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Friday, December 11th, 2009

Federal Reserve Proposes New Limits on Store Credit Cards

According to the Wall Street Journal, the Federal Reserve has proposed new regulations that would restrict retailers' ability to issue store-specific credit cards. Many major retailers, it seems, are not happy about the prospect.

Prove You Can Pay

The new proposal, if adopted, would require store-card applicants to prove their ability to pay their bills when they apply for their cards. Many commentators believe this would amount to presenting a pay stub before being able to fill out a form.

  • Based on the Credit CARD Act: One provision of the Credit CARD Act of 2009, set to take full effect in February 2010, requires lenders to verify that borrowers are capable of repaying loans before lending money. The proof of income requirement for in-store cards is, apparently, an application of this provision.
  • Displeasure from retailers: Perhaps unsurprisingly, retailers are less than thrilled about the potential for this rule to change the way they operate. Many retailers currently offer tempting incentives to shoppers to open store cards, including one-time discounts and rewards programs.
  • Support form consumer advocates: On the other side of the coin, though, those concerned primarily with consumer rights have hailed the proposed measure as an important move toward limiting too-easy credit.

How Well Do We Pay?

So how likely are Americans to default on their store-specific cards? Sources indicate that store-branded (also called private-label) cards tend to be higher than general purpose plastic.

This makes sense: if you’re struggling financially and only able to make payments on some of your cards, it’s smarter to stay current on cards that can be used at a variety of locations rather than on one that’s only good at a single retailer.

But, it seems, even this less-than-stellar track record doesn’t make retailers eager for a change. Here’s why:

  • Sales volume: WSJ reports that Macy’s, one major retailer that issues a store card, saw more than half of all its sales bought on store cards in Q3 of this year.
  • Salary is a private matter, and few Americans are likely to be comfortable with handing evidence of their income to a stranger behind a register, no matter how much they make.

The Federal Reserve has not yet announced when this proposed rule will be completed.

Additional Resources

Credit CARD Act of 2009 (PDF)

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Posted in Bankruptcy and the Economy | 3 Comments »

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 | 6 Comments »

Thursday, March 13th, 2008

Where’s Your Foreclosed Mortgage Going Now?

The Federal Reserve has offered banks another $200 billion in U.S. currency in exchange for debt that includes mortgage securities, and includes subprime mortgage loans that they hold.

Essentially, experts explain, the Fed is using the available funds to encourage confidence in these securities among investors.

But should investors be buying bad debt, not to mention the Federal Reserve throwing $200 billion in U.S. funds at these nearly worthless mortgages?

Beat the Press has another great evaluation of this latest move:

So how does this story play out? Well, insofar as the Fed is successful, the counterfeit currency retains its value for a while longer. This allows Citigroup, Merrill Lynch, Bears Stearns and the rest of the big boys more time to dump their counterfeit currency on suckers who haven’t figured out how the game is played.

Not exactly a ringing endorsement.

Read the article for a good evaluation of why bailing out the banks doesn't help anyone—it just slows down an inevitable slide by ignoring the "$8 trillion housing bubble," as Baker puts it.

Need your own bailout? Learn about filing bankruptcy.

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Posted in Mortgage Foreclosure | No Comments »