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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 »

Friday, October 23rd, 2009

Consumer Updates: Gas Cards & Book Wars

Here are two big stories you should know about this week to stay on top of your personal finances.

Part 1: Citibank Closing Some MasterCard Accounts

Various news outlets have reported on a gasp-worthy move by Citibank in recent days. Apparently, the company has taken to closing various credit card accounts – sometimes for what seem to be pretty arbitrary reasons.

While such action has been almost common during this recession, it seems Citi’s customers have been vexed by the apparently baseless decisions. Ordinarily, card issuers cut off a person’s credit for reasons such as:

  • Late or missed payments: Failing to get a payment to your card issuer on time could – especially when credit is tight – lead to a lowered credit limit or canceled card.
  • Negative actions in your credit report: Some card issuers consider missed payments and late fees on any credit product a reason to limit or end your credit.
  • Inactivity: If you haven’t used your card in ages, it may get canceled.

But, according to stories from the Business Insider, some Citibank customers are seeing their cards cut off with no warning – for no apparent reason.

What You Can Do

Unfortunately, there’s no law in place that prevents credit card companies from ending a customer’s line of credit. But, if you think your card was cut off in error, don’t hesitate to call your issuer’s customer service line. Be prepared to defend your case with specifics about your payment and charging history (you may want to have your last few bills handy).

Your credit score depends partly on age of accounts and credit availability ratio, so it may be in your best interest to keep cards open if possible.

Part 2: New Book Prices Slashed

One of the biggest stories in retail news right now is the price of books. Apparently, major retailers like Walmart, Amazon and Target have been cutting prices for brand-new books by bestselling authors to as low as $8.99!

Take Advantage of It…

If you’re shopping for holiday gifts for readers, now may be the time to stock up on new titles – this could be a short-lived experiment that is not repeated in the future. And, if becomes the norm, the groups who stand to lose are publishers and writers.

…But Stay Realistic

If you’re the main bookworm in your life, though, these prices may not be low enough to justify spending too much new books. Remember that used bookstores often have titles available for serious discounts – and libraries offer thousands of titles for no cost at all!

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Posted in Credit and Bankruptcy | 5 Comments »

Wednesday, October 14th, 2009

Credit CARD Act may Get New Effective Date

The Credit CARD Act of 2009, which establishes new protections for cardholders, was signed into law back in May, but gave credit card companies a full nine months to prepare. Now, the Congress wants to move up the law's effective date from February 22, 2010 to December 1.

What's prompting the scheduling change? According to CNNMoney.com, credit card companies haven't been using the downtime to prepare for their new practices‒they've been using it to squeeze as much money out of cardholders as possible, raising APRs, lowering credit limits, and changing account terms.

Each of these tactics will require extra notice, while others will be banned under the Credit CARD Act.

Representative Barney Frank, who co-introduced the legislation to speed up the protection, recently explained the situation to the Associated Press, “It is very clear that this is the kind of protection that shouldn't wait and we should move forward."

Combining higher interest rates and lower credit lines is moving the credit crunch from the banks to the consumers, leaving more Americans defaulting on their cards and filing for bankruptcy as a result.

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Posted in Credit and Bankruptcy | 13 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.

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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Posted in Credit and Bankruptcy | 6 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)

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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 | 2 Comments »

Wednesday, July 29th, 2009

How to Not Get Bamboozled by Banks

Even though lenders are no longer throwing themselves at consumers and credit is a bit tighter than it was a couple years ago, I think it’s worthwhile to refresh everyone’s memory on warning signs of predatory lending.

Here's what to look out for when you're heading to purchase big-ticket items like cars, appliances and houses:

Warning #1:     Excessive Fees

Excessive fees can be disguised in a variety of ways, depending on what type of loan you’re seeking:

  • Credit cards: Account activation fees, membership fees, service charges, limit-extending fees, yearly fees – if your bill or credit card agreement is littered with similar costs, beware. This is a classic sign of predatory lending. In some cases, the fees charged greatly outstrip the cost of a given service.
  • Home loans: While some points and fees are standard procedure for home loans, exceeding the norm in such charges is considered predatory. To determine whether your lender is charging excessive fees, research typical fees in your area and take a look at your credit report or score (www.annualcreditreport.com).

Warning #2:     Prepayment Penalties

These are most common with mortgages, particularly subprime mortgages .

