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.

Will the Federal Reserve create the framework consumers need to experience debt relief? (Photo: flickr.com)

Due to the recession, people are looking for debt relief more than ever.  Credit lenders are no longer as readily available as they once were.  Mortgages are difficult to handle.  The unemployment rate continues to rise.  Because of these problems, the Obama administration is calling for a new “financial rulebook.”  The administration aims to arm the Federal Reserve with increased power to regulate risk of large institutions in the financial industry. The goal is to police banks whose potential failure could cause economic instability to the nation.

The Federal Reserve also wants to create a strong framework of regulations and have a part in coordinating responsibilities within the financial system.  Investors would have increased protection, with the Fed focusing a committee on consumer products such as credit cards and annuities.  Treasury Secretary Timothy Geithner stated that the overhaul will “eliminate gaps in the financial system that encouraged risky behavior leading up to the meltdown [of the recession].” Geithner added, “We had a financial system that was fundamentally too unstable and fragile, and it did a bad job of basic protection of consumers and investors. Those are things we have to change.”

Unveiling the Plan

This week, President Obama is supposed to introduce his overhaul plan to the media. Initially the plan was for an intense restructuring that would consolidate all financial directives into one agency.  Senator Chuck Schumer of New York was a strong supporter of the consolidation, believing that “retaining multiple regulatory entities preserves the regulatory arbitrage that allows institutions to pick the oversight scheme that benefits them the most, often at the expense of consumers and the health of the system overall.”  This plan was ultimately vetoed by the Obama administration.

Another vetoed plan was to merge the Securities and Exchange Commission and the Commodity Futures Trading Commission.  Supporters believe the merging would offer a greater security in investments, bringing debt relief to aging Americans when they most need it, at retirement.

What We Should Expect

The plan to be unveiled will most likely leave the Fed, the OCC and the Federal Deposit Insurance Corp as the largest banking regulators.  In addition, the plan will impose “robust reporting requirements” on asset-backed securities and require banks that sell them to keep a financial involvement in their performance.  As Geithner stated, “We want the regulators to have a financial interest in the development of the products they are selling to ensure they are acting honestly and focused on growth.”

Easing the Strain of the Recession

Consumers are anticipating the new plans, hoping they will offer debt relief and ease the strain of the recession.   Banking Coordinator Susan Largina of Bank of America, stated, “We’re seeing a more hopeful clientele coming in. They want to believe the good news the media is interspersing throughout the daily news… It’s our job to maintain that hope by increasing the benefits and long-term viability of our banking products.”

Consumers Want Answers

With the new financial rulebook coming to the marketplace, consumers are waiting impatiently for answers.  They have suffered through the economy as best they could manage, using credit cards, tapping into savings and budgeting wisely.  With the recession coming to a close, consumers see debt relief as something they can reach in the near future. Hopefully with the new financial changes in the economy, banks and lending institutions will help consumers find their way back to a normal life.

Citigroup Inc. has stepped up to the plate when it comes to helping out people who are joining an ever-larger category: the unemployed.

The bank has started the Homeowner Unemployment Assist program, which allows unemployed mortgage holders who are late on their personal loans to make payments of (on average) $500 monthly for three months.

A little help

Granted, it’s pretty unrealistic to think that in this job market unemployed workers will find new employment in three months. But it’s a start.

Thousands may be eligible for the program, which is aimed at avoiding more home foreclosures.

Borrowers with first mortgages whose loans are owned and serviced by CitiMortgage and who meet certain other criteria will be eligible to participate in the program, according to CNN Money.

After a job search well done

If mortgage holders taking advantage of the program do find employment during the three-month period, they can resume their original monthly payments or get a long-term loan modification.

This makes perfect sense to me, as many “re-employed” workers are accepting pay that is far lower than their previous jobs. Borrowers will be able to retool their loans to fit their new circumstances.

A gray area

Citibank is apparently aware that many customers will not be able to find employment during the three-month stint.  A company spokesperson has said that its customers will not be left hanging in the event their situation does not improve.

“If the customer is not employed within three months, Citi will work with customers on a case-by-case basis to explore the best solutions,” the company said in an announcement.

Still in foreclosure moratorium

The bank has said it will consider extending the Homeowner Unemployment Assist program to borrowers who are not yet delinquent on payments, if the situation warrants it.

