If your credit card statement is this frightening, take advantage of the provisions of the Credit Card Act. (Photo Credit: CC BY/Jason Rogers/Flickr)

In 2009, President Obama signed the Credit Card Act into law. One of the provisions of the law is that credit card companies, in conjunction with the National Foundation for Credit Counseling, must provide resources for consumers who have difficulty with their finances. While they’ve held up their end of the bargain, recent NFCC studies have found that consumers simply aren’t taking advantage, reports Bankrate.

Free credit counseling, fallen by the wayside

Only 150,000 U.S. consumers struggling with credit card debt have accessed the nonprofit help to which banks and the NFCC have access, said NFCC spokeswoman Gail Cunningham. The contact number is toll-free and printed on credit card statements. As credit card debit still weighs heavily on the average, recession-weary American, the lack of initiative is troubling.

“I certainly think one of the reasons for the low response rate from consumers could be attributed to a lack of prominence,” said Cunningham. “Perhaps the number is buried somewhere.”

Within the recesses of public prejudice might be where that number is buried. Experts believe that many consumers who see the toll-free Credit Card Act number on their credit card statement may think it’s yet another “service” from the big, bad credit card company to take their money. However, Cunningham has observed that the number has been absent from some statements, which would be a violation of law.

Credit card debt shrunk in 2010

A study by Credit Karma indicates that from January to December, U.S. consumer credit card debt decreased by 8 percent nationally, to an average of $7,404 per person. Eight states, including California, Colorado, Connecticut, Indiana, Oklahoma, Tennessee and Nevada, showed as much as an 11 percent improvement.Wisconsin made the biggest dent in credit card debt, slashing and burning through the credit jungle for a 31-percent improvement over 2009.

On the other side of the scale, states like Delaware, Iowa, Louisiana, Missouri, Nebraska and New Mexico grew their credit card debt by as much as 6 percent. Mississippi was the biggest loser in the Credit Karma Survey, with 8 percent growth.

Looking for credit card help?

Visit the National Foundation for Credit Counseling website at nfcc.org for the information on non-profits near you that can help. The Federal Reserve’s website also has a free calculator with which you can calculate how much you’ll owe if you only make the minimum monthly payment on your credit card. For your mobile, there’s a useful Android Market app called Personal Financial Calculator. Or, if you are looking to compare overdraft APRs of installment loans and other consumer loan products, check out our “Loan Overdraft Calculator,” linked below.

Sources

Android Market: Personal Financial Calculator

Bankrate.com

Federal Reserve

Loan overdraft calculator

National Foundation for Credit Counseling

Obama signed the Credit Card Act. Are you using its programs?

Don't fret – overdrafts and other checking account shenanigans generally will not affect your credit score. (Photo Credit: CC BY/Dan Foy/Flickr)

Most people know that not paying bills on time or maintaining a high balance on several credit cards can result in negative marks against their FICO scores. However, there are some gray areas. For instance, will overdrafts affect a credit score? The answer may surprise you, suggests Bankrate.com’s Dr. Don Taylor, a Certified Financial Planner and Certified Public Accountant.

Bad checks won’t harm your credit by themselves

A college student worried that a checking account scam would harm her fledgling credit appealed to Bankrate’s “Dr. Don” column for advice. Someone had stolen her checkbook and written checks that caused her checking account to go into overdraft. While she was able to get her bank balance back into the black within a couple of weeks, she wondered whether going into overdraft would have an immediate effect on her FICO. Thankfully, no further identity theft occurred after she sent her bank and one of the three major credit bureaus a fraud notification.

According to Taylor, transactions on a consumer’s checking ledger do not have a direct affect on credit scores. Missing bill payments will, but overdrafts won’t in most cases. One exception is when a banking institution does a “hard pull” of a consumer’s credit history when a new checking account is opened.

Keeping tabs on your banking history, free of charge

Taylor suggests that all consumers who are interested in monitoring their banking history as a matter of periodic maintenance look into ChexSystems. This company enables consumers to pull one free banking history report every 12 months, as stipulated in the Fair and Accurate Credit Transactions Act (FACTA). Negative marks remain active for five years.

For those who have ever been denied when trying to open a fresh account at a bank or credit union, ChexSystems is often the perfect place to go for the information that can help consumers understand why they were denied. Even if that isn’t your scenario, it’s worth checking out ChexSystems Consumer Assistance page once per year to review your financial record.

