A credit card complaint hotline is the latest battle in the war over the Consumer Financial Protection Bureau. Photo: MoneyBlogNewz/Flickr/CC-BY

The latest fight over the Consumer Financial Protection Bureau involves a credit card hotline. The hotline would essentially take calls from concerned consumers, and the agency would compile complaints about credit card companies. However, banks and card issuers want restrictions placed on the information.

Banks and card companies want to avoid crowd-sourced penalties

The latest issue of contention regarding the beleaguered Consumer Financial Protection Bureau is a credit card hotline that would be used to gather complaints about credit card issuers from customers, according to Daily Finance. Customers can call in to report abuse, and that information would be disseminated by the Bureau to the appropriate state regulatory bodies. Basically, the complaint system would be crowdsourcing; the information would come straight from the people. However, the complaints would also go straight to government officials who could potentially fine card issuers without vetting the complaints. Card issuers and banks, according to Bloomberg, are looking to keep the database private, so only the card issuer, the customer who complained and the appropriate regulatory agency can view information about the individual complaint.

Banks want flow of information stemmed

The idea behind making the information private is that it restricts the flow of raw data, which can be unfairly biased against banks. Currently, the complaint line is set to go live on July 21, when the Consumer Financial Protection Bureau is supposed to begin operations. In its current format, anyone could access the complaint data and see everything said about every credit card issuer that it tracks. Though it may seem that banks and card issuers want to keep this information from the public to keep everyone from seeing the dishonest practices they engage in, there is a fair point to consider; some people are apt to complain about fees regardless if whether those fees were fairly levied. A way to get information straight from the public is certainly admirable, but without restraint it can easily be used inappropriately.

Future of consumer bureau clouded

The CFPB will have authority to regulate, to some extent, virtually all manners of consumer finance like credit cards, mortgages, payday loans, debit cards and so on. However, the existence of the organization has caused a fight in Congress to break out. Three different bills were recently introduced to limit the bureau, according to Reuters, two of which concern who is in charge. One bill would keep the CFPB from taking over regulatory activity from other agencies until it has a dedicated director and another would replace the current structure from having a single director to having a five member panel. Congressional Republicans have made it clear they are not in favor of Elizabeth Warren, the adviser to the White House who is assisting in getting the bureau ready for operation. It does not seem likely that it will begin operations in July as scheduled.

Sources

Daily Finance

Bloomberg

Reuters

Credit card companies are still able to get at college students despite tougher laws. Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA

Part of the provisions of the CARD Act, the law aimed at taming ethically suspect practices of credit card companies, was restrictions on how credit cards could be marketed to college students. Card companies are now finding ways around that.

Coeds can’t escape copious cadre of cards on campus

The Credit card Accountability, Responsibility and Disclosure Act was a concentrated effort by legislators to restrict credit card company practices that many people felt weren’t ethical. One of the provisions of the CARD Act was to prohibit credit card companies and card issuing institutions from marketing heavily to college students, but they are finding ways back onto campus, according to a recent article in the Wall Street Journal. The law prohibits any free promotional gifts to students, but that doesn’t prevent card issuers from offering other things like the $50 bonus for signing up for a card, as Citibank does. Chase decided to market to students on Facebook and offered “karma” reward points for friending the Chase Facebook group.

No laws broken

Most credit cards are issued by banks, not credit card or finance companies themselves. Banks are still allowed to hand out promotional literature for checking and savings accounts, just not credit cards. However, many people see that as a canard. Most marketing to students by financial services companies appears to be on the level, as a recent survey of college students by the University of Houston Law Center found 73 percent of credit card marketing to students didn’t take place on campus. Students are just as eager to skirt rules in order to get a credit card; the same survey found 29 percent of students who applied for a credit card used their student loan disbursement amounts as the proof of income required for students to get a credit card.

Financial burden of college increasing

The increasing cost of attending a four-year university is an easy inducement for students to get credit cards to experience some comforts, like a meal consisting of more than macaroni and cheese. More students go heavily into debt during college. The Sallie Mae foundation found that 92 percent of college students in 2009 charged an educational expense such as tuition or books and 20 percent of college seniors carried at least $7,000 in credit card debt, according to U.S. News and World Report. The class of 2011, according to Time, carries the highest average college debt ever seen. The class of 2011 carries a $22,900 debt burden on average. That’s an increase of 8 percent from 2010 and a 47 percent increase from 2001.

Sources

Wall Street Journal

Time

U.S. News and World Report

The Fed wants to bring swipe fees closer to what it costs banks to process debit card transactions. Image: CC MC2 Honey Nixon/Wikimedia Commons

Capping debit card swipe fees at 12 cents a transaction is part of a proposal submitted by the Federal Reserve on Thursday. The Fed is proposing the swipe fee cap and other curbs on debit card abuse by banks to comply with the financial reform bill. As expected, merchants support the measure and major credit card companies oppose it as they watched their stock take a hit on the news.

The Fed swipe limit proposal

Under the current system of debit card swipe fees, credit card companies charge retailers 1 to 2 percent of the transaction, regardless of the dollar value. The Fed debit card swipe fee proposal also includes giving merchants a choice from at least two independent debit card networks, a move that would create more competition for Visa and Mastercard. The Fed swipe limit proposal was made to comply with a provision of the financial reform bill requiring debit card swipe fees to be “reasonable and proportional” to how much it costs a bank to process electronic transactions. The Fed offered the reasoning that debit card swipe fee limits will force banks to be more cost efficient.

Banks to lose billions in easy money

Swipe fees earned credit card companies about $15 billion in 2009. The Fed swipe fee limit proposal would be a boon for retailers. An analyst at JPMorgan Chase told Bloomberg that banks that issue Visa and Mastercard credit cards could lose 80 to 90 percent of that revenue. According to UBS Investment Research, the 12 cent swipe fee cap will drive down average debit card swipe fees about 75 percent. The Fed said the new debit card swipe fee limits probably won’t translate into lower prices for consumers. But banks looking for ways to make up for their ill-gotten gains could cut back on debit card reward programs and come up with more of the creative ways to gouge consumers they are known for.

