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Look Out for More (Legal) Credit Card Fees

With the Credit CARD Act set to take full effect on August 22, many credit card issuers are reportedly already altering their policies to come into compliance with the law. And, because that law seriously limits some of the fees issuers can charge (including overdraft fees), many banks are also, according to this article, introducing new fees.

What You Might Notice

Make sure you’re reading your credit card statements closely in the coming months, as any new fees will be mentioned there. Here are some you might encounter:

• Annual Fee: This isn’t a new one, but many issuers have abandoned annual fees in favor of inactivity fees, charging customers who don’t use their cards often enough. Because the CARD Act outlaws inactivity fees, sources note that you should expect the annual fee to work much the same way: if you make enough purchases, your issuer might waive the expense, but if you don’t spend a minimum amount of money (i.e. if your account is too inactive), expect to pay.
• Foreign Transaction Fee: This is for when you make purchases in another country (regardless of currency) and is often charged in addition to a currency conversion fee. You can apparently expect this one to come to one to three percent of each purchase you make—to minimize the amount you pay, taking large amounts of cash out of ATMs and making cash-only transactions is often the best plan.
• Cash Advance Fee: Again, this one is already company standard, but sources report that you can expect your cash advance fee to rise in the coming months. Remember: cash advance may be convenient, but it’s expensive, as card issuers charge both a flat transaction fee and a steep interest rate (usually higher than your overall interest rate).
• Paper Statement Fee: Like receiving your monthly statement in the mail? It seems many banks have begun charging fees (ranging from $1 to $9 per month) to those who want paper statements. If you’ve got an email address and a printer (or digital storage space), you might want to opt out of this.
• Setup Fee: This is reportedly already common practice on most secured credit cards, which essentially work like debit cards: the transactions you make are secured by money you pay to the credit card company ahead of time. While secured credit cards can be useful as credit rebuilding tools to those with weak credit (including those recovering from bankruptcy filings), they’re expensive and often come laden with fees, so that you might have to pay a couple hundred dollars just to activate your account.
• Reward fees: Whether you want to redeem your rewards points or get them back after an issuer takes them as a penalty (maybe for a late payment), you’ll have to pay, usually between $20 and $50, according to the article mentioned earlier.

Posted in Credit Cards, Credit and Bankruptcy, credit CARD act, credit card fees | Comments Off

Credit Card Delinquencies Down in First Quarter

As many people who have filed for bankruptcy know, one of the main causes of filing bankruptcy is unmanageable credit card debt. Often, a bankruptcy filing comes after months of missed payments.

Recent data from the American Bankers Association (ABA) shows that, as a nation, we’re improving our on-time payment rate for our credit cards. In fact, we’ve improved in a variety of areas:

• Bank card delinquencies reportedly fell to 3.88 percent of all accounts, down from 4.39 percent in the fourth quarter of 2009. The current rate is also apparently below the 15-year average of 3.93 percent and stands as the lowest rate recorded since 2002.
• Auto loan delinquencies fell in both the direct category (from 1.94 percent to 1.79 percent) and the indirect category (from 3.15 percent to 3.04 percent).
• Home equity loan delinquencies dropped from 4.32 percent to 4.12 percent, marking the first dip in two years, according to the ABA.
• Personal loan delinquencies decreased slightly, from 3.63 to 3.61 percent.
• Property improvement loan delinquencies inched downward, from 1.63 percent to 1.40 percent.
• Home equity lines of credit delinquencies dropped from 2.04 percent to 1.81 percent.

The ABA considers loans delinquent when payments are thirty days or more overdue, so the decrease in delinquency rates suggests that more Americans are making a concerted effort to make payments on time, on a variety of loan types.

But not all of the ABA’s findings were rosy: the group also noted that several categories saw increased delinquency in the first quarter of 2010:

Marine loan delinquencies: Up to 1.93 percent from 1.63 percent
• Mobile home loan delinquencies: Up to 3.65 percent from 3.41 percent
• RV loan delinquencies: Up to 1.58 percent from 1.44 percent
• Non-card revolving loan delinquencies: Up to 1.63 percent from 1.46 percent

While some analysts point to the overall decrease in consumer delinquencies as evidence to support the theory that the economy is on the upswing, others looking at the financial landscape aren’t so sure.