Protect yourself from scams

If you are the subject of a financial scam involving fraudulent checks, contact your banking institution and law enforcement. In the event that you desire to contact your state’s banking commissioner so that others may be protected from similar scams, HSH.com has a list of relevant contact information.

Sources

Bankrate

ChexSystems

HSH.com

Get your bank account history once per year

The people of Kentucky still have the freedom to choose payday loans if the product suits them. (Photo Credit: CC BY-ND/EPSCOR)

The recent failure of House Bill 182 in the Kentucky House Banking and Insurance Committee – a bill that would have capped payday loan rates at 36 percent APR, effectively killing the industry in the state – is a sign that the will of the people still means something, suggests Kentucky Community Financial Services Association of America spokesman Kevin Borland. In an op-ed piece for the Lexington Herald-Leader, Borland reminds us that consumers prefer choice, and freedom of choice is a factor in the current battle over the short term loans industry.

Victory against House Bill 182 – for now

While free market capitalism carried the day in a close 13-10 vote against Kentucky House Bill 182, opponents of payday loans insist that they will regroup and re-introduce the same bill in 2012. Such stubbornness illustrates how much Kentucky activists misunderstand payday loans, writes Borland. State law prohibits payday lenders from charging interest. In Kentucky, the product is categorized as a single-payment, fee-based product.

Borland suggests that the opposition’s use of APR as a yardstick is “an attempt to trick legislators and the public” into thinking that short term loan pricing is exorbitant. In reality, a flat fee of $15 to $25 per $100 loaned on a typical two-week payday loan is a 15 to 25 percent fee, depending upon the lender.

Having the CLOUT to be hypocritical

The Citizens of Louisville Organized and United Together (CLOUT) and the Kentucky Coalition for Responsible Lending (KCRL) supported House Bill 182, as did the AARP. Interestingly, CLOUT and the KCRL are heavily funded by banks and credit unions that compete in the short term loans market. While there’s nothing wrong with healthy competition in a free market economy, it’s another matter entirely when CLOUT and KCRL attack payday lenders while accepting money from their competitors. At the very least, a disclaimer about a lack of impartiality should fly front and center, says Borland.

AARP competes directly with payday loans through its own credit card through Chase Financial. These allow AARP members to obtain cash advances, which Borland says bears a high interest rate.

Consumers make the best financial choice for their situations

While payday loans may not be ideal for every financial scenario, they can be the least expensive option available, particularly among credit constrained consumers. Borland believes that CLOUT, KCRL and AARP would do better to find alternatives if they think short term loans are harmful. The fact that those organizations do not do so may suggest that the attacks are all bark and no bite.

Sources

CLOUT funding

KCRL coalition membership

Lexington Herald-Leader

The CFSA encourages responsible lending and borrowing

If you're a Social Security recipient with direct deposit, beware the personal loans your bank pushes on you. (Photo Credit: Chordboard/Wikipedia/Public Domain)

Social Security recipients – particularly those who depend entirely on it – don’t need anyone skimming off the top. That’s why there is a plan on the table to eliminate paper Social Security checks entirely. The Wall Street Journal reports that the Treasury Department plans to stop issuing paper Social Security checks by 2013 and distribute monies via direct deposit or prepaid debit cards. The intention is to save taxpayer dollars and make benefits more secure. However, numerous consumer groups are now concerned that those Social Security recipients whose funds are directly deposited into accounts at major banks like U.S. Bancorp, Wells Fargo and Fifth Third Bancorp are being targeted for high cost cash advance-style loans by the same banks.

Bank loans that target low-income seniors, disabled

According to the National Consumer Law Center, these new cash advance-like products are drawn from customers’ Social Security benefits as collateral. These personal loans can be requested from the bank via telephone or online. When the next benefits check comes via direct deposit, the bank takes its cut for the cash advance service. If the loan isn’t paid in full within 35 days, the bank automatically withdraws the amount owed, frequently producing overdraft and a morass of fees.

