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The Latest Consumer Protection from the FTC

The Federal Trade Commission’s annual National Consumer Protection Week is upon us (March 6 – 12, 2011) and that means it’s a great time to brush up on information about money, credit and the consumer protections available to you – just because you happen to live in the United States.

You can get handy tips for personal finance and money management at the NCPW blog, which is updated regularly with tips for topics including these (and more!):

• Avoiding foreclosure rescue and other mortgage-related scams;
• Knowing how to spot employment opportunity scams;
• Making the most of your money in the early stages of your career;
• Building and maintaining a budget to improve financial stability;
• Avoiding time-share and credit-card scams offered via text messages; and
• Learning what steps to take to save your home from foreclosure.

In short, whether you’re rebuilding from a bankruptcy filing or just starting to establish yourself in the world of credit and wealth, there are excellent, free resources available for your enjoyment and education.

FTC Targets Scammers Preying on the Cash-Strapped

In other FTC news, the commission announced this week new efforts to halt scams that target people in need of work – in other words, those who can least afford to lose money to dishonest schemes.

According to the FTC’s web site, Operation Empty Promises has taken legal action against the following scammers:

• Ivy Capital Inc., a company that allegedly bilked consumers out of more than $40 million with promises of helping them to establish lucrative, Internet-based businesses from their homes. The scam reportedly worked by first asking victims about their available credit and then pushing them to use that credit to buy worthless products and services.
• National Sales Group, Executive Sales Network and Certified Sales Jobs, three names of the same company that allegedly posted fake sales jobs on job-search web sties including CareerBuilder.com. The group, it seems, falsely promised sales positions with Fortune 1000 companies and charged victims money for what they claimed were costs related to background checks – often, this company reportedly overcharged and charged unapproved recurring fees to victims’ credit cards.
• Business Recovery Services LLC, a company that the FTC claims misrepresented the potential effectiveness of its work-at-home wealth recovery “kits,” which sold for $499 each. All told, the FTC reports that this group managed to snag $1.5 million from victims.

Take Advantage of FTC Protections!

The FTC is constantly patrolling for scammers and those violating existing consumer protection rules. If you’ve caught wind of a scam or have been victimized by a scammer, you may want to file a complaint with the FTC as well as consult with an attorney to see whether you might be entitled to any compensation.

Posted in Bankruptcy News and Events, Consumer Credit, Consumer Protection, Financial Literacy, Life After Bankruptcy, Mortgage Foreclosure | Comments Off

One Bandwagon to Hop on: Credit Card Spending Down

Consumer credit use has dropped since the beginning of the Great Recession, which seems like good news for a country plagued by excessive consumer debt (often in the unhealthy, revolving credit-card type), as a recent report from Credit.com notes.

Here’s a look at some potential causes of that dip and how you can resist the urge to spend, even if you’re surrounded by good-time plastic-swipers.

What Do Lowered Credit Card Debt Numbers Really Mean?

The easy assumption is that Americans are purchasing less on credit and/or paying down the debt they currently have. But, according to some insiders, that may account for only part of the decrease in credit card debt we’ve seen lately. Here are some other potential causes:

• Credit card issuer charge-offs: Credit card companies make a lot of money from fees and interest, but they also end up "charging off" a lot of debt each year. Of course, they can afford to do this because of all the other income they collect, but still. When a customer files for bankruptcy and has her credit card debt forgiven by the court, the company generally writes that off as lost revenue. Similarly, if a consumer simply cannot pay, the issuer may sell the debt to a collection agency and charge off that debt. These numbers may not show up in the report of how much credit card debt Americans are currently holding, so we may have racked up more than we actually have to pay off.
• Tightened lending standards: Another result of the credit crisis we’ve found ourselves in is that lending standards for ordinary Americans have gotten tighter than ever before. This means that, even if an ordinary consumer may want to take on more debt, he may not be able to because nobody will lend to him. While this reads on a numbers-only report like lowered consumer debt, it can be a bad thing if consumers need access to lines of credit to buy cars or homes.
• New credit card rules: Finally, some analysts have suggested that the new rules introduced by the Credit CARD Act have given consumers a better idea of what they’re getting themselves into when they sign up for credit cards, and thus acted as a preventative measure against excessive consumer debt.