Generally, if you’re charged a penalty of some kind for repaying part of your loan before its due date, the loan is usually considered to be predatory.

Such penalties prevent you (the borrower) from saving money by minimizing the amount of interest you pay over the life of your loan.

Warning #3:     Out-of-Control Interest Rates

In general, your credit score will determine the kind of interest rates you can expect to pay – higher scores yield lower interest rates. But even for those with weak credit, some interest rates are unacceptably high.

  • Credit cards: Rates for cards vary widely, but many fall within the 15 – 22 percent range. If you’re paying much more than this, especially because of universal default or unannounced changes to your terms, you may need to contact your creditor.
  • Payday loans: These short-term, high-interest loans are infamous for having excessive interest rates. Yearly costs can be as much as 400%, which is why many states have introduced or passed legislation restricting them.
  • Credit card cash advances: These typically have wild interest rates – and are often mailed with your bill to look like personal checks. Avoid them if at all possible.

Warning #4:     Large Print and Very Small Print

Be wary of exciting “bargains” advertised in big print.

They’re usually followed by disclaimers, exceptions, costs, fees and more.

This may not be the most aggressive predatory lending technique, but it can trick those who aren’t paying careful enough attention.

Luckily, part of the Credit Cardholders’ Bill of Rights includes regulations for font size in credit card agreements.

--Have you already been "bamboozled by banks"? Learn about filing bankruptcy

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Posted in Bankruptcy and Predatory Lending | No Comments »

Thursday, July 9th, 2009

Credit Card News: The Fine Print & What You Need to Know

Most of us have signed a long contract riddled with fine print – whether for a credit card, a cell phone, a car lease or something else.

And, unfortunately, many of us still aren’t reading every item included in these contracts.

Between irritatingly small type, difficult legal language and time shortages, that’s no major surprise.

But there’s one section of any agreement you should understand – the “arbitration clause.”

What Are Arbitration Clauses?

In contracts (especially those for credit cards), arbitration clauses state that, should a dispute arise between the card issuer and you, the card user, that dispute must be resolved out of court – that is, it must be arbitrated.

How Do Arbitration Clauses Work?

If your credit card agreement includes an arbitration clause and you have a dispute with your card issuer, you can expect something like this:

  1. Your creditor files paperwork with an arbitration firm: The National Arbitration Forum (NAF) is one of the country’s largest arbitration firms. Many credit card companies, retailers and banks work exclusively with the NAF.
  2. You get mail that announces the beginning of your dispute’s arbitration: This may be the only notification you get that your case is being arbitrated. It may be easy to mistake this mail for junk or an ordinary bill, which is why some consumers never realize their cases have begun.
  3. An arbitrator decides your case: This is the part of the process that upsets many consumers: without a court-style hearing, ostensibly impartial judges decide these cases and alert the concerned parties. Also unlike court cases, there is no way to appeal an arbitrated decision.

Are Arbitration Clauses Fair?

Some consumer advocates have raised concerns about how arbitration clauses work – or don’t work – for run of the mill credit card users.

An article that appeared in BusinessWeek stated that most states do not require arbitration firms to release their figures, but in California, where such figures are released, the numbers are scary.

It seems that 99.8 percent of cases decided by NAF favor creditors, not consumers.

And a startling 93.7 percent of arbitration cases begin and end without any consumer participation.

This suggests that consumers are not even aware of what’s going on.

An Arbitration Reform bill has reportedly been introduced into both houses of Congress, and, if passed, could change the way arbitration cases work.

But the bill will likely face hurdles, since eliminating the arbitration option could mean that disputes flood courts, causing backlogs and increased costs.

How to Protect Yourself

To make sure you aren’t victimized by questionable arbitration practices, take these precautions:

  • Read everything before you sign it. If you need help deciphering tricky legalese, consider enlisting the help of a bankruptcy attorney for an afternoon – any fees may save you money and time in the long run.
  • Open and read all mail from your bank and card issuer. If you don’t understand something you see, call the companies until you get a clear explanation.
  • Participate in your own case. Whether or not you sign up for a card that requires arbitration, know that your input can make a difference in how much you end up paying.

Looking for filing bankruptcy information?

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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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Posted in Credit and Bankruptcy | 1 Comment »

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% 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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Posted in Credit and Bankruptcy | No Comments »

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