Reactions to Fed swipe fee limits

The National Retail Federation said lower costs for merchants could lead to discounts for consumers. The American Bankers Association said the Fed would allow retailers to avoid paying their fare share for the benefits they get from the card payment network. Shortly after the Fed presented the swipe fee proposal Thursday, Visa stock fell 11 percent and Mastercard stock fell 9 percent.

Sources

Washington Post

Bloomberg

Wall Street Journal

New Fed restrictions are expected to take effect in October 2011, at the earliest. (Thinkstock)

The Great Recession occurred largely as a result of unsafe lending practices that allowed consumers to exceed their means and drag the nation’s economy down with their personal finances. The extent to which this occurred could have perhaps been decreased if more proactive federal regulation had taken place.

It appears as if the Federal Reserve learned its lesson from the national financial swoon as it recently announced regulations that serve to close loopholes within the new credit card law (CARD Act) before they cause significant damage. Such a move comes in refreshingly severe contrast to the laissez fair-type policy practiced by the Fed for the last decade and seems to be a positive sign for the financial well being of the United States.

CARD Act background

The CARD Act — which took full effect in August — instituted numerous consumer protections designed to curb the predatory, harmful credit practices that were previously allowed to perpetrate unchecked and helped lead to the nation’s financial malaise. While this is the most sweeping piece of credit card legislation passed in years, sometimes vague language has allowed certain unscrupulous credit card companies to continue dangerous practices.

APR change protections

Prior to the Fed regulations, the CARD Act stated that issuers could not change a consumer’s interest rate during the first year that an account was open or apply increased APRs to existing balances unless consumers were at least 60 days delinquent. Such rules even pertained to accounts with introductory rates. However, some companies evaded the spirit of the law by offering to waive consumers’ APRs for a certain period of time while retaining the self-conferred right to revoke the waiver at will. For example, instead of offering you a 0 percent APR credit card, they would give you a card with a 15 percent APR, that they would offer to waive for the first 12 months. Their rationale was that waiver revocation would not be an APR change rate but merely a re-instituting of a normal rate. However, the Fed restrictions — expected to take effect in October 2011, at the earliest — close the door on such fee waivers.

Fee limits

The CARD Act also prohibits credit card companies from charging more than 25 percent of a card’s limit in fees during the first year an account is open, a provision that affects bad credit credit cards most significantly. Certain companies found their way around this by charging processing fees that had to be paid before an account could be opened. These fees, according to issuer thinking, did not count toward the 25 percent limit because they were not assessed during the account’s first year. However, like the fee waivers, this semantic interpretation was nullified by the Fed’s decree.

Income Determination

The Fed also banned the use of household income as a determining factor of a consumer’s ability to pay, holding that personal income will provide a far more accurate indication of how much debt someone can afford comfortably. This distinction will help protect people from the widespread severe disparities that existed between amounts owed and means of payment prior to and during the recession.

These Fed changes will surely provide consumer aid upon taking effect, but their larger implication is what’s truly important. If the Federal Reserve continues to address issues before they become significant problems, the chances of facing another recession down the road will decrease significantly. This organization had not acted so swiftly in more than 10 years, so it appears as if a policy shift has taken place. However, once could be a fluke, but two or three make a trend, so pay close attention to how the Fed acts in the coming months. Its behavior could serve as an apt indicator of our economic future.

Major credit card companies spend millions on college credit card agreements allowing them to recruit customers on campus. Image: Thinkstock

Credit card companies pay colleges millions of dollars for the right to market their cards on campus. A Federal Reserve report on college credit card agreements said that Bank of America was by far the most aggressive, paying colleges and alumni associations $62 million in 2009. The Fed report is part of a Credit Card Act provision passed earlier this year requiring credit card companies to disclose how much they pay schools to market their products.

College credit card agreements

Credit card companies paid a total of $83.5 million to colleges in order to recruit card holders on their campuses. That money netted 53,164 new student credit card accounts, according to the Fed report. The University of Notre Dame got more money than any other school from Chase Bank USA, which paid $1.8 million and ended up with just 77 new customers. FIA Card Services, the credit card arm of Bank of America, paid $1.5 million to the University of Southern California to net 659 new accounts.

Loan card rakes in penalty fees

A controversial credit card that started appearing on college campuses this year is called Higher One from MasterCard. It’s called a “loan card” to circumvent new credit card rules that prohibit such things as charging customers for inactive accounts. Higher One was created to make money off students’ financial aid. But card holders are charged a $19 monthly penalty for accounts that aren’t used for nine months. Higher One racked up $27 million in sales in its most recent quarter. More than three-quarters of that money came from fees charged to merchants and students.

Big banks on campus

The Fed report on college credit card agreements collected information on 1,044 campus deals made by 17 credit card companies. Bank of America’s FIA, U.S. Bank and Chase own 96 percent of all the college credit card agreements in 2009. FIA led all card issuers with 906 separate agreements that account for 1.61 million student credit card accounts.

Sources

CNN

Washington Post

Philadelphia Inquirer

Credit card debt has been declining nearly two years running. The trend drags on economic growth, but helps credit card companies stabilize earnings and losses. Image: Thinkstock

American consumers are steadily paying off their credit card debt. The Federal Reserve reported that U.S. families cut back on credit card use for the 23rd month in a row. Overall consumer borrowing, which includes credit cards and auto loans but not home mortgages, fell at an annual rate of $3.6 billion in July — the 17th decline in the last 18 months. Paying off credit card debt is helping stabilize a lending industry suffering from an epidemic of credit card delinquency. But a prolonged slide in consumer borrowing is a drag on the U.S. economy as it struggles to recover from the Great Recession.