Climb Aboard the Less-Debt Ship

So how can you take advantage of this trend to help improve your personal financial situation? Check out these tips on avoiding over-spending when you’re out with non-frugal buddies. Suggestions include:

• Stick with cash so you don’t get caught with other people’s meals or drinks on your card;
• Pretend you’re coming down with something to avoid being pressured into pricey drinks with dinner;
• Think up something big you can say you’re saving for to avoid endless purchases… and then really save; and more.

No matter what your reasons for improving your financial profile, these tips should help you get a head start.

Posted in Bankruptcy and the Economy, Consumer Credit, Credit Cards, Credit and Bankruptcy, Economy, consumer debt | Comments Off

Personal Finance Taking a Hit as Banks Close in Poorer Areas

A recent report from the New York Times highlights a troubling change in the banking industry: according to the Times, banks across the country have taken to closing branches in middle- and low-income neighborhoods even as they maintained or opened new branches in wealthier areas.

Personal finance experts of all stripes are understandably upset about the shift – fewer available banks could have disastrous consequences for the financial health of families in affected areas.

The High Cost of Being “Unbanked”

Here’s a look at some of the potential ramifications closing banks in poorer areas.

• Increased reliance on payday lenders and check cashers: Without nearby bank branches, families in effected communities will be pushed to rely for their financial needs on so-called “predatory” lenders such as payday loan stores, cash advance outfits and check cashers. Such organizations can contribute to a cycle of poverty by charging high interest rates and fees for their services without offering clients a vehicle for saving their money.
• Diminished saving incentives and opportunities: Without ready access to savings accounts, people living in communities without brick-and-mortar banks have a slimmer chance at reaping the benefits of opening a savings account (including earning interest on their money). In the long term, this can make financial emergencies particularly devastating, and can lead to bankruptcy filings.
• Damaged credit and decreased ability to get loans: One thing that a savings account does is to bolster a person’s credit rating – when lenders run a credit check, they can view the status of a potential borrower’s bank accounts. Those with accounts in good standing who have a cash cushion available to them are considered better credit risks than those without any cash reserves. This can affect interest rates a borrower pays and thus determine how expensive or inexpensive a loan is.

A Look at the Numbers

So how dramatic was the shift toward closing banks in lower-income areas in the last two years? Here’s a look at the numbers, as reported in the Times:

• More closings than openings: 2010 reportedly marked the first year in a decade and a half that more banks closed their doors in the U.S. than opened them.
• Number of closings: In 2009, the country boasted 99,550 bank branches; last year, that number had fallen to 98,517 branches, nearly a 1,000-branch drop.
• Number of unbanked Americans: It seems that as many as 30 million Americans rely primarily or in part on “non-traditional” financial institutions like check cashers and payday lenders – that’s about 10 percent of the country.
• Big banks participating: While some smaller banks reportedly closed branches as part of consolidation moves to survive serious debt, it seems that Bank of America also closed 25 branches in communities with moderate income levels and opened 14 in richer places.

So why is this happening? On proposed reason is that the Community Reinvestment Act, meant to improve financial opportunities in poorer areas, is being insufficiently enforced.

Posted in Bankruptcy and Predatory Lending, Bankruptcy and the Economy, Consumer Credit, payday loans, predatory lending, recession | Comments Off

What’s the Latest on Payday Loans?

In the last few years, lawmakers in many states have taken on payday loans as a pet cause, passing legislation that outlaws or severely limits what these predatory lending institutions can charge and how they can operate.

But a recent post at CreditBloggers points out that many payday lending operations are still thriving, for a number of reasons. Here’s a look at the latest payday lending landscape and a reminder of just how expensive these seemingly innocuous loans actually are.

