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Thursday, March 4th, 2010

Credit Cards 101: Visa

If you're a Visa cardholder, you probably received a packet of updated policies and terms of use for your card, related to the new credit card laws. However, even if you did read all the fine print, you still may be curious of the intricacies of how your Visa card works.

An interesting post from FiveCentNickel.com offers a look at Visa’s rules that merchants must follow if they accept Visa cards. Here’s a summary.

  • What to take: Vendors can choose whether to accept credit and business cards, debit cards and gift cards, or both.
  • No price limits: If a merchant accepts Visa cards, it is required to accept the cards for any transaction, regardless of its dollar amount. However, many merchants ignore this policy and set a minimum purchase amount to encourage spending. If you’re irritated by a specific vendor’s policy, consider speaking to a manager.
  • Near equality: Items bought with Visa cards cannot be subjected to any special charge, but vendors can offer customers discounts for paying with cash (you may notice this especially at gas stations).
  • Convenience fees: Online and over-the-phone transactions may be subject to extra charges, so long as they’re disclosed and not applied to any in-person transactions.
  • No cash tax: Sellers cannot collect taxes from Visa transactions in cash.
  • Tip not included: When you pay with a Visa card and intend to add a tip, vendors can only authorize your account for the amount of the service minus tip.
  • No cash returns: If you buy something with a Visa card, sellers cannot give you cash should you return it.
  • Time crunch: Merchants have to report Visa sales receipts within five days of purchase.
  • Privacy limits: Receipts for Visa transactions should only show the final four digits of your card number and should not show your card’s expiration date. Further, sellers have to keep all account number information private.
  • Policy disclosure: Vendors must explain (or make available) return and exchange policies before a customer makes a purchase.
  • Signature required: Unsigned cards are considered invalid. If a cashier encounters one, she is supposed to make the customer sign the card and compare the signature to one on an ID card. Writing “ask for ID card” in lieu of a signature is considered an invalid substitute.
  • ID optional: Merchants may ask for a photo ID, but cannot require buyers to have one in order to complete a transaction.

It’s always a good idea to make sure you know the rules of your debit or credit card, so if you don’t have a Visa, check out your cardholder’s website!

Additional Resources

Just the Facts about Credit Cards (PDF)

A Consumer’s Guide to Credit Cards (PDF)

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Posted in Financial Literacy | 2 Comments »

Saturday, February 27th, 2010

Shortcomings of Credit CARD Act

This week saw the much-anticipated date (February 22) on which the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) took full effect. And, while it theoretically introduces many new consumer protections, it leaves plenty room for “creativity” from card issuers.

Center for Responsibility Lending Responds

The Center for Responsible Lending released a humorous (though cynical) animated video that highlights some of the areas not addressed by the new act—and illustrates ways in which credit card issuers have adapted their policies to maintain profit levels. These include:

  • Interest rate hikes: To compensate for lost revenue, some card issuers have already raised users’ interest rates. Even users in good standing may be “forcibly eligible” for this, as the video claims.
  • Over-limit fees: If you accidentally exceed your credit limit, your cardholder likely charges a fee. And, with new restrictions in place on other charges they can assess, you might see this fee jump.
  • Inactivity fees: On the other hand, if you use your card too infrequently, you might see a fee for that, as well, because that means you’re less profitable for the company.
  • Increased minimum payments: Another technique some card issuers are using is to up the minimum amount you can pay each month. This could be profitable for those who won’t be able to afford the increased payments and can be charged an under-payment fee.

The Regulation-Creativity Relationship

As the video illustrates with a graph, more consumer protection may seem like a good thing, but in practice, it often means that card issuers just get more “creative” with fees they charge reasons they charge them.

If you’re thinking now is a good time to get out of credit cards altogether, you’re not alone, but, before you cancel your cards, consider this:

  • Your credit score: Part of your credit score is based on age of accounts (older ones are better); another part is based on diversity of credit (so eliminating one type entirely would hurt you).
  • Your reentry: If, at some future time, you decide you want a credit card again, you’ll likely have to contend with uber-high interest rates (above 70 percent) because you won’t have any recent credit card history.

The video exaggerates a little (by mentioning, for example, a “legibility fee” for left-handed users), but by doing so draws attention to the more serious matter of how significantly your credit card could change.

Be sure to read all correspondence from your card issuer, even mailings that seem like junk: some of them might contain important details about the new rates and fees you may have to pay. These statements will also come in handy if mounting fees and interest force you into bankruptcy.

Additional Resources

Credit CARD Act

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Posted in Credit and Bankruptcy | 5 Comments »

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 »

Tuesday, January 5th, 2010

A Time for Credit Cards?

For most Americans, the allure of credit cards can lead to a financial trap. Credit cards make purchasing easier—but can make responsibility harder.

Credit card spending often brings freedom today while impacting your future. Whenever you buy with credit, you're promising your future income today. And if you're buying things that don't increase in value, that can be a poor investment.

If you're considering filing bankruptcy, using a credit card may be twice as bad—bankruptcy laws may prevent you from discharging recently racked-up credit card bills.

However, for those who have learned to use credit wisely, the purchasing power of credit cards can bring peace of mind, and even some added perks, while building credit.