Feb. 12, Citigroup put a one-month moratorium on home foreclosures. It is still waiting for final details on the Obama administration’s loan modification program.

David Moffett served as vice president of U.S. Bancorp from 1993 to 2007.

Only six months after being appointed CEO of Freddie Mac, David Moffett says he will step down from his position.

Moffett was placed in the chief executive position in September, after the government took over the flailing mortgage finance company. Moffett says he will resign before March 13, and the company’s regulator  will name a successor before then.

Not a good sign

There are few details available about why Moffett has chosen to leave his post. News reports say only that he wants to return to the financial services industry. The company has said it will appoint a new head before Moffett leaves, but some analysts still say his departure is a bad sign.

“Whatever the reason Mr. Moffett has determined to leave, the abrupt departure with no replacement in hand is a negative indicator for the company,” said Jim Vogel, a strategist at FTN Financial Capital Markets in Memphis, Tennessee.

Sad to see him go

Based on comments from others within the company, it’s pretty clear that Moffett’s resignation is his decision. His performance at his post, to which he was appointed by Freddie Mac’s regulator, has been exceptional.

“We are very sorry to see David go. He made valuable contributions to Freddie Mac as the company transitioned into conservatorship,” said Freddie Chairman John Koskinen.

A bit of history

Freddie Mac backs personal loans held by homeowners, much like Fannie Mae, which also was placed under conservatorship by the government last year.

Both companies have been infused with government money to keep them from collapsing. Freddie Mac has used nearly $14 billion in government funds, and the company says it will likely need more aid soon.

A big job

James Lockhart

President Barack Obama’s housing foreclosure prevention plan relies heavily on Fannie Mae and Freddie Mac. Whoever takes over Moffett’s post will be responsible for the fates of many mortgage holders who are struggling to keep their homes.

Director of the Federal Housing Finance Agency James Lockhart says he is working with Freddie Mac to ensure a smooth transition in leadership.

Citigroup Center in New York

Your online payday loan store keeps you up to date on financial news.

Several weeks ago, a congressional watchdog panel came down hard on the Treasury for its use of the first $350 billion in bailout money. The panel accused the Treasury of not keeping track of how banks were using the money. One bank has taken matters into its own hands, and has issued a report on how it spent its share of the Troubled Asset Relief Program funds.

To read about the congressional panel’s criticism, check out this article by your online payday loan store.

Citigroup issues quarterly progress report

Citigroup received $45 billion in bailout money from the Bush administration last year. The bank’s quarterly report reveals that it used $36.5 billion in TARP funds for home loans and various other loans, including $1 billion in student loans and $2.5 billion for business and personal loans.

The bank used $27.5 billion to help stabilize the housing market. It spent most of it purchasing mortgages, and about $8.2 billion went to giving new home loans to customers with good credit. A survey published this week says lending at most banks is still pretty tight, even with government aid.

More banks to follow suit

Bank of America says it will also include its TARP spending when it files its quarterly reports. B of A received $45 billion in bailout money. There is no word on when the bank will file its reports.

Wells Fargo has not filed a full report of its fourth quarter activity. However, the bank has said that it “paid a $371.5 million quarterly dividend to the U.S. Treasury in exchange for the $25 billion that the Treasury Department invested in the bank last fall,” according to CNN Money.

Check back with your online payday loan store for more financial news.

The Troubled Asset Relief Program was meant to aid homeowners in avoiding preventable foreclosures, the panel says, and there is no evidence that the bailout money went toward that effort.

Poor bookkeeping

The $700 billion program, TARP, was approved in mid-October. The oversight panel, headed by Elizabeth Warren, says the Treasury hasn’t even released a strategy for stabilizing the financial system.

“Treasury needs to be clear as to what, if anything, it has done,” Warren said.

Warren says Congress gave $350 billion to the Treasury and specified it was meant to help borrowers refinance their homes. The Treasury set up the system and did not put in place a tracking mechanism to monitor whether it was meeting Congress’ requirements. Homeowners, with mortgages that exceed the value of their homes, may still be taking out payday loans to pay their mortgage so they don’t get thrown out of their houses.

The other half

In order to access the other $350 billion, the Treasury needs congressional approval. Whether the Treasury requests these funds remains to be seen. And whether they receive the funding will be up to the discretion of President-elect Obama’s administration. Obama’s economic team is now overhauling the remaining fund to speed the flow of credit to consumers.