Making up for lost revenue by siphoning from baby boomers

As the latest Wall Street reform bill approaches law status, banks fear the effect the loss of automatic overdraft loans will have on their bottom line. The National Consumer Law Center believes this may be a big reason why these larger banks are aggressively pushing payday loan products to Social Security recipients. Sources indicate that as much as $700 million in Social Security benefits are taken each year to pay overdraft fees, which draws focus to the magnitude of the issue for America’s monolith banks.

Afraid of what banks will do with your Social Security direct deposit?

The Wall Street Journal recommends the prepaid debit card option for benefit disbursement. Costs are low and the cards are FDIC insured. The card can be used like a standard ATM card for purchases and bill payments.

Sources:

Wall Street Journal

Wikipedia

Social Security and dance lessons – enjoy the rant:

Not today, Mr. ATM – payday loans keep doors open for consumers when it comes to avoiding overdraft. (Photo: Flickr)

The UK Office of Fair Trading’s recent decision not to enforce a more stringent cap upon payday loans should prove to be a boon to both consumers and the short term loans industry. A press release by UK payday loans company Speed-e-Loans CEO Gary Miller-Cheevers welcomes the decision the OFT reached upon completing its “High-Cost Credit Review,” which the office defines as “financial products including home credit, short-term small sum lending such as payday loans, pawnbroking and rent-to-buy retail credit.” However, as both the Office of Fair Trading and most proponents of payday loans point out, “high cost” is a relative term, as credit-constrained consumers who use payday loans often do so to avoid a more expensive alternative like checking account overdraft.

Payday loans: A valid option in the marketplace

While payday loans may not be perfect for all consumers, those who have difficulty obtaining emergency credit via other means found the service most invaluable, said Miller-Cheevers. The OFT’s review unearthed few complaints regarding such short term loans. In fact, the majority of customers surveyed in the High Cost Credit Review found that UK payday loans agencies tended to be sympathetic if they made late payments due to continued financial difficulties. The companies proved willing and able to work with customers to mutual satisfaction.

Miller-Cheevers takes exception to ‘high cost credit’ tag

Beyond the relative definitions of “cheap” versus “expensive,” Miller-Cheevers pointed to the advantage payday loans have over bank overdraft protection: payday loans are cheaper. “Our typical APR is 2,334 percent,” he said (Editor’s Note: In the U.S., payday loans are typically offered at much lower APRs). “This sounds horrendous. However, you have to bear in mind that this is the annual rate someone is charged, and payday loans are not designed for long term borrowing. It’s a bit like buying sausages in a supermarket and the price being shown per ton!”

The APR mismatch

Miller-Cheevers’ Speed-e-Loans company charges about 1 percent per day plus a fee of £4.95 for 20-day payday loans. For the purposes of U.S. conversion, one British pound sterling is approximately $1.48. Thus, a £100 payday loan taken for 20 days would cost about £25.94. Similar to the rules U.S. payday loans companies must follow as prescribed by the Truth in Lending Act, UK payday loans outlets must publicize the APR, which in this example would be 2,686. Again, remember, the relative cost here should be compared with an equivalent alternative, such as overdraft protection.

How do Speed-e-Loans payday loans compare with overdraft?

Four High Street banks and their overall charges for a £100 over the same period of time are compared on the Speed-e-Loans website. Bank rate samples were taken in November 2009. At Alliance Leicester, a £100 checking overdraft would accrue a £100 charge (that’s £5 per day over 20 days). Thus, a £200 total charge would be the final result. At Halifax bank, the cost is the same. NatWest would charge £210 total (up to £90 for returned items, £20 per month overdraft fee). Lloyds TSB charges £300 (£20/day for 10 days; 20 days would of course be worse).

Then there are Speed-e-Loans payday loans. For a £100 payday loan, the total amount a consumer would pay back in 20 days is £125.94. The UK Office of Fair Trading can see that this option can easily be less expensive for consumers. In America, the same holds true for payday loans.

Sources:

BigNews.biz

Difference Between

Payday loans: Avoid overdraft, even when abroad:

Don't be shocked if a small miscue becomes a big money drain called overdraft fees.

(Editor’s Note: Personal Money Market does not offer legal advice. Consult a legal professional if you have questions. The opinions and experiences expressed in this article are those of the author and do not reflect the stance or judgment of Personal Money Market, its affiliates or subsidiaries.)

An overdraft takes place when withdrawals from a bank account exceed the available balance. Some accounts may have a prearranged limit that allows the account to become overdrawn, but the majority of people don’t have this and are charged extortionate overdraft fees.