Benefits of Purchasing with Credit

  • Protect your money: Identity theft and credit card fraud can be a huge financial set-back. Luckily, most credit card issuers consider users liable for no more than $50 of purchases that turn out to be fraudulent. This protection is generally not available with debit cards, probably because credit cards involve a loan of the company’s money, and debit cards involve only the user’s money.
  • Guarantee your gadgets: A lot of credit card issuers provide warranties for items purchased on credit—another reason that many store-offered warranty packages are a bad investment.
  • Protect your purchases: A significant number of credit cards include clauses that offer refunds for items that are lost, stolen or damaged recently after being purchased on credit.
  • Get reimbursements: Some cards offer users reimbursements if they find a price lower than what they paid for an item; others offer refunds even if they’re against store policy.
  • Milk the rewards: Cash-back bonuses, airline miles and other bonuses can be extremely rewarding, as long as you pay off your balance in a reasonable amount of time.
  • Travel smarter: Some cards provide insurance for car rentals, air travel, cancellations and accidents, which can cost lots of cash to buy during every trip.

The Golden Rules

Before whipping out your wallet and charging up a storm, though, keep in mind the two most important ingredients in making sure your credit card use doesn’t turn into a recipe for disaster:

  • Know the cost. Don’t assume your card offers any of these benefits—read the details of your contract and ask an attorney, trusted friend, or call the company to clarify any muddling points BEFORE using any credit cards.
  • Check your budget. Running up a high balance is never a good idea if you cannot pay it off. Remember that credit cards do not offer additional income; they merely offer an alternative way of purchasing with your existing finances.

Additional Resources

The Credit Card Model (PDF): A 1997 study of the debt cycle caused by credit cards and their long-term impact.

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Posted in Credit and Bankruptcy | 5 Comments »

Thursday, December 10th, 2009

What It Takes to Get a Debt Canceled (or Reduced)

If you’re struggling with credit card debt, you’re certainly not alone. Research indicates that more than three-quarters (78 percent) of American households have at least one credit card, and among this group, the average debt is more than $10,000.

While credit card debt can be a significant financial burden no matter what the national economic climate, when the economy weakens, paying off such debt can seem almost impossible. But, if you make a commitment to eliminate your debt, you may have some alternatives to paying the entire amount you owe.

Ask for a Reduction

Deciding to pay off your credit card debt is an important part of actually becoming debt free. After you’ve laid out all your latest statements and calculated what you owe, it’s time to contact your creditors.

  • Research your history: Review old bills and notices from your credit card issuers. Take notes on what accounts you’ve kept up to date, how much you owe where and what interest rates are on each card.
  • Place a call (or several): If you’re like many Americans, you have more than one credit card. Choose the card you’ve been most diligent about paying on time and call the customer service number provided on the bill.
  • Explain yourself: Explain to the representative that you’ve decided to pay down your balance, and you were wondering if they could lower your interest rate. Remain polite and point out the positive history you have with the account if you need a bargaining chip.

Repeat with as many of your cards as you can. Even if none of your issuers agrees to lower your rates, the worst anyone say is “no.”

Write a Letter

If you think your financial circumstances will prevent you from paying down your credit card debt regardless of your interest rates, it’s time to ask for a bit more.

  • Contact your creditors. If your attorney believes that you are judgment proof (that is, that your creditors couldn’t collect any money even if they sued you), you can write to your creditors to ask for a complete cancellation of your debt.
  • Contact a lawyer. A local attorney can help you determine whether your finances are truly as dire as you think. If they are—that is, if you have little enough income and few or no valuables that could be sold to raise money—you may be a good candidate for debt cancellation.

This method has worked in the past, as this post from Creditbloggers.com reports. Remember, credit card debt doesn’t have to ruin your finances. A little determination can go a long way.

Additional Resources

Credit Card Facts and Stats (PDF)

The Burden of Credit Card Debt (PDF)

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Posted in Credit and Bankruptcy | 6 Comments »

Saturday, November 28th, 2009

Late Credit Card Payments Dip in Third Quarter

According to an article from the Associated Press, fewer Americans were late on their credit card payments in the third quarter of this year than in the second quarter, signaling that consumers may be getting more responsible at managing their debt.

While the decrease isn’t staggering (1.10% of payments compared to 1.17%), the statistic itself is: this is apparently the first time in a decade that late payments have decreased between the second and third quarters.

The Bigger Picture

Here’s a look at how this decrease fits into the larger context of credit card payments and debt in the United States:

  • Steady decline: The 6% drop comes after an 11% decline in late payments between the first and second quarters, suggesting that, as a nation, our debt management skills are improving.
  • Trend follower: The highest late payment levels occurred in states where the housing bust was biggest (California: 1.33%; Arizona: 1.35%; Florida: 1.47%; and Nevada: 1.98%).
  • Outstanding balance: Average amounts due have also declined from earlier quarters and last year: in Q3, the average was $5,612, down from $5,719 in Q2.
  • Savings down: The third quarter also saw a slightly lower rate of savings among U.S. consumers, suggesting we’re putting money toward debt rather than in the bank.

So What Does It Mean?

While no definitive explanation can be offered for the drop in late payments, the trend may be affected by a variety of factors, including:

  • Unemployment: Both those who have lost their jobs and those who are still working (but are perhaps more aware of the threat of layoffs) tend to cut back on discretionary spending and focus on paying down debt rather than accumulating new “stuff.”
  • Tightened credit: Many credit card issuers have pulled way back on their offerings of consumer credit and have gotten stricter about raising interest rates for late and missed payments. This may “scare” consumers into taking their debt more seriously, or into paying down balances to have more wiggle room.
  • The holidays: For many of us, a major shopping and/or traveling season is upon us. The dip in late payments could represent a sort of collective preparation for the financial stresses of the season.
  • Increased caution: The drop could also point to a more cautious American consumer – one who’s a bit less cavalier about taking on masses of revolving debt.

Additional Resources

Putting Credit Card Debt on Notice (PDF)

How Credit Card Debt Ensnares Consumers (PDF)

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Posted in Credit and Bankruptcy | No 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 | 4 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 | 10 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 | 11 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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Posted in Credit and Bankruptcy | 6 Comments »

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