Today February 22, 2010 the first phase of the Credit Card Accountibility and Responsibility Disclosure act goes into affect. Given the time banks had from when the law was actually passed last year many consumers have already been hit with new fees and higher interest rates but as many things government it is better than nothing. And to be fair it does create some real consumer protections on a going forward basis that did not previously exist. For the details of what rules are active today and when the remaining rules phase in click this link, credit card reform passed and what it means to you.

Matt

   I was going through my credit card statements this past weekend and noticed a charge from cheaptickets.com. This would not be a big deal except I have never used this card for any purchases online or otherwise and I have never been to cheaptickets.com, let alone make a purchase from them. Now I called the Card Provider and they canceled the card and  I should have the charge refunded, no harm no foul. Then this week I came across and article where a man is alleged to have stolen in the region of one-hundred and thirty million credit card numbers. The irony is supposedly this guy was suppose to be working with the feds but was actually selling the fed information to the bad guys.

   This just goes to show you can never be too careful and need to always check your statements. My credit card was stolen without ever being used in any transaction. So either cheaptickets charged the wrong account and was able to process the transaction without my info or they hacked it from some system that the number had passed through no relating to making a purchase. Anyways, a link to the article can be found at the end of the post and ALWAYS CHECK YOUR STATEMENTS!

Click for the full article – AP

      I wrote an article in December 2008 about the proposed Credit Card Law changes called, “New Credit Card Rules Passed – In Law July 2010″. The intent of these laws is to better protect consumers from the unscrupulous practices of banks. These laws are a big step in the right direction for better protecting the consumers although the Banks are not going quietly. They are cutting credit lines and raising rates before being forced to follow the new laws. The legislation is good but because the laws are being phased in we the consumer will continue to get abused. Yes, if you do not carry a balance it is all irrelevant but many of us have balances we are paying off. Here are the landmarks:

Starting August 2009

• Banks must send statements at least 21 days before bills are due. Currently the requirement is 14 days. Ever wonder why it seems like you just got your bill and its already due?
• Banks must give 45 days notice before increasing interest rates and / or fees. The current requirement is 15 days.

Starting February 22, 2010

• Banks can not raise rates on an existing balance, unless payment is more than 60 days late or a teaser / intro rate expires.
• Banks cannot offer teaser / intro rates for less than a period of six months. This is good because banks have made a lot of money getting people to jump from offer to offer making them rich off the balance transfer they probably hit you with.
• Banks cannot raise the rates on new purchases in the first year, unless it is due to an expiring teaser / intro rate.
• You must be 21 to apply for a credit card, otherwise you will now require a co-applicant unless you can show proof of income. This of course aimed at reducing the number of kids coming out of college with significant debt.
• Banks are no longer allowed to use the infamous “universal default” policy, which is when they raise your rate because you were late on another account.
• Banks must now apply payments over your minimum due to the highest APR balance first and then to any remainng balances in descending order of interest rates from highest to lowest.
• Banks must now disclose on your statement how long it will take to pay your current balance and the total associated interest if you make only the minimum payment.
• Banks can no longer allow you to charge over your limit and hit you with fees for doing such unless you opt in, giving them permission to allow you to exceed your credit line. You of course would be very unwise to do so.
• Banks can no longer perform what is termed “double cycle billing”. This is when the Bank calculates finance charges by averaging in daily balances from the previous cycle in a addition to charging finance charges for the current billing cycle.
• Another rule to protect our youths prevents Banks from offering sign-up gifts on or near college campuses.

Starting August 2010

• Saving the best of last of course. If you have been late on payments for a card and your interest rate has been increased as a result, banks at your request must reduce your interest rate to the pre-penalty rate if you make six months of consecutive on-time payments.

   Credit card companies continue to make managing credit even more difficult. Never had an industry been so self massaging. They sue Bill Gates of Microsoft for bundling Internet Explorer with Windows saying it is antitrust but the credit card company and related benefactors basically run a racketeering scheme.