Restrictions on Payday Lending

In recent years, state lawmakers have put a variety of limits on how payday loan stores can operate:

• Ohio: State legislators limited payday lending interest rates to 28 percent (a significant decrease from the 400+ percent some lenders charge annually). The legislation affected the payday lenders, naturally, but apparently did not result in their flight from the state.
• Montana: In November’s election, 72 percent of voters reportedly voted to make payday lending illegal in the state, and a new measure that went into effect on the first day of 2011 limits interest rates to 36 percent. The result, it seems, is that most payday loan stores have packed up and headed out, unable to make sufficient profit under those terms.
• Arizona: When a law permitting high-interest lending was not renewed, sources note that some lenders remained in the state but one national chain (Advance America Cash Advance Centers) quit the state entirely.
• Other states: Elsewhere in the country, legislation has been introduced and/or passed to limit the amount of interest payday lenders can charge and how they can operate their businesses.

So why, with so many restrictions in place and so much public energy devoted to eliminating payday lending abuses, are some payday lenders still thriving?

The Credit Crunch and Payday Lending

Unfortunately, one effect the recession has had on the lending landscape is that many lenders have tightened their lending standards. In fact, while the number of banks in the nation reportedly increased between 2007 and 2009, the dollar amount of loans they issued dropped by a staggering 51 percent.

What does that mean for ordinary consumers (and especially those whose credit is less than pristine)?

• Fewer borrowing options: With banks holding onto their money more tightly, fewer consumers have a chance at getting loans from these mainstream, trustworthy sources.
• Prime ground for alternative lenders: When people need money, though, they have to get it from somewhere. And, because of the way their business model works, payday lenders are often the go-to place for folks who can’t get loans elsewhere.
• Serious danger for serious debt: Unfortunately, just because payday loans may seem like your only option does not mean that they’re any safer than they used to be. Payday loans can lead to a debilitating cycle of debt and can come with interest rates of more than 400 percent over the course of a year! Remember that many financial advisors recommend almost every other source of financing over payday loans.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Consumer Protection, predatory lending | Comments Off

FTC Halts Robocall Credit Card Scam

The Federal Trade Commission announced this week that it has shut down operations of a company charged with a scam that involved illegally making robocalls and taking consumers’ money by falsely promising them lowered credit card interest rates.

The scam, according to the FTC, worked like this:

• Automated phone calls: The company, JPM Accelerated Services, reportedly set up robocalls to thousands of homes (some of which were on the National Do Not Call Registry). The calls indicated that the company was a “card services” provider and little else.
• False promises: Telephone respondents who pressed one were apparently transferred to live telemarketers who offered to lower their credit card interest rates and thus save them thousands of dollars. The price of the service, sources note, ranged from $495 to $995, and the company apparently guaranteed a full refund to anyone not satisfied with the results.
• Failure to follow through: Of course, because this was a scam, the company did not follow through, and thousands of consumers in need of financial relief ended up losing even more money they couldn’t afford.
• Serious settlement fine announced: As part of the settlement, judgments of $5.9 million against JPM Accelerated Services and $3.2 million against related scammers have been imposed; however, the defendants at this time are unable to pay the fines, according to sources. The judgments represent the amount of money consumers were bilked out of as a result of the scams.

The Truth about Lowering Your Credit Card Interest Rates

Scams like the one recently halted by the FTC are all too common, perhaps because unscrupulous scammers know that financially strapped consumers are often willing to take even big chances to get out of debt.