Credit card debt drops with consumer spending

Consumer borrowing on credit cards fell 6.3 percent in July, following a 7.5 percent drop in June. The Associated Press reports that credit card debt has declined for 23 consecutive months — a record run. As American households struggle to repair their finances, economists expect they will keep cutting back on credit card use as long as incomes and employment don’t improve and banks struggling with high loan losses maintain tight lending standards. By borrowing less and saving more, families are helping themselves but hurting the overall U.S. economy, which depends on consumer spending to expand.

Consumers held in check by banks

To minimize their losses during the economic downturn, banks have made credit cards hard to get. However, The Street reports that consumer demand for credit cards remains strong. According to a quarterly FICO survey, new credit card accounts dropped by 17.7 percent during the 12 months that ended last April compared with the previous 12 months. In the same period, credit card applications fell only 3 percent. The Street said the numbers show consumers weren’t allowed access to all the credit they sought. During that time, the total amount of credit available on all U.S. consumer credit cards fell by 12.2 percent.

Credit card companies hire more lobbyists

The decline of consumer borrowing on credit cards is actually helping credit card companies. Debtmerica Relief reports that despite new credit card rules that limit interest rate hikes and penalty fees, credit card companies are becoming more stable as consumers reign in their spending. Credit card companies such as Capital One Financial and Discover Financial Services have seen earnings and losses stabilize. As consumers pay off more credit card debt, lenders are charging off fewer delinquent accounts. This allows them to spend money that was held in reserve to counterbalance losses. They are spending 25 percent more on increased lobbying efforts to influence future changes in federal laws.

Professional credit card offers are part of a strategy by banks to avoid consumer protections mandated by new credit card rules. Image: Thinkstock

New credit card rules mandated by the Credit Card Accountability and Responsibility and Disclosure Act of 2009 enacted robust consumer protections. But so-called “professional cards” aren’t covered by the CARD Act. Professional cards are immune from consumer protections such as limits on excessive late fees and surprise interest rate hikes. With billions of dollars in late fees and interest payments at stake, credit card companies are trying to convince ordinary consumers that they need a professional credit card, small business credit card or corporate credit card.

Professional cards not protected by CARD Act

Professional credit cards used to be reserved for small business owners or corporate executives. But the Wall Street Journal reports that since the CARD Act was passed in March 2009, credit card companies have been pushing professional cards to people who don’t need them. In an effort to dodge the consumer protections provided by new credit card rules, credit card companies are swamping ordinary consumers with credit card applications. According to the research firm Synovate, 47 million professional credit card offers were mailed in the first quarter of 2010–a 256 percent increase from the same period the year before.

Professional cards set a trap for consumers

Before consumers apply for a professional card, small business credit card or corporate card, they should be aware of several credit risks. Credit Loan reports that banks will apply any payment made over the minimum to the lowest interest balance. This means the higher interest balance is compounding interest until the lower interest balance is paid off. Professional credit cards don’t have to allow 21 days between the date a statement is mailed and the date payment is due, making late payments and late payment penalties more likely. Interest rates can also rise significantly without notice if a payment is made just one day late. Finally, professional credit cards can change interest rates, transaction fees, annual fees and penalty fees terms without any advance notice.

Extending CARD Act protections to small business

New credit card rules don’t apply to professional cards because small businesses get shafted by Congress when it passes laws to protect consumers, according to Bob Sullivan at MSNBC. Sullivan writes that small retailers, for example, suffer the most from credit card fraud. Most consumers who enjoy strong liability protection from credit card fraud aren’t aware that businesses accepting credit cards are often left holding the bag when criminals use stolen cards. Now that a different set of rules for professional cards is being exploited by credit card companies to bait consumers, Sullivan suggests that extending the same protections in the CARD Act to businesses would benefit everyone.

The final new credit card rules enacted Aug. 22 aim to protect consumers from excessive late fees and unreasonable interest rate hikes. Thinkstock photo.

The final package of new credit card rules went into effect Sunday. The latest rules limit late payment fees and other penalties. This completes a major overhaul of the credit card industry that was set into motion by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. One of the newest federal laws cuts late payment fees to an average of $25. Over the past year as new credit card rules have been rolled out, credit card companies have been dramatically increasing interest rates. Another rule requires them to justify those increases to federal regulators.

New rules target late penalties and interest rate hikes

The newest credit card rules enacted Aug. 22 prohibit credit card companies from charging more than $25 for late payments, end the practice of charging customers for not using their cards, and order them to reconsider interest rate increases imposed starting from Jan, 1, 2009. CNN reports that credit card companies must cut interest rates if the reasons they claim for the increases no longer apply. Federal regulators will review those reasons and enforce compliance with the law. However, the new rules give banks wiggle room to hike penalty fees higher than $25 if a cardholder is habitually late with payments or if the credit card company can prove the high fee is justified to offset the  cost of late payments. Another new rule prohibits penalty fees from exceeding the minimum payment or the amount charged over the credit limit.

Credit card companies scheme to recoup lost billions

The latest round of new credit card rules could subtract $3 billion a year from credit card company bottom lines. The Wall Street Journal reports card companies have already been raising fees on balance transfers and cash advances, boosting charges for overseas transactions and charging higher annual fees. Because of the new rules, credit card companies are also expected to raise monthly minimum payments due, which would enable them to increase the late payment penalty fee. Banks accustomed to reaping huge profits from penalty fees aren’t letting go easily. A credit industry executive told the Journal that before the new credit card rules, credit card companies collected about $11.4 billion in late fees. That figure is expected to drop 29 percent to about $8.1 billion.

Credit card spending rises along with interest rates

While the new credit card rules have been giving consumers some protection from excessive late fees, credit card companies have been jacking up interest rates. Another CNN report said that in the second quarter card issuers raised interest rates on existing card holders to an average of 14.7 percent — up from 13.1 percent a year ago. The current spread between the average credit card interest rate and the prime rate is 11.45 percentage points — the widest it has been in 22 years, according to Synovate market research arm of Aegis Group. Synovate also said that credit card spending reached the second-highest level ever in the second quarter.