Numbers from the Federal Reserve released earlier this month indicate that, overall, consumer credit decreased in May 2010, which can be read as a positive sign (because people are borrowing less and so are accumulating less debt) or as a negative sign. After all, one of the main reasons we’re taking out fewer loans and opening fewer credit cards as a nation is that lenders have tightened their standards and are less willing to offer us money.

The Fed’s numbers are especially telling when broken into their categories: while consumer debt overall decreased at an annual rate of 4.5 percent in May, revolving credit (which encompasses the vast majority of credit cards) decreased at a rate of 10.5 percent, and non-revolving credit decreased only at a rate of 1.5 percent.

The jury may be out on whether these numbers are good for the larger economy, but if you’re part of the trend of paying loans on time, keep up the good work.

Additional Resources

Credit Card Borrowing, Delinquency, and Personal Bankruptcy

Debt, Delinquency, and Consumer Spending

Posted in Credit Card Debt, Credit and Bankruptcy, delinquency rate, economic trends | Comments Off

Credit Scores in the U.S. at Record Lows

A recent report from the Associated Press notes that Americans’ credit scores have dropped to all-time lows, with 25.5 percent of the country scoring below 600. Here’s a closer look at that figure and what it might mean for future borrowing.

Credit Scores & Borrowing

When you apply for a loan, most lenders review your FICO credit score, which can range from 300 to 850 and is based on the information in your credit report (available to view at www.annualcreditreport.com). Higher scores qualify borrowers for larger loans and loans with more attractive terms (like lower interest rates); lower scores indicate that a borrower might be a greater risk to a lender, and so qualify borrowers for smaller loans and ones with higher interest rates.

The recently released data on credit scores reportedly show the following figures:

• Scores of 599 and below: The number of people in the “low” range of credit scores has apparently jumped since the Great Recession hit—while a typical year finds that about 15 percent of those with active credit (about 25.5 million people) fall into this category, currently 25.5 percent (about 43.4 million people) reportedly score in this range.
• Scores in the middle range (650 – 699): Sources indicate that this group traditionally comprises about 15 percent of active credit users, but has fallen to 11.9 percent in recent years. The shift suggests that those most likely to take out home and car loans might now be deterred from doing so because of lowered credit scores and thus more costly loans.
• Scores in the high range (800 and above): The good news, it seems, is that the number of people with very high credit scores have increased: while the typical average hovers close to 13 percent, recent research found the group to comprise 17.9 percent of credit users.

So what does this mean for individual consumers and the larger economy?

A Slow Recovery?

Sources note that much of the economic growth in the boom years before the Great Recession was fueled by borrowing—also known as debt. While Americans were spending plenty of money, much of it was money they didn’t actually have (in the form of credit cards, mortgages, car loans, etc.).

The sky-high foreclosure rate and steadily climbing number of personal bankruptcy filings suggests that we’ve learned a lesson or two about debt as a nation, which may mean two things: first, that lenders will be a bit more discerning when issuing loans; and second, that borrowers will be a little more cautious when applying for them.

This could translate to a slow recovery, as we pare back our spending in favor of building up safety nets.

Posted in Bankruptcy, Credit Score, Credit and Bankruptcy, borrowing, recession | Comments Off

Credit Cards After Bankruptcy

After a bankruptcy filing, many people are reluctant to wade back into the world of credit, often because too much credit allowed them to build up the kind of debt that pushed them into filing for bankruptcy in the first place.

But, as many financial analysts note, rebuilding credit is an important part of recovering from personal bankruptcy. Here’s an outline of why and how to know if you’re ready to apply for a new credit card. For a more detailed look, check out this article from BankRate.com.

Credit after Bankruptcy?

Put simply, you need credit because in contemporary American life, your credit history plays a major role. Specifically:

• Housing: Many landlords check a person’s credit report before determining whether to rent to her. Theoretically, because a credit report includes a history of payment of various debts, it can give a landlord an idea of what kind of renter you’ll be (i.e. whether or not you’ll pay rent on time).
• Employment: It’s also common for employers to check the credit report of a potential employee. Some lawmakers are trying to see this practice changed, but for now you can expect a job application to include someone peeking at your credit report.
• Loans: This is perhaps the most important reason to reestablish credit. Whenever you apply for a loan (whether it’s a credit card, a mortgage or something between), the lender will check your credit. The terms of your loan will generally be based in large part on your credit score and the information in your credit report. Those with a strong history of paying loans on time are decent risks for lenders and so can be offered lower interest rates. And the reverse is also true.