But if you’re interested in lowering your credit card interest rates, the truth is that you can negotiate with your creditors yourself. Here’s how:

• Figure out where you stand financially: Look at your monthly budget and figure out what you can afford to pay toward your credit card debt each month.
• Stop charging: When you commit to paying off credit card debt, it’s important to stop putting new charges on your accounts.
• Look at your bills: Lay out your most recent bills and figure out what you owe, what your current interest rates are, and what your current monthly payments are.
• Call your credit card issuers: When you’re armed with all this information, contact your credit card companies directly, explain your situation and ask for some sort of lowered payment. It’s usually a good idea to ask for something specific, like lowered interest rates, lowered monthly payments, or a reduction of the total principal you owe.
• Reassess your situation: If your credit card issuer denies you, you may want to explore other debt-relief options, like filing for personal bankruptcy.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Consumer Protection, Credit Card, Credit and Bankruptcy, predatory lending | Comments Off

Can No-Limit Credit Cards Hurt Your Credit Score?

A recent article in the New York Times warns of the potential credit-score harm that a no-spending-limit credit card can have. And, while a credit card with no spending limit may seem like a product that would only be available to folks with strong credit, actually using one might backfire.

How Your Credit Score Works

In order to understand how no-spending-limit cards could hurt your credit score, it’s important to know how a credit score is calculated. Here’s a summary:

• Payment history: Your record of on-time payments is one factor that determines your overall credit rating. Unsurprisingly, timely payments help improve your credit score and late or missed payments can hurt a score.
• Available credit ratio: This refers to how much credit you’re currently using compared to how much you have at your disposal. As a general rule, using only a small percentage of your available credit is best for your credit score; maxing out credit cards or otherwise approaching the limits of what you can borrow is worse.
• Age of accounts: Older accounts are considered “better” than newer ones because they demonstrate your long-term ability to handle credit.
• Diversity of accounts: This factor refers to what kind of variety you have in your credit sources. It’s best to have credit from various sources (e.g. from a mortgage, a car loan, a student loan, and a credit card rather than just four credit cards). Theoretically, this demonstrates your ability to handle different kinds of credit.
• Credit inquiries: Having lots of credit inquiries on your credit report can damage your score. This is because inquiries happen when consumers apply for a new loan or line of credit. A person trying to take out lots of new credit in a short time is seen as a high credit risk.

How No-Limit Cards Can Affect Your Score

No-limit credit cards play into the “available credit ratio” factor of the credit score. Depending on how your card issuer reports your account to the bureaus, one of two things can happen:

• The card is reported as an “open account”: In this scenario, the card issuer reports the account as, essentially, one without a set limit. Because of this, the no-limit card shouldn’t have much of a negative impact on your credit score.
• The card is reported as a “revolving account”: In this scenario, the card issuer must report an account limit, which usually defaults to your current balance or your highest balance within a certain time period. Naturally, this method of reporting would essentially show your card as "maxed out" at all times - even though you can always take on more debt - and put a significant dent in your credit score .

So how to decide whether a no-spending-limit card is for you? First of all, figure out how your issuer plans to report your account to the credit bureaus. And if it identifies the revolving account technique, you might want to drop that application form.

Posted in Consumer Credit, Consumer Protection, Credit, Credit Cards, Credit and Bankruptcy, Financial Literacy | Comments Off

Watch out for these Ridiculous (but Legal) Credit Card Fees

Since the passage of the Credit CARD Act and its full implementation this summer, consumers have been protected in some important ways from the credit card industry. But, as Credit.com reminds us in this post about absurd credit card fees, there are still plenty of credit card industry practices to be wary of.

Here’s a look at some of the fees you should watch out for (and avoid, if possible) if you’re in the market for a credit card.