Credit card limits are being slashed without warning as banks minimize risk, but the practice hurts credit scores. Think Stock photo.

A final round of new credit card rules designed to protect consumers goes into effect on Aug. 22. Banks and credit card companies have been raising interest rates and fees and slashing credit limits in the run-up to the new credit card rules. Slashing credit card limits is a common practice during economic hard times. But cardholders’ credit scores get hurt by it, through no fault of their own. But there are steps credit card users can take if they want to preserve their current credit limits, or even boost their credit limits.

Credit card limits slashed across the board

Credit card companies have been cracking down on cardholders during the recession and its aftermath. Many credit card-issuing banks are trying to rein in risk amid rising delinquencies and charge-offs — and before the final round of new credit card rules goes into effect. Bankrate.com reports that even cardholders with good credit scores are getting their credit card limits slashed. Dennis C. Moroney, research director of bank cards at TowerGroup, told Bankrate that credit card companies are reducing credit lines and closing accounts. He said that even people with higher scores that have been cut down from 750 to 720 are having trouble getting credit.

Credit limit cuts hurt credit scores

More than 60 million cardholders have had their credit limit slashed over the past few years. Credit Card Guide reports that many people hit by credit limit cuts haven’t committed any  of the typical “risk triggers” banks use to assess credit worthiness, such as regular late payments or high credit card balances. Credit limit cuts aren’t just a major inconvenience. For cardholders with outstanding balances they can hurt credit scores as well. With the debt-to-credit ratio weighing in second among the most important factors contributing to credit scores, credit line cuts are no small concern.

How to protect your credit card limits

For cardholders who want to keep their current credit limit and perhaps even get a credit line increase, Eva Norlyk Smith at Credit Card Guide offers tips. First of all, simply call and ask. Most credit card accounts are eligible for credit limit increases once a year. Always pay off the balance in full every month. And use the credit card a lot, but don’t exceed 50 percent of the credit line. Always send in the payment on time. Don’t cancel any credit cards, don’t apply for any new credit cards and never ask a credit card company to pull your credit report. A credit check hurts a credit score as much as applying for a new credit card.

Consumers are paying down their credit card debt and avoiding new charges, so always open your mail and read the fine print from credit card companies busy creating new ways to gouge their customers. Flickr photo.

Consumer credit dropped in May much further than was forecast, with the decline led by significant drop in credit card debt. Credit card delinquencies fell to their lowest rate since 2002. As Americans save more and borrow less, desperate credit card companies are coming up with new ways to gouge customers. New credit card rules aimed at curbing the usurious behavior of credit card companies may be giving consumers a false sense of security.

Consumer credit drop exceeds forecast

A Federal Reserve report released Thursday showed that consumer credit dropped at an adjusted annual rate of 4.5 percent in May–the fourth consecutive month of declining credit.  Revolving debt, which includes most credit card debt, dropped by 10.5 percent ($7.3 billion) in May, according to the Fed’s report. Non-revolving debt, including car loans, fell by $1.8 billion in May. Business Week reports that economists’ projections in a Bloomberg survey ranged from a decrease of $5.2 billion to an increase of $2 billion in May. Consumer credit has increased only twice since the end of 2008. Consumer spending, which accounts for about 70 percent of the economy and is what America is counting on to revive the economy, will be weak as Americans pay down their debt.

Credit card delinquencies also drop

Credit card delinquencies are declining right along with consumer credit. The American Bankers Association (ABA) reported that late payments for bank credit cards fell in the first quarter to the lowest level in eight years. Market Watch reports that bank card delinquencies–card payments at least 30 days overdue, fell to 3.88 percent of all credit card accounts in the first quarter, compared with 4.39 percent in the fourth quarter of 2009. The credit card delinquency rate, the lowest its been since the first quarter of 2002. The ABA reported also said that overall consumer loan delinquencies declined, but only job creation will bring further improvement.

New credit card rules are to be broken

Credit card companies are seeing revenues decline. But even with new credit card rules designed to protect consumers going into effect next month, credit card companies are trying harder than ever to burn customers with creative new fees. CNNMoney.com reports that banks will be able to get around many of the new rules. For example, new rules cap late fees at $25 and do away with inactivity fees, but now more credit card companies are charging annual fees.

Credit card companies hope you won’t notice

When it comes to the new credit card rules, consumers may think that credit card companies can’t raise interest rates on existing cards anymore. But in reality, they can do anything they want with new balances, as long as they give 45 days notice. If your credit card company sent you a letter that you didn’t open a while back and you see your interest rate skyrocket on your latest charges, that’s what happened. Plus, credit card companies can still cut credit limits and close credit cards without advance notice, which will really hurt a credit score.

Always open credit card company mail

Other credit card companies have recently hiked balance transfer fees, cash advance fees and foreign transaction fees. Gerri Detweiler, personal finance advisor at Credit.com, told CNN that read the mail you get from your credit card company is more important now than ever. Don’t automatically assume its junk mail, because you’re only going to have the 45 days to opt out if you actually read the fine print. And as credit card companies become more desperate, they will not only raise existing fees but create all kinds of new fees.

Knowing your credit score is the most basic fundamental of credit repair. But it’s even more important to know what affects  your credit score. And even more important than that is knowing what you can do to improve your credit score.

Your credit score is free

Thanks to financial reform, doing something about your credit score is easier than ever. Free credit report services are advertised all over the Internet. Until now, those free credit reports didn’t include your credit score. You had to pay extra for that. But part of the recently passed financial reform bill ensures that you can get a free credit report that includes your credit score once per year.

Why is your credit score so low?

When it comes to credit repair, most people don’t know how they affect their credit score. For instance, Wallet Pop reports that many people assume if they pay their bills on time, their credit score is good. The truth is, even if you always pay on time, when your credit cards are maxed out, your score is lower than it should be. When credit bureaus see borrowing to the limit, they see risky behavior. To improve your credit score, tackling excess credit card debt is your first priority.