Why the Overdraft Fees?

It has happened to all of us at one point or another, and there are a multitude of possible reasons why… such as:

• A delay in ATM communication resulting in unavailable funds being used
• The bank charges an unexpected fee
• A personal check has bounced
• Perhaps you may have just misjudged your available balance

When this happens, your credit score takes a dive and you usually get charged another unnecessary fee. All the banks differ with the allowances available and the measures they take when someone accidentally becomes overdrawn. Overdraft fees are there to serve as a reminder that you have exceeded your limit and act as administration charges for the extra work involved in the process. Banks have made a mistake here in their terms and conditions as far as I’m concerned (and I believe most would agree). The fees far outweigh any possible administration costs.

Two Years and £1,500/$2,500

Previously, I had an account with a High Street bank in the UK that offered the usual services and worked well for me. Over the years, however, there were small fees charged for overdraft and other unknown reasons. After researching this problem on the Web, I discovered an excellent forum that explained how to take your bank to small claims court for the fines charged and paid by the account holder. They offered all the templates.

Out of curiosity and the possibility of revenge, I took action. I asked the bank to send all the previous statements and made a tally of the fines and charges applied to my account since the start. The charges added up over time; I was surprised to see the amount accumulate to around £1,500 ($2,500 U.S.) I filed the forms and sent them off, threatening to take the bank to court on the grounds that they had fined me too heavily over the years. We traded letters for a couple of months before the bank made an offer of £800/$1,350, which I happily accepted since I didn’t feel like attending court. After the check was issued, they closed my account, which is not surprising.

A Nasty Travelling Surprise

While I was travelling around Australia, I made every effort to keep on top of my balance at home. It can be tricky. If you end up coming close to the mark due to the delay of international withdrawal charges as I did, the result is that I was around £2/$3.50 overdrawn. The bank failed to contact me directly, even though they were aware I was abroad. They began to charge daily fees of £5/$8.50.

This is a new practice for most banks, as they think it is fairer than charging a fee once a month. That is a load of nonsense! A few weeks later when I finally had access to the internet and could check my account I found that I was not a little but instead £95/$158 overdrawn! Quite frankly that is a joke; under normal circumstances I wouldn’t put up with it however at the moment they are not accepting claims as they are currently in court over a similar issue and I can´t afford to risk the account being closed. After issuing the check, they ceremoniously closed the account. This didn’t surprise me in the least. Be prepared for such treatment if you plan to rectify any daylight robbery that you may be experiencing.

Get Overdraft Protection

Overdraft fees are an ongoing problem, but can be avoided if you take care. Ask your bank if they offer overdraft protection, a service offered to protect you in the event that for whatever reason your account drops from the green into the black. In the event that you know you won’t have money to cover and the bank won’t help, payday loans can also help.

Another option is common sense: Keep on top of it! Make sure you understand exactly how much money you have in your account before making purchases or if you are going to be charged for any reason. In the event that you know you will become overdrawn before it happens, call the bank and ask them if there is an economically friendly solution – if only a temporary one. It seems wrong to say, but remember that the easiest way to stop yourself being charged overdraft fees is by not going over in the first place.

Apply for Payday Loans HERE!

Have you had it up to here with your bank's overdraft protection schemes? You aren't alone, according to the Center for Responsible Lending. (Photo: flickr.com)

If you’re able to see past the shady origins and history of the Center for Responsible Lending, you’ll see that occasionally they do good work that benefits society. While they’re certainly no friend of the payday loans industry, I find that their recent report on the overdraft fees and overdraft protection rackets is worth noting for any financially conscious consumer. Personal Money Market wants you to be informed when it comes to your money, so take the CRL’s findings as a word of caution when it comes to the twisted world of overdraft fees and protection.

Major Overdraft Findings That Should Give You Pause

Overdraft fees and overdraft protection costs have skyrocketed in recent years. According to the CRL’s findings, there are three shocking points of which we should all be aware:

1. Overdraft occurs frequently. Over a 12-month period, the CRL found (based upon Federal Reserve data) that more than 50 million Americans overdrew their checking at least one time. Of those, more than half (27 million) had five or more.
2. How much operating income did overdraft feeds produce for banks and credit unions in 2008? Try $24 billion. Broken down, it’s been noted that a credit union could derive as much as 60 percent of their operating income from overdraft fees and overdraft protection.
3. Think overdraft is under control? Think again. From 2006 to 2008, the CRL found that banks and credit unions upped the penalty by 35 percent.