But having no credit history at all means that potential landlords, employers or lenders would have no way to gauge what kind of risk you’d be to them, and so might deny you whatever it is you want.

When to Apply for a Credit Card

This depends largely on you and your financial habits. The BankRate.com article suggests considering these factors:

• How you’ll use it: The best way to use a credit card is to use it like cash. In other words, only buy with a card what you could afford with cash. That way, you can pay your bill in full at the end of each month. Cards grant you certain conveniences (like online shopping), not a license to spend.
• Why you filed for bankruptcy: If something unexpected like a divorce, death, illness or job loss led you to file, consider saving up about two months’ expenses before applying for a card. That way, if another emergency crops up, you won’t be tempted to run up a balance on your card.
• What card you’ll get: There are a lot of credit cards out there. Do plenty of research and find one that suits your needs. And if you can’t qualify for anything but cards with outlandish fees, wait a bit longer and try again.

Posted in Credit After Bankruptcy, Credit Cards, Credit and Bankruptcy, after bankruptcy | Comments Off

Choosing Your Card Wisely to Protect Yourself from Fraud

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, which is the parent company for Wallet Blog and Card Hub—an online marketplace for credit card offers.

‘Credit or Debit?’ You’re used to hearing this question when checking out at the grocery store, but have you ever stopped to think about what your choice means in terms of your financial security?

Using a credit or debit card makes you vulnerable to fraud, but 62 percent of purchases in 2009 made using electronic payment methods* suggests that this fact is not stopping consumers from using their cards. Cash may be safer in terms of fraud, but it is simply not a practical option for our day-to-day needs. So this begs the question, ‘credit or debit?’ when it comes to fraud protection.

Fortunately, the major credit and debit card networks (i.e. VISA and MasterCard) adhere to a strict 0 percent liability policy for victims of fraud. That means that whatever money is stolen from you via your debit or credit card will be returned to you in full. That does not mean, however, that you will have the same experience getting your money back with both your debit and credit card.

Your debit card, as we all know, is tied to your checking account. This is your actual money – the money you use to pay for groceries, gas, utilities, and major expenses like your mortgage payment. If someone wipes out your checking account, you have a serious cash flow problem. You won’t have access to the money you need to make these important purchases or payments until your debit card issuer is able to sort out the fraud claim. While you’ll get your money back eventually, that doesn’t mean you’ll get it before you bounce your rent check or need to do your weekly grocery shopping.

Your credit card, on the other hand, isn’t tied to real money at all. If someone maxes out your credit card, you’re not out anything that you’ve earned. Simply dispute the charge and your credit will be restored. In most cases, you won’t even become responsible for the debt for one to two months after the fraudulent charges have been made. This is more than enough time for your credit card company to sort out the fraud claim before the debt becomes your responsibility.

Because of these factors, it is my recommendation that you use a credit card for day-to-day purchases. Not only are you risking less in terms of fraud, but if you have a rewards credit card you also have the opportunity to earn extra cash or airline miles on your purchases. Your debit card is simply withdrawing your money and giving you nothing in return.

I also recommend signing up for ACH to have your credit card payments automatically withdrawn from your checking account every month. This way you won’t have to worry about paying your credit card bill on time and your bill will be paid in full.

Of course, a credit card is not a good option for a person who is not capable of managing their credit responsibly. For everyone else, though, a credit card can offer less hassle and more peace of mind when it comes to protecting your money.

* Source: CSCU, The Nilson Report, VISA

The views and opinions expressed in this post are those of the author only, and do not reflect the views and opinions of Total Bankruptcy. If you are struggling with credit card debt, you can explore your bankruptcy options with a local attorney.