• Hefty upfront or activation fees: Though the CARD Act limited how high initial fees can be on credit cards, many issuers are still charging upfront and/or activation fees. One industry insider has apparently defended these fees as legal because many issuers assess them before an account has officially been activated, meaning that they can’t contribute to the card’s limit.
• Credit insurance or protection: This credit card charge is reportedly designed to allow consumers to stop making payments if they lose their job unexpectedly (but, one would assume, it would not stop any interest from accruing on the balance due). Naturally, it’s not free, and, according to Credit.com, your credit card issuer may not even tell you that you’re paying for such “protection” – you have to check your bill to determine whether you’re forking over cash for this. And, if you are, consider calling your card issuer to cancel it.
• Inactivity fees in disguise: Because the CARD Act forbids credit card issuers to charge inactivity fees (that is, charges for not using a card), some companies, it seems, have done little more than renamed their inactivity fees to keep them alive. Some cards apparently charge “annual fees,” which consumers don’t have to pay if they charge a certain amount each year. If you use your card very little and don’t think you’ll reach the annual fee limit, you may want to close the account.
• “Pick-a-rate” interest rates: This practice, according to Credit.com, is particularly nefarious because it can go undetected by individual credit card holders – it doesn’t cost individuals very much money, but, when applied to millions of accounts, earns a hefty chunk of change for credit card companies. What essentially happens is that credit card issuers charge a slightly higher interest rate than usual – your best bet is to avoid cards that have this language in the agreement: your interest rate “will be the maximum prime rate reported in the 90 days preceding the last day of the billing cycle.” An ordinary interest rate will be signified in your contract in this language: your interest rate “will be the maximum prime rate reported on the last day of the billing cycle.”

The bottom line? Watch out. Even though federal law protects your consumer rights to a certain extent, it’s still essential to read all the fine print and make sure you understand the terms of your credit card before you sign anything.

Posted in Consumer Credit, Credit Card Debt, Credit Cards, Credit and Bankruptcy, Financial Literacy | Comments Off

A Better Alternative to Payday Loans?

The financial dangers of taking on a payday loan (a short-term, high-interest loan offered to people with weak financial histories) generally outweigh any benefits. For cash-strapped Americans who need to make rent or utility payments, though, payday loans are often the only viable source of cash.

But, according to a post on WiseBread.com, that might change soon: it seems that, in some parts of the country, a more consumer friendly alternative to payday loans is cropping up.

More Affordable Small Loans

Here’s a look at what might soon act as a better option for people looking to borrow a little money for a short amount of time.

• FDIC pilot program: Between February 2008 and February 2010, the Federal Deposit Insurance Corporation tested a program that allowed Americans to borrow up to $2,500 for a period greater than 90 days. Interest rates were capped at 36 percent (but were often less).
• Non-payment loan requirements: In addition to making regular payments on their loans, borrowers were often required to meet other criteria, such as opening and putting money into a savings account, taking a financial literacy class and more. These measures were instituted to reduce or eliminate a borrower’s need for small dollar amount loans in the future.

According to the FDIC’s web site, the experiment showed promising results in many of the volunteer test banks (28 across the country). Now, the question many consumer advocates are asking is when will such programs be more widely available.

Finding Affordable Loans Near You

If you’re in need of a loan but don’t have the credit score or history to qualify for a traditional bank loan, you may be able to find a small dollar amount lender near you that won’t charge punishing interest rates. Here’s what to look for:

• Check out your local banks: Sources note that national banks like Bank of America and Wells Fargo have not yet hopped on the small loan bandwagon, but various regional banks across the country do offer a variety of small loans. To find out what your options are, call some local banks and ask about their non-traditional lending programs.
• Visit a credit union: If no banks in your area offer smaller loans, check out some of the credit unions. Because they’re structured on a more community-centric model, credit unions may have more alternatives for local members without other options.

It’s uncertain right now whether these programs will catch on (and even whether they’ll get some sort of national support to help them grow), but it seems that the FDIC’s chair, Sheila Blair, hopes they do.

To learn more about small dollar amount loans and how they might help you, visit the FDIC’s web site (link above) or check out the full WiseBread.com article.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Credit and Bankruptcy, consumer debt, predatory lending | Comments Off

Should Medical Debts Show Up on a Credit Report?

In recent weeks, the U.S. House of Representatives passed a piece of legislation that would require credit reporting bureaus to remove medical debts from consumers' credit reports if those debts were paid or settled more than 45 days before the release of the report.

If the Senate passes a similar bill, this could mean good news for millions of Americans who have seen their credit rating suffer because of medical bills they were unable to pay.