Were You Even Asked to Opt Into This?

For most people, the answer is no. When you sign up for a checking account at your bank or credit union of choice, you’re automatically enrolled in an overdraft program. And buried in the fine print of your contract is the overdraft fee schedule. Generally, transactions consumers don’t have the money to cover are automatically paid by the bank or credit union. What the consumer gets for the trouble is a penalty per transaction in the neighborhood of $34. Furthermore, banks and credit unions tend to charge an additional daily fee for as long as a consumer’s account balance remains overdrawn. Regardless of whether an account is overdrawn by $100 or $.01, fees can mount – and no bank or credit union I’m aware of works on a sliding scale. It’s all about flat fees that the consumer must pay. And CRL research indicates that for every $1 in overdraft protection credit extended to consumers using their debit cards, $2 in fees are assessed.

The Banks’ Defense

It’s all about protecting a consumer’s good name, they might say. By providing this “service” to customers, banks and credit unions claim they’re keeping people from bouncing checks. NSF fees from banks, bad check fees from merchants and (potentially) other late fees could amount to a person’s picture being hung on the wall in mug shot-like splendor.

Bouncing Checks Aren’t the Story, However

Debit card and ATM transactions are the big issue. The CRL finds that if banks and credit unions wanted to, they could simply decline transactions that would put consumers in the red. However, most do not do this. They pay for the transaction but “help” the consumer by severely penalizing them. While consumers should certainly be responsible with their money, digging unnecessarily deep holes for them to try to climb out of after they’ve already made mistakes is a questionable tactic on the public relations front. In the end, it comes across as a money grab.

The Reordering Transactions Shell Game

Did you know that banks and credit unions reserve the right to reorder your banking transactions from highest to lowest, even if the lesser transactions occurred first? This catches millions of consumers who gamble that a large expense won’t clear until after their paycheck is deposited. If you’ve ever done this (I know I have), know that you’re playing a losing game.

Automatically Dragged Over the Coals

This is what John and Jane Consumer typically get when they sign up for a standard checking account. Many aren’t even aware that cheaper options are available. Some banks may offer a cheaper, more formal line of overdraft credit, or even a link to a savings account in the case of overdraft. However, even these can be expensive. Payday loans, when used properly, can cost even less. Did you expect me to say otherwise?

A Terrible Trio for Consumers

Using FDIC data from 39 member banks, the CRL digs into just what the overdraft fee jungle means for consumers. They do this by addressing the three points raised above.

1. Overdraft Occurs Frequently

Of the 6.5 million accounts held in the FDIC sample, around one in four experienced at least one overdraft over the course of a year. One in seven experienced five or more. As mentioned earlier, this translates to about 51 million Americans stuck in the overdraft fee quagmire. Those with five or more instances are sinking beneath the muck. The CRL found that repeat offenders tended to be of lower income, single, non-Caucasian renters. Considering that the FDIC points to the 18 to 25 age group as being most likely to fall into the overdraft trap, it seems that more effective financial education is in order. Learning to control excessive impulse spending, balance the checkbook and consider options like payday loans in emergencies could help anyone.

2. Excessive Overdraft Fee Profits

Banks and credit unions are conveniently not obligated to report what they make on customers’ overdraft fees, but the FDIC did manage to compile from a sample of its member banks. They found that that around 69 percent of their service charge income came from NSF fees. Extrapolating the data, the CRL finds that this amounts to $34.3 billion in fees for 2008 alone for all service fees. Sixty-nine percent of that is $23.7 billion, a staggering sum that should be much lower. As banks, credit unions and even credit card companies are jacking up fees, that figure could be even larger in 2009.

3. Fees are Out of Control

As I was saying, overdraft fees are a source of concern for any consumer who depends upon the traditional banking industry to care for their money. As the collection has increased 35 percent from 2006 to 2008, the CRL wonders if there’s a ceiling. Organizations like the proposed Consumer Financial Protection Agency and the Credit Card Bill of Rights are designed to help make right what has gone so far wrong, but will they have the healthy canine teeth to tear away the sweet meat?