Credit repair: pay off credit cards first

To raise your credit score, pay off credit card debt first. There are two basic types of debt. Installment debt is secured by collateral, like a car loan. Revolving debt is your credit card balances. For some people, credit card debt revolves forever, which is not good for the credit score. Since credit card balances are unsecured, credit report companies like FICO say they’re more risky than installment loans. So paying off your credit cards will do more to raise your credit score than paying off your car.

Pay off collection agencies last

Unfortunately, if you’ve been taken to collections, your credit score is already hurt. Paying the collection agency won’t change the numbers. Bankrate.com reports that by the time your debt goes to collection, your creditor has already written you off. Although paying the collection agency will end the harassment, the payment won’t erase the delinquency from your credit report. Bear in mind that a surprise call from the collection agency can result from missed payments on everything from utility bills to library fines. The key to protecting your credit score is to avoid collection in the first place.

No thanks to charge cards

To keep your credit score from dropping, keep refusing that charge card every department store tries to sell you. This is because opening and closing credit accounts can lower your credit score. Wallet Pop said FICO credit bureau research has found that opening any type of credit account is automatically seen as more credit risk. If you do get that charge card and pay it off in full, your credit score will rebound in a few months, but it won’t rise above the level it was before you bought that new outfit.

Don’t cancel your credit cards

Sometimes when it comes to credit repair, it looks like the deck is stacked against you. Especially when canceling credit cards can lower your credit score. When you cancel a card, the line of credit it carries goes away. With less credit available, your credit score goes down. Instead of canceling, just zero the credit card out and throw it in your dresser drawer. New credit card rules prohibit credit card companies from canceling cards you don’t use–which used to hurt your credit score–so you don’t  have to worry about that anymore.

Use installment loans wisely

Taking out an installment loan for credit repair is risky, but it can work to pay off credit card debt with personal discipline. If you have a bunch of maxed out credit cards, the new installment loan won’t negatively impact your credit score as much as those debts. For this strategy to lower your credit score, you have to make yourself pay off the credit card debt with the installment loan, and throw the credit cards in the drawer until the installment loan is paid off.

Get professional credit repair help

Speak to a professional today and take proactive steps to repair your credit. For a FREE credit consultation, call 1-877-563-2076.

Knowledge about personal finance among Americans is increasing, but high credit card debt shows some hard lessons learned during the recession are being ignored. Flickr photo.

Americans are more educated about credit than they were before the recession, however, their knowledge about personal finance isn’t resulting in better decisions about credit and lending. A survey indicates that most Americans know the interest rates they are paying on their credit card and they know their credit rating. Even so, they continue to carry high interest credit card debt and many don’t know how to improve their credit scores.

Personal finance know-how no good

A survey of personal financial knowledge by Harris Interactive on behalf of Lending Club shows that Americans still aren’t making the most of hard-learned instant cash credit lessons learned during the recession. Adults unaware of their credit score came in at 31 percent, compared to 45 percent who didn’t have a clue in 2007 according to a Bankrate, Inc. survey. Fewer adults (22 percent) who use a credit card don’t know the interest rate on the credit card they use most often (compared to 29 percent who reported not knowing in 2007, according to a National Foundation for Credit Counseling survey).

Credit card debt prevails

Credit card companies will be glad to know that of those adults who do know the interest rates on their cards, the survey shows 31 percent have an interest rate of 20 percent or more and 64 percent pay 14 percent or more. Although 93 percent of credit card users know it’s possible to negotiate for a better rate, only 29 percent have ever tried to. Although closing a credit card account negatively impacts credit score, 18 percent erroneously believe it increases your credit score; 27 percent believed it has no impact. For those with debt other than a home mortgage, credit card debt is the most common type of debt overall (67 percent) and often the most expensive type of debt to carry.

Personal finance advice

To gain more knowledge about personal finance, AOL Money Coach Jennifer Openshaw has advice for consumers who want to be smarter when it comes to credit. If you aren’t aware of your card rates, find out. And once you do, take the initiative to ask for a lower rate. About 68 percent of those who ask for a lower rate are successful and build confidence in their financial savvy as well. Start with a target rate in mind, be assertive and ask for the supervisor if necessary.

Know what affects your credit score

Openshaw also suggests learning about what affects your credit score. Know that closing older accounts reduces your balance-to-credit card limit ratio, which may actually lower your score. If you have trouble controlling your credit card spending, it may be better to take the temporary hit to your score so you have fewer sources of temptation. Finally, cut your costs on current debt, consider paying off all your debts with one lower interest rate bank loan, but don’t do it on a credit card.

Flickr/MoneyBlogNewz/CC-BY

New credit card rules approved by the Federal Reserve on Tuesday are designed to protect consumers from interest rate hikes, heavy late fees and other penalties. Since the 2009 credit card law was passed last May, credit card companies have tried to stay a step ahead of the law with creative new fees and penalties. The new credit card rules announced Tuesday by the Fed go into effect Aug. 22. The provisions close some loopholes and complement rules in 2009 credit card law already in effect.

Credit card late fees cut

The new credit card rules are the finishing touches of the Federal Reserve’s effort to carry out the credit card legislation President Obama signed last year. Reducing credit card penalty fees was one of the principal goals of credit card legislation, but Congress charged the Fed to figure out how. CNNMoney.com reports that consumers will most immediately notice the new penalty fee limit of $25. There are some exceptions. If the payment is late a second time in a six month period, the credit card company can charge a $35 late fee. Until August 22. most credit card late fees are $39.

Credit card penalty fees limited

New credit card rules also limit penalty fees for exceeding credit limits. Forbes reports that the penalty fees cannot exceed the dollar amount of the consumer’s violation. For example, a credit card company can no longer charge a $39 fee when a customer exceeds his or her credit limit by $20. Now the fee cannot exceed $20. But that consumer could still face a permanent penalty hike on his interest rate on future purchases. Credit card companies can also no longer charge an inactivity fee on cardholders who don’t use their cards.

