruptcy, card issuers were losing money – rather than getting slightly less money than they were owed in a repayment plan, they were getting nothing at all from a bankruptcy.

The Changes

Before the NFCC’s negotiations, most credit card repayment plans already included the following:

• Interest reductions (and, in rare cases, forgiveness)
• Fee waivers after enrollment
• Agreement (from borrowers) to refrain from further debt accumulation

Under these terms, the average borrower apparently took about five years to repay credit card debt, with payments of about $540 each month.

But, with the new terms proposed by the NFCC, which include further cuts on interest and fees (but no deductions of principal balances), the average family would only have to pay about $420 per month for five years.

Though this savings is admittedly not enormous, it’s significant enough that it could mean more families qualify and are able to maintain payments on their mortgages/rent and other necessities.

Which Credit Card Issuers Have Signed On?

The Foundation reports that the top 10 U.S. credit card issuers have agreed to the new repayment terms, including Bank of America, Capital One, Chase Card Services, American Express and Discover.

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Monday, April 13th, 2009

Action on the Credit Card Bill of Rights

A subcommittee of the House Financial Services Committee voted last week to approve a bill called “The Credit Cardholders’ Bill of Rights”.

If the bill succeeds in the rest of the House and the Senate, good news could be in store for borrowers.

Unfair and Deceptive Practices

Since the current recession was so heavily fueled by subprime lending and similar questionable practices, lawmakers’ attention has been drawn to the rules governing lending in the U.S. Of chief concern to many consumer rights activists:

Universal Default: If you default – that is, fail to make timely payments – on one account, other creditors can penalize you with higher interest rates or monthly payments.

Transparency & Disclosure: Explaining all the terms of use of credit cards – like interest rates, late fees, penalties, etc. – is already required by law. But some activists worry that the presentation of credit card agreements (pages and pages of fine-print) allows many companies to hide unpleasant features.

Introductory & “Teaser” Rates: Often, credit card issuers advertise low initial interest rates boldly, and only mention in small type that these rates are only valid for a limited time.

Fees for Phone & Online Payment: Some cards charge service fees to consumers who choose to pay their bills by phone or on the Internet, a practice that has been cited as problematic by members of the Financial Services Committee.

The Opposition

If the Credit Cardholders’ Bill of Rights becomes law, some of these issues may be addressed, which is good news for consumers.

Banks and other card issuers, on the other hand, are reportedly less than thrilled with the idea of new restrictions on their lending.

At a time when banks are struggling to build capital and pull themselves out from the weight of bad investment decisions, revenue from credit card fees and high interest rates could provide a substantial source of income – as it does now.

Just the Beginning?

Some analysts suggest that credit card legislation could be the beginning of new regulations for the banking and lending industry.

While legislative restrictions to market and lending action may be unwelcome by some players, many democrats see the lack of regulation as a key factor that contributed to the nation’s current financial stress.

If successful, the bill will likely offer card issuers around one year to adopt new policies.

Are you knee-deep in debt? Consider filing bankruptcy.

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