As mentioned, fees for individual overdraft transactions and days a balance is in the red are commonplace. A cup of coffee, a tank of gas and a few miscellaneous convenience store purchases can quickly and silently become hundreds of dollars in overdraft fee debt. The CRL finds that the monthly average for individual debt card usage is 17. More than a quarter of those are for less than $10.17 on average. Imagine the possibilities across the banking industry. Since this use has exceeded credit card use since 2005, it’s also no wonder that the credit card industry has sought myriad ways to charge their customers with fine print clauses.

Fruits, Vegetables and Overdraft Fees

That sounds like part of a balanced diet these days. The CRL frightens us all with the details of how Americans spend “about the same amount” on overdraft as they do on fruits and vegetables. As for grains and other essentials like postal stamps and books, overdraft fees are clearly in the lead, say the CRL. Considering how difficult financial matters are during the recession, is it any wonder that the CRL found that most consumers would prefer that a transaction be denied than to have to paid exorbitant $34-per-transaction overdraft fees?

How Can This Problem Be Fixed?

This is your checking account on overdraft protection. (Photo: http://tolweb.org/)

Beyond preparing consumers to make sound financial choices, the financial abuses inherent in the traditional banking system must be exorcized. The Federal Reserve is considering that very matter, as is Congress. Large-scale change is needed.

Prohibit Overdraft Fees on Debit Card and ATM Transactions

This exception would be a welcome aid. If a fee is absolutely necessary, then a bank should have to provide a more highly visible, real-time warning so that debit and ATM infractions don’t fly under the radar and destroy overtaxed consumers’ budgets. If warning sign appears, consumers would have the choice to back out of the transaction (if the merchant didn’t simply rule out that method of payment). Some banks and credit unions block such transactions completely. The CRL suggests that all should follow the practice.

Overdraft Fees Should Be Proportional

The CRL’s finding that the amount that banks pay out to merchants for consumer overdraft is about half of what they actually charge consumers for the “convenience” is another signal beacon that change is needed. Flat fee overdraft charges are unnecessary when compared with the actual cost of covering the overdraft to banks and credit unions. It is understandable that banks and credit unions have to think of profit margins, but the current overdraft fee system is tantamount to gross customer abuse. The CRL suggests that an overdraft line with a reasonable rate of interest would be easier for consumers to swallow. Then again, rather than dealing with revolving interest, why not use payday loans?

There Should Be a Limit

If a consumer dashes their checking upon the overdraft fee rocks, banks and credit unions should be required to offer an alternative product at lower cost. A consumer shouldn’t be allowed to rack up more than six overdraft fees per year, says the CRL. This is what’s called weaning traditional financial institutions from their habits of excessive profit. Getting by with a reasonable profit margin may mean fewer executive retreats to Cabo San Lucas, but it’s the right thing to do.

No Overdraft Protection Without an Opt-In

This is self-explanatory. No service or accompanying gross fees should be thrown at a consumer without their approval. The CRL found that around 90 percent wanted to be able to choose whether they would have overdraft protection or not, so banks and credit unions should listen. If not, they run the risk of losing even more customers to payday loans when financial calamity strikes. Banks and credit unions certainly have a larger war chest to draw from, but that doesn’t mean they shouldn’t try to be competitive.

Make Banks Toe the TILA. Payday Lenders Do!

The Truth in Lending Act requires that lenders disclose certain information to the public. It seems that information regarding the amount of money banks collect in overdraft fees should be included in the purge, much the same way payday loan companies make their APR known. Since overdraft protection is an act of extending credit to a consumer, banks and credit unions should be forced to clarify just what they’re charging customers. No bank or credit union should be exempt from the law.

There’s Nothing Up My Sleeve

The Consumer Financial Protection Agency is on its way. President Obama made a great deal of show about the related Credit Card Bill of Rights. It’s time for banks and credit unions to be made to tow the line. If you’ve even gone through the hassle of dealing with overdraft, you know that there has to be something better behind the curtain. In the case of payday lenders, there’s nothing “up the sleeve.” In a short term financial emergency, payday loans are up front about fees, which typically are much less expensive than falling back on overdraft protection. The consumer should have the power to choose what fits their financial circumstances best.

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