Credit card interest rates re-evaluated

New credit card rules also require issuers to review high credit card interest rate hikes inflicted on consumers since Jan. 2009 in the wake of a nationwide credit crunch.The New York Times reports that if your credit card company raised your interest rate after Jan. 1, 2009, it will have to re-evaluate its reasons for doing so and potentially lower the interest rate if it finds that those reasons no longer apply. The Fed hasn’t yet said how regulators will enforce this particular rule on credit card interest rates.

Need to know: new credit card rules

In a press release announcing the new credit card rules, the Fed said consumers can learn more about changes to their credit card accounts by accessing a new online publication, “What You Need to Know: New Credit Card Rules Effective Aug. 22.” It explains key changes consumers can expect from their credit card companies as a result of the third phase of the new credit card rules.

Credit reform restrictions on deceptive lending have triggered an explosion of credit card offers loaded with fine print intended to trick consumers into paying penalties and interest. Flickr photo.

Credit card reform doesn’t mean consumers can relax and feel protected. Now more than ever people need to be wary. The credit card reform act of 2009 is cutting into some of the more underhanded credit card scams from financial institutions. So now those institutions are just trying harder to sign people up for credit card debt than they ever have. And they’re looking for more ways to make money with new fees, shorter grace periods and higher late fees. Credit card users need to read the fine print on applications and read statements carefully when they receive them.

Credit card offers exploding

Credit card companies are as hard to control as noxious weeds. Even with a terrible economy, the credit card reform act of 2009 has credit card company marketing efforts in overdrive. According to Synovate Mail Monitor, which tracks direct-mail offers, credit card spiels to U.S. households increased 29 percent during the first quarter of 2010. Some credit card companies more than doubled their efforts. Some of the largest ones are downright predatory in the fees they come up with to charge customers more.

Credit card scams

Issuers have many creative credit card scams. Many say they price late fees for risk. But a new report from the Center for Responsible Lending shows that late fees have nothing to do with the credit card company’s potential loss. The report said late fees aren’t pegged to the risk a borrower might default on their credit card debt. Instead, nine of the top 10 characteristics of credit card companies who charge high late fees are other unfair or deceptive practices. One tactic is imposing a much higher interest rate if a customer pays just a day late. Another tactic is to set the payment deadline for early morning on the due date.

Credit card late fees, and more

Credit card late fees are just the tip of the iceberg. USA Today reports that other tricks to watch out for include balance transfer fees, shorter introductory offer periods, and the fine print about annual fees on rewards cards.

Balance-transfer fees: Credit card companies offer 0 percent introductory rates to transfer balances to a new card. But increasingly, they’re charging fees of up to 5% on the amount transferred, with no cap. That means transferring a balance of $20,000 could cost up to $1,000.

Shorter introductory offers: Some credit card companies offer 0 percent interest for up to 18 months, but a six months is becoming much more common. The credit card reform bill prohibits credit card companies from offering introductory rates for less than six months. Card holders must be realistic about whether they can pay off the balance before the offer expires. Plus, if the payment is a day late, credit card companies will cancel the introductory rate.

Annual fees: More rewards cards are coming with annual fees, especially airline credit cards. These companies are making airline mile calculations a lot more complicated. A free airline ticket may seem worth the annual fee, but accumulating enough miles to buy a ticket could take years. It’s very difficult for average leisure travelers to justify the cost of a mileage card. Some rewards cards will withhold rewards because of a late payment and demand a reinstatement fee to reclaim the rewards.

Everything costs more with credit cards

Credit card offers are exploding because of the credit card reform act of 2009. But assuming more credit card debt in a poor economy is a bad idea. Smartmoney.com reports that when the economy is struggling, the value of goods and services falls relative to the value of money. That situation puts people with a lot of credit card debt between a rock and a hard place. As the price of everything from automobiles to airfare falls, so does their value when they’re purchased with credit cards. When a product is charged on a credit card, the ultimate price paid for it rises as the product loses value, and that doesn’t include interest.

Advices for starters

For starters, you need to understand what credit card debt consolidation involves. Simply put, this service is a process that makes it possible for all credit card debt to be rolled into one debt. In other words, outstanding balances from multiple credit cards can be transferred to one new credit card or consolidated through a bank loan. Typically, credit cards with a high Annual Percentage Rate would be candidates for credit card debt consolidation and capable of rolling the balances to a card with a lower APR.

The other option is to take outstanding card balances and having them all paid off with a low-interest bank note. In both instances, the credit card debt consolidation would then be paid back in monthly installments, with the goal of having the payments lower than before. The challenge is that card companies and banks advertise all types of special offers for credit card debt consolidation, such as 0 percent APR, but you need to be careful.

Determine your purposes!

Remember, credit card debt consolidation is a serious matter, and while a 0 percent APR might look good, often regulations hide behind the offer. After all, the purpose of consolidation debt is to get ahead, not to end up in a worse situation. If you find a credit card or bank offering 0 percent APR for credit card debt consolidation, the first thing you need to do is look at the period of time that offer is for. Often, the 0 percent interest rate is only for six to nine months. Now, if you can pay off the entire balance in that time, great! Yet most people need more time.

The problem with this scenario is that after the six to twelve month period, the 0 percent APR skyrockets much higher than what you had been paying. This means for credit card debt consolidation, you are now in deeper grounds, financially. Another thing to watch for if you want to consider credit card debt consolidation is the processing fee. Some card companies will provide 0 percent APR but when looking at the terms and conditions, you see that they charge a huge processing fee to transfer balances.

Start with your credit card company!

One of the best ways to deal with credit card debt consolidation is to start with your existing credit card company. If you have good standing, ask the company what they can do for you to bring your bills down. Nine times out of 10, when a person is in good standing with a credit card company, they can ask for a lower APR and receive it. All it takes is a simple phone call, but most people have no idea this can happen.