The initial deadline for approval for bailout money was Dec. 31. The Treasury has extended the deadline to Jan. 15, five days before Obama’s inauguration. This gives regulators extra time to process and approve requests, and it potentially gives more financial institutions time to apply for funding. So it will likely be a while before we find out just exactly what the Treasury did with the money.

Hello? Anybody home?

To aid in drafting its report, the panel had submitted 45 questions to the Treasury. Several of the questions were not answered, according to the panel.

A Treasury spokesman gave no comment in response to the panel’s report, which was released today. He said he had not seen it.

Keeping an eye out

The Treasury apparently has nothing to say in response to the report at the moment, but sometimes these things take time. I’ll be watching the news for a response, so check back for updates.

My thoughts? It may be too late for the bailout funds to help average Americans keep their homes. Sure, home foreclosures have gone down since TARP was approved, but is that just because so many people have already been kicked out? The funding still may be able to help some people, but now that the deadline to approve institutions for funds has been extended, there are probably some panicked homeowners out there taking out payday loans so they can pay their overpriced mortgages.

Not the same can be said for other organizations in 2008. Scams involving mortgages, loans and even stimulus checks left already cash-strapped consumers dealing with fraud. Other companies didn’t engage in such shady practices, but they did tack on extra fees for fuel costs.

In hopes of making 2009 a better year for the average consumer and a worse year for fraudsters, let’s take a look at some of the shady practices that characterized the past year.

Mortgage crisis spawns scams

According to Smartmoney.com, some mortgage holders in 2008 fell prey to a practice called equity stripping. Con artists posed as mortgage brokers and offered homeowners fearing foreclosure an easy fix.

Con artists asked homeowners to temporarily sign over the deeds to their homes. They said people could buy back their homes in a year and rent their property in the meantime.  Meanwhile, fraudsters borrowed against the value of the home and often didn’t keep up with mortgage payments. The homeowners seeking quick cash to keep them out of foreclosure ended up there anyway, or ended up with a hope that was completely stripped of equity.

Loan modification the sleazy way

There are several legitimate companies that offer loan modification to lower the amount people have to pay. However,  fraudulent copycats figured out a way to capitalize on Americans’ financial woes.

So-called mortgage counselors charged an upfront fee, $500 to $1,000, then took the cash and ran. Victims were left with the same loans, unaltered, and a big dent in what little money the did have. Tip for 2009: Loan modification services do not charge fees upfront.

Stimulus checks plus identity theft

Before the Senate even approved tax rebates, identity thieves started making phone calls. They posed as people from the IRS and told taxpayers to tell them their social security and bank account numbers. Similar scams were run by e-mail. The defrauders cleaned out victims’ bank accounts and took out loans under the stolen names.

The truth is, the IRS already has your personal information, and it only contacts taxpayers by mail. You can get payday loans online or over the phone, much quicker and easier than you can contact the IRS.

Regular, unleaded or too-high premium

When gas prices skyrocketed in the first half of 2008, airlines, cruise ships and delivery services tacked on extra fees to cover gas. Funny thing is, when gas prices fell (now 77 percent lower than the July peak) the extra fees didn’t disappear.

Some companies stopped calling the fees a gas charge, but they tacked them onto their regular prices.

Not-so-free credit reports

We’ve all seen the commercials for FreeCreditReport.com. Most of us have had some version of the company’s jingle stuck in our heads for days. (I know I have.)

But people who have actually used the service know that their “free” credit report comes with a $14.95-per-month service fee unless they cancel their membership. According to Smartmoney, users are required to sign up for a membership and provide a credit card number to receive the credit report. After a seven-day trial  period, if the account isn’t canceled, the card is automatically billed the $14.95 service fee.

Looking ahead

Now that these deceptive practices have been publicized, we can only hope that consumers will be more savvy in 2009.

But savvy won’t prevent rising prices on some services. Many internet service providers are drawing up plans to switch from flat fees to per-minute usage fees. Others are thinking of imposing usage caps and charging for extra time on top of monthly fees. So buyer beware: Know what your internet provider is charging you before you watch your favorite show online at NBC.com.

Help in hard times

The economy is continuing its downward spiral. Payday loans will no doubt provide consumers with quick cash for years to come — barring any radical changes in legislation — and at personalmoneystore.com they will remain scam-free.