Medical Bills & Bankruptcy

Sources note that, in recent years, medical debt has ranked as the most common contributing factor to personal bankruptcy filings in the U.S. And, according to insiders, that's partly because of the following reasons.

• Unclear medical billing techniques: As you've probably noticed, most medical care facilities don't send you out the door with a bill for their services – instead, the bill comes weeks or sometimes months later, and you have to sift through it to figure out what you were charged for.
• Limited or absent medical insurance: As recent debates over healthcare reform reminded us, millions of Americans don't have adequate medical insurance, meaning that even relatively minor procedures can have severe financial consequences for the uninsured.
• Persistently high unemployment: Because health coverage in this country is generally linked to employment, the currently high unemployment rate means that more Americans than ever are uninsured or underinsured. Expensive medical bills, coupled with limited income, often mean serious financial distress.

Medical Bills & Credit Reporting

So what would be the benefit of removing paid or settled medical debts from credit reports?

• Improved credit: With fewer negative actions on a credit report, more Americans would qualify for more attractive loan terms (like lower interest rates). This, in turn, would set the stage for people acquiring less debt overall and perhaps mean fewer people would need to seek bankruptcy protection.
• Improved incentives to pay: Knowing that paying or settling medical debts could have a seriously positive impact on their credit scores could push more consumers to negotiate payments on medical bills. The long-term benefits associated with an improved credit score might provide the motivation to work through confusing language and overwhelming bill totals.

Medical Bankruptcy

The Senate's action on this bill could play an important role on the finances and credit health of millions of Americans. According to one study, as many as 40 percent of Americans have medical collections on their credit reports – and such information is harming their overall credit health.

If you're worried about medical debts or think you may need bankruptcy protection to address your financial concerns, take action now by connecting with a bankruptcy lawyer for a free consultation.

Posted in Bankruptcy, Consumer Credit, Consumer Protection, Credit and Bankruptcy, Creditors, Legal Info | Comments Off

Credit Card Offers Begin to Crowd Mailboxes Again

As the economy begins to sputter back to life, various indicators are offering encouraging recovery signs. And, according to this article from msnbc.com, the first quarter of 2010 had one more such indicator: an uptick in the number of credit card offers sent to American households through the mail.

Reasons for the Increase

A combination of factors led to the serious drop-off in mailed credit card offers during the last several months: first, the recession meant card issuers were writing off billions of dollars in debt and none too keen to take on new customers; second, the Obama Administration’s Credit CARD Act tightened many rules governing the way the industry ran.

So what can you expect from the latest batch of credit card offers in your mailbox?

• Targeted to those with strong credit: Sources indicate that the majority of credit card offers are geared toward those with good repayment histories, which isn’t surprising, since issuers are likely eager to issue loans they can expect to see repaid.
• Easier to decode: Part of the Credit CARD Act requires all card offers to have a shortcut box that indicates interest rates, fees and other specifics about the offer to make your decision easier and less confusing.
• More common annual fees: Because new laws restrict some of card issuers’ revenue sources, more cards are likely to come with a yearly fee attached.
• Greater rewards offers: Apparently, rewards cards users tend to be good customers for credit card companies, so sources are expecting more of this type of card available.
• Adjustable interest rates: Again, to make up for lost revenue in other areas, more card issuers are expected to issue credit cards whose rates can fluctuate. For this reason, it’s important to read your entire credit card agreement before committing to it.
• Increased fees for balance transfers: Gone are the days of no-cost transfers from one credit card to another. In order to guarantee income, many issuers will be charging transaction fees and immediate interest for those looking to move balances from one card to another.

If You’re Looking for a New Credit Card

This may be good news for people looking to increase their total available credit, but remember: the best offer for you may not arrive at your doorstep, so before selecting your next piece of plastic, be sure to do plenty of online research to make sure you’ve explored all available offers.

Additional Resources

The Credit CARD Act of 2009 (PDF)

Posted in Consumer Credit, Credit Cards, Credit and Bankruptcy | Comments Off