Of course, once you go through credit card debt consolidation, you want to make sure you watch spending, keep balances down and always make your payments on time. That way, you would not end up in the same situation of being in over your head with credit card debt.

Pay attention to the APR!

If you need to consolidate credit card debt, the most important thing is to pay attention to the APR, or Annual Percentage Rate. While a number of factors should be considered for debt consolidation, without doubt the APR is the most critical. The goal is to choose a new credit card with a low APR or find a bank that would offer a low APR loan. Of course, to consolidate credit card debt, you need a lower APR than what you are currently paying.

Just remember that to consolidate credit card debt, as you go from one card or bank to another, the APR being advertised is short-term, especially with credit card companies. This type of scheme is made to entice people to make the switch, but in most cases, the low APR on the new card would only be for a period of 12 months or less. The problem is that after the introductory period, the APR shoots up higher than what you had been paying previously, which means you will be right back in the same situation.

You might need a new credit card company

For this reason, if you want to consolidate credit card debt, always pay close attention to all the details for any credit card company that offers 0 percent APR, specifically those that make the offer for a six to twelve month period. What you need is a new credit card company that will have a lower APR than what you are currently paying, after the introductory period. While you could consider the services to consolidate credit card debt with any card company, you might get the best offer from the card company you currently have your cards through, although you may want to check first.

Often, choosing to consolidate credit card debt is a wise decision, but you need to know exactly what you are getting into by understanding the APR and introductory period. Once you transfer card balances over or take out a low-interest loan with a bank, obviously you want to be careful with your spending and make on-time payments to avoid being in this situation again.

What the New Credit Card Reform Does For the Consumer

The new credit card reform, which came into effect this year, forbids credit card companies from increasing high interest rates to consumers whenever they like; however, there are other fees that have to be accepted by consumers such as the zero balance and inactive card fees. On account of this, credit card companies are frequently tightening up lending to customers, especially to those with not so good credit. This is being done to reduce the risks involved in lending, especially when it comes to charging ridiculously high interest rates to paying customers as a reimbursement for losses. This is one of the main reasons why payday loans are so attractive and one of the most popular means of acquiring money.

Making Things More Simpler for the Consumer

These are small cash loans ranging anywhere from $100 to $1000 awarded to consumers who have met a certain criteria. However, the loans do come with a due date; therefore, many payday lenders are within their right to provide extensions on due dates. One of the advantages of acquiring these loans over traditional loans is that the qualifications aren’t extensive and obtaining them are a lot easier with payday lenders online where you can apply and have your application approved within 24 hours.

A Steady Job May Be Your Only Requirement

Most banking facilities that offer loans and credit card stipulations normally require a high credit rating, a flawless credit report, an extensive employment history (2 years maximum) as well as a minimum of two years in your present housing and possibly more requirements. These types of stipulations or criteria don’t exist with payday cash loans; with the exception of a stable place of employment for substantiating repayment, everyone should qualify.

Knowing What You Are Getting before You Get It

On account of the simplicity in obtaining a payday loan, they’re classified as high-risk loans and high-risk loans have much higher interest rates starting at 15% -30%, while the APR could range anywhere from 300% to 800%. Because of this, anyone getting these types of loans are instructed to repay them by the first due date in order to avoid penalties for late payment or extension fees. These fees can add up quickly and if a loan is allowed to incur interest as well as unnecessary fees, it becomes more difficult to repay.

You will find that pay day loans have striking similarities with credit card debt and various other types of loans. Nevertheless, if consumers were more knowledgeable of the advantages and disadvantages found within the terms and conditions, they will be more prepared to make accurate decisions.

Consumerism must be jump started again by consumers, but credit card companies have to play ball. (Photo: Wikimedia.org)

The best thing about payday loans is that they are reliable. Post-recession, many people are finding the world of credit just isn’t what it used to be. In the past year, consumers rethought their former decision of using credit to make most of their purchases. Due to the recession, Americans cut back drastically on discretionary spending. That’s bad news for credit card companies whose business is predicated on consumer spending.

Fitch Ratings recently reported that income of U.S. credit card companies will “continue suffering because of the lousy labor market, bankruptcies and bad loans.” They are also citing that the continued unemployment rate of well over 10 percent is expected to last throughout much of 2010. “As a result [of the unemployment rate], the losses of credit card issuers could worsen further,” they stated.

The Consumer’s Relationship with Credit

Consumers have had a good relationship with credit card companies over the past few decades. While it was slated to benefit the credit card company more, consumers were still able to purchase big-ticket items they couldn’t normally afford without it. Credit card companies became lax, though. According to Justin May, an economic analyst for Fitch, “Lending companies were like fat and happy old men thinking their feast would last forever… What they didn’t realize was that nothing lasts forever. Even their bread and butter.”

From 2006 to 2007, credit companies were handing out credit left and right. They did little to study an applicant’s history or present financial situation, much less their ability to repay the debt. After extending too much credit and no return, credit card companies realized they were in a serious financial bind. The companies had little recourse once the recession hit its peak because people simply could not afford to pay their debt. Many people fell into foreclosure, bankruptcy or just ignored their financial commitments. All three were bad news for credit card companies who at one time had a strong tie to the consumer market. Suddenly, consumers in need of quick cash started looking to payday loans, friends and family and other alternative ways of finding funding. No longer were credit companies the only viable option for consumers in need of help.

What the Recession Has Taught Us

Now that the recession is officially deemed “over,” there are some lasting concerns. Credit card companies are still reeling and writing off huge debts. It’s estimated that there is about $3.5 billion in debt that companies admit they probably will never see. Consumers are still struggling to find funds. Though the market is somewhat stabilized, there is a lingering conservativeness with spending. People aren’t running out to use what little credit they have and credit companies aren’t extending new credit. Most people have tarnished credit reports now and don’t qualify under lenders strict policies. May added, “Credit card companies don’t want to risk any more than they have to and aren’t extending credit to those who need it. Though that is what they have been accused of doing for years, if they don’t extend credit soon, they won’t have a business.”