Posted in Credit Cards, Credit and Bankruptcy, Fraud, credit vs debit, debit cards | Comments Off

The Latest Credit Card Regulations from the Federal Reserve

Certain provisions of the Credit Card Accountability and Responsibility and Disclosure Act (Credit CARD Act) that President Obama signed into law last year will go into effect on August 22, 2010. As that date approaches, the Federal Reserve has been announcing adjustments and modifications to prepare consumers.

A few such adjustments were announced this week. The final rule issued by the Fed (which amends Regulation Z, also known as the Truth in Lending Act) includes these provisions:

• Credit card issuers cannot charge more than $25 for late payments or other violations of an account’s terms unless a user has incurred prior fines or a higher fee constitutes a reasonable percentage of the transaction that caused the violation.
• Card issuers cannot charge fines or fees that exceed a card user’s payment. For transactions less than $25, the fee can equal up to the purchase amount.
• Issuers are no longer permitted to charge “inactivity” fees to penalize customers who do not use their accounts for a certain amount of time.
• Issuers can no longer charge multiple fines or fees for a single violation of the terms of the account (such as a late payment).
• Issuers that have increased rates since the beginning of 2009 must reevaluate whether the reason for the rate increase (such as a drop in credit score) still exists, and, if the reason no longer exists, to lower the interest rate.

A detailed, step-by-step look at the new regulations can be found at the Federal Reserve’s consumers page.

Other Changes to Note

The Fed also offers explanations of those changes that took effect on February 22 of this year. If you haven’t already noticed, these changes include:

• Advance notice of fee or interest rate increases: Card issuers are required to inform consumers at least 45 days in advance of such changes.
• Length of time to pay off a balance: This is a handy feature, since it clearly states how long it would take to pay off your debt making only the minimum payment. Your statement should also identify how much you need to pay each month in order to pay off your debt in three years.
• Application of increased interest rates: Should your credit card issuer increase your interest rate, it cannot apply the new rate to existing debt; only new purchases can be charged at that rate.

For a full examination of the changes, be sure to check out the Fed’s site. How are these changes affecting you? Leave your thoughts in the comments below.

Posted in Credit Cards, Credit and Bankruptcy, credit CARD act, fees, interest | Comments Off

Seattle Earns Dubious Debtor Distinction

It turns out that Seattle leads the country in a category other than caffeine consumption. According to a survey cited in the Seattle Post-Intelligencer, among the 20 most populated metropolitan areas in the country, Seattle has the highest average amount of consumer debt.

The survey, conducted by the information services company Experian, found that the average Seattle consumer owes $26,646. This figure is almost $2,000 more than the national average debt per consumer of $24,775.

However, the news is not all bad for residents of the Emerald City. The survey also revealed that Seattle consumers have very few late payments and stay below their credit limits. These signs indicate that Seattle consumers are using their credit wisely and maintaining healthy credit scores, despite their high level of borrowing.

According to the survey, Seattle narrowly edged Dallas, which has an average consumer debt of $26,599. According to the Dallas Morning News, Dallas is tied with Miami for the lowest average credit score among its consumers, and the number of missed loan payments is higher than the national average.

Rounding out the top five American cities with high amounts of consumer debt were Denver, Atlanta, and Phoenix. Perhaps surprisingly, the two largest cities in the country finished near the bottom of the list. New York came in at number 17, while Los Angeles consumers had the lowest average debt of large American cities.

In conducting the survey, Experian took samples of consumer credit reports from each of the 20 metropolitan areas. The numbers include items such as credit cards and car loans, but do not take into account mortgage debt, which is often excluded from consumer debt surveys.

Lessons for Consumers

• Late payments are the single biggest factor in lowering credit scores. Dallas consumers’ rate of late payments was nearly 20 percent higher than the national average. This explains the city’s low credit ranking, and shows that making credit payments on time is crucial to maintaining a health credit score.
• A high level of debt is not an insurmountable obstacle. Seattle consumers owe the most money, but also tend to make their payments on time. By using credit responsibly, Seattle consumers have been able to maintain decent credit scores despite their high levels of spending.
• Living in a large city may be expensive, but doesn’t have to result in high amounts of debt or even bankruptcy. The presence of New York and Los Angeles at the bottom of the list suggest that it is possible to have high living expenses but maintain healthy credit.

Additional Resources

Click here to see the entire list of average consumer debt in the largest American cities.