In the end, it will be up to the consumer to get the market rolling at full-steam once again. Though payday loans and family lending have sustained them thus far and proven to be more reliable options than credit card companies, hopefully they will change their ways. Lending companies are hoping people will start using credit to spur the credit industry on, once again.

Apply for Payday Loans HERE!

Credit card lenders take a gamble with bankruptcy (photo by Freerangestock.com)

Although many interest rates were recently cut, credit cards lenders are set to increase theirs. Mortgages and savings rates have fallen dramatically due to government intervention; however, credit card rates have moved up. Even cards listed as “low-rate” are averaging 11.62%, balance-transfer cards are averaging 13.15% and cards with cash returns are at 13.82%.

Good customers are not exempt

These rate increases are happening with all cards and affecting even the best-paying customers. Twenty-year customer Echo Garret of Marietta, Georgia says, “I certainly don’t feel like a valued customer.” The interest rate on her Citi Advantage card was recently raised to 19.99% from its 20-year average of 10.9%. Her husband’s card had an equally painful increase in the form of a tripled interest rate. “We’ve been good, longtime customers and there was never a problem with our accounts. We pay on time and more than our minimum…I just don’t understand,” she added.

Last-ditch revenues for lenders

Many credit card companies see increasing their interest rates as an easy way to bring in more revenue. It also makes them look more financially stable when revenues are up. A lot of companies are also trying to maximize their income streams before the new federal rules governing credit card interest rates go into effect. The new rules will prohibit rate hikes on existing balances unless borrowers fall 30 days behind on payments. The rules take effect in 2010 and right now credit card companies are rushing to maximize interest rates before the deadline.

A game of Russian roulette

Many experts say that these last-minute interest rate increases are potentially detrimental to lenders. They might help the companies in the short term, but in the long term it’s a “game of Russian roulette,” says Jose Garcia, senior researcher of Demos. “They’re playing the [balancing] game of getting people to pay the most they can in interest without going into default—where the issuer gets nothing,” he adds.

Last-resort bankruptcies for borrowers

Robert Manning, research professor of Consumer Financial Services, believes that higher rates force even good customers into default. He believes that credit cards with sudden interest-rate hikes cause minimum monthly payments to reach unmanageable levels. This pushes customers into default and leads to bankruptcy filings.

Neither a borrower nor a lender be

One customer who fell into this trap is Amanda Burnett, recent college graduate. She intended to pay off her $3,500 Bank of American credit card but when the bank raised her APR from 16.99% to 25.99% she was unable to meet even the minimum required monthly payment. She called to close the account and then asked for a better rate. The bank told her that once an account is closed, its terms are fixed. Said Burnette, “I was shocked [because] I had planned on paying off my balance and keeping the credit card for future use, but now I feel misled and betrayed.”

Bank of American spokesperson Betty Riess explains that it is their policy to allow borrowers to opt out if interest rates are too high; however if a borrower doesn’t opt out and instead closes the account, the higher interest rate remains.

Credit cards after 2010

Hopefully, once the credit card reform bill becomes effective in 2010, interest rates will become more manageable. Riess states, “We are hoping that credit cards will work within our customers’ budgets, while still bringing us the revenues we need to offer outstanding lending services.” Only time will tell if credit card companies are able to strike this balance.

Consumers are still relying on payday loans to make ends meet as President Obama calls for credit card reform.  The President is demanding a credit card reform bill by the end of this month.  “Americans know that they have a responsibility to live within their means and pay what they owe…but they also have a right to not get ripped off by the sudden rate hikes, unfair penalties and hidden fees that have become all too common,” he said.

The Credit Card Holders’ Bill of Rights has been passed by the House of Representatives, and is awaiting Senate approval.   The bill targets unscrupulous credit card companies who employ double-cycle billing and retroactive interest rate increases.  It also would prevent anyone under age 18 from having a credit card.

Correcting an “abuse that goes unpunished”

“You shouldn’t have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit card application. And the abuses in our credit card industry have only multiplied in the midst of this recession, when Americans can least afford to bear an extra burden,” President Obama said. He acknowledges that the availability of credit is essential to a healthy economy, but opposes patently unfair credit-card company practices.  His goal is to stop the “abuse that goes unpunished” and create a watch dog to examine and monitor the policies and practices of credit card companies.

Credit card companies react

Credit card companies argue that the new Bill of Rights may backfire by making it more difficult for consumers to obtain credit. The proposed law, they contend, will place such constraints on the industry that even credit-worthy applicants may be left out in the cold.  They also claim that new rulings enforced by the Federal Reserve already deal with many of the protections the President is rallying for with the new bill.

An urgent call for reform

Regardless, President Obama is asking that The Credit Card Holders’ Bill of Rights be adopted at once.  The urgency of his request is a response to the public outcry over the excessive fees and unethical conduct of credit card companies that have cost consumers billions of dollars.  The President also stated, “Instead of fine print that hides the truth, we need credit card forms and statements that have plain language in plain sight, and we need to give people the tools they need to find a credit card that meets their needs.”

Borrowing money to pay excessive fees

Gail Brennan of Tallahassee, Florida stated, “We’d love to trust credit card companies again.  But because of the high interest rate hikes and late fees, we’ve lost faith.  When you suddenly have to use payday loans and borrow from family to pay for just your minimum on credit card bills, there’s a problem.” It is the hope of legislators that a compromise can be found — one that protects borrowers’ rights and brings a profit to credit card companies, while spurring the use of credit once again.

People like using credit cards

Most people aren’t going to stop using credit cards once the recession is over. Studies have shown that people like using credit cards and want the freedom to do so.  The problem lies in having to juggle other expenses and take out payday loans or other short-term loans just to pay credit card fees.  The recession has brought to light the unethical side of credit card dealings, and the Credit Card Holders’ Bill of Rights aims to correct it.