Posted in Bankruptcy, Credit Score, Credit and Bankruptcy, consumer debt, debt | 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

Visa Cuts One Sneaky Credit Card Trick

In a recent press release, Visa announced that it will stop an online practice apparently dubbed a form of “aggressive” abuse by members of Congress. This is good news for online shoppers. Here are the details.

• Data passing: Several credit card issuers have introduced what’s called a "data pass" feature to customers during online purchases. After paying for merchandise online, customers are prompted to visit another website and accept a temporary membership for some type of reward.
• Shared information: Once customers accept such offers, they’re directed away from the web site on which the original transaction was made. At the second site, they may need to opt into some sort of free trial membership or subscription—but they do not need to reenter credit card information.
• Unexpected charges: Though consumers themselves don’t give their information to these secondary sites, the credit card companies do (or did, in Visa’s case), and "free" trials quickly defaulted into costly monthly subscriptions or memberships. When customers began to see unfamiliar items on their bills, they apparently complained about the behavior.

Last fall, the Senate's Commerce Committee issued a report (see below) on these activities: it seems that the companies Affinion, Vertue and WebLoyalty sold $1.4 billion dollars in online memberships in such transactions and paid $792 million to the online retailers that participated.

While several online retailers apparently responded to initial complaints from Congress about the angry consumer complaints that began pouring in and canceled their participation, Visa is the first credit card company to announce a halt to the practice.

According to the press release, Visa's "priority is protecting our cardholders and the integrity of the electronic payments system. Consumers who shop online using their Visa cards should be confident that they will only be charged for the products and services they legitimately intend to purchase—not those that are foisted on them through deceptive data pass schemes."

Sources indicate that "rewards" offers may still appear when you make online purchases, but you’ll have to reenter your credit card information for a transaction to go through.

Protect yourself: In general, when shopping online, be very careful if you navigate away from the page on which you made your initial transaction. That's when the danger of unwanted and unexpected purchases mounts.

Additional Resources

Aggressive Sales Tactics on the Internet and Their Impact on American Consumers

Posted in Credit Cards, Credit and Bankruptcy, abusvie practices, online shopping, visa | Comments Off

SEC Proposes Tighter Regulation of Asset-Backed Securities

The Securities and Exchange Commission (SEC) announced that it has proposed new rules to govern the field of bonds backed by consumer loans, perhaps best known in its incarnation of mortgage-backed securities sold during the subprime housing boom.

Background: What They Are, How They Work

So, what might this mean for borrowers and investors? Here’s a little background on asset-backed securities and what they do.

• Consumer loans: When you and other ordinary Americans take out mortgages and other loans, you go through a bank or other lender. When the loan is originated, that lender "holds your debt."
• Loan bundling: It has become common practice to "bundle" consumer loans (especially mortgages), which means to lump them together to sell off to investors. But, rather than selling off easy-to-trace sections of the bundle, many banks sell off sections composed of various loans. These sections are the securities.
• Asset backed securities: Because the securities theoretically earn money when consumers make payments on their loans, they’re known as "asset-backed securities."
• Bond ratings: During the subprime boom, credit agencies gave various asset-backed securities risk evaluations to help guide investors: high-risk securities had the potential to yield more money, but with a greater risk of consumers not paying. Lower-risk securities offered a lower earning potential, but with more security for investors.

Naturally, the system works well assuming everyone does what they’re supposed to: banks issue loans consumers can afford, credit agencies give honest ratings, consumers make regular payments, etc.

But, as we know from the collapse of the subprime market, that’s not necessarily how the system works in practice.

The Proposed Rules

The SEC’s proposed changes would essentially take out the role of the credit agencies. Rather than have credit agencies rate loans, bond issuers themselves would be required to:

• Keep larger portions of loans on their books, thus giving them an increased stake
• Provide regular reports on the exact loans that compose a bond
• Guarantee the risk level of their products

If these changes pass, it’s expected that they’ll help prevent a repeat of many of the problems that caused the subprime bubble to expand and burst.

Additional Resources

SEC Proposal on Asset-Backed Securities (PDF)

Posted in Credit and Bankruptcy, Mortgages, SEC, securities, subprime lending | Comments Off