   Keeping a good credit score has some basic components. Once of these is that constant balancing act of credit used to credit available. There are many opinions on what the ideal ratio should be, zero obviously being ideal. However, that may not even matter as credit card companies continue to change the game.

   The banks are now closing credit lines that lay dormant as a way of protecting themselves from potential loses. As if it were not difficult enough to qualify for a mortgage, now your credit score is being reduced on your behalf. They are also reducing credit limits but this should not be a problem if you are responsible with your credit use.

   Obviously being smart and living within your means will keep your credit score high and none of this would be an issue. However, most of us work so hard to live check to check its nice to treat ourselves on occasion. Plus, if there was an emergency the current practices by the banks of closing or lowering credit lines strips away a major fall back for most people.

   It is recommended dormant credit cards be used once a month for a small purchase, paid off every month,  to keep the credit line open. Especially if it is a card you have had for a long time. Credit history is a major part of your credit score so you want to keep your oldest credit lines from being closed. If these unused cards have no balance they should help decrease your total credit use percentage. If you have any tips on keeping a good credit score, leave a comment or create a post.

~Matt

   I was driving in my car and heard a radio ad for Credit Answers on the radio. They are a debt settlement company. What made me listen was that they said now is the time to settle debt because of the economic stimulus and due to money banks received from the government. This is obviously very untrue. Creditors my be more willing to settle now because they know people are being crushed by the economy and would rather get some money than none, but at the same time they are raising interest rates and fees.

   There are a couple other things they said in the ad that bothered me but I cannot remember the specifics. However, I figured I would follow up and check the web site.  First of all there is no mention of their fees.  Wikipedia states some charge a montly fee while others charge a percentage of the money saved through settlement with the creditor. Second, they make a weak attempt at addressing the fact that this will affect your credit for seven years;   as quoted from their FAQ, “That depends on what your credit looks like when you enrolled in our debt settlement program. But in general if you do not make payments and pay your creditors according to the terms of your agreement your credit will suffer. That is one of the trade-offs you will have to make if you are serious about reducing your debt. “  Third, When asked if they can protect you from legal action, they say, “No, but we do have strategies on helping you manage the collection efforts and can direct you to an attorney to answer any suits that may be filed.” However, on a seperate page they state, “If you attempt to work a credit card debt settlement with a creditor on your own, you will lose the protection that comes from the involvement of a professional third-party credit card debt negotiation.” Which is it?

   Now I am not saying all these companies my be using predator tactics. There are firms that probably legitamately have relationships with creditors to expidite and maxamize savings in settling debt. Do not use this as a method of consumption, meaning settling your debt and continue to create new debt.  Hopefully, their fees and having to save the full payment for settlement would discourage such behaviour.

    Things to remember, Credit Answers does not disclose their fees because they want you to call but I think any good business should be up front about their costs. Debt settlement , charge-offs, and the like will remain on your credit report for seven years. Creditors may be more will to negotiate now because of economic conditions and the uncertainty of employeement but there are not any special programs or incentives in the stimulus for helping consumers with excessive unsecured debt.

   As always, be responsible, make a budget, pay off your debt, and good luck !

Matt

Credit Card Law Changes July 2010

Consumers have finally won a battle that was long over due. Last May regulators began discussions on passing new banking rules that would stop some of what I consider criminal tactics, used in the daily business of the Credit Card industry. These in my opinion are the first real Pro Consumer rules to pass in my 27 years of existence.

The banks will argue that they are going to lose billions of dollars. They are estimating as much as 10 billion at this point. However their argument has one rather large hole. The banks have calculated this using the revenue generated from the unlawful practices they have been using on consumers for years. Fees that if banks were the mafia they would have been charged with racketeering and loan sharking. But because they have “lobbyist” they have been allowed to screw the consumer in excess. Below is a summary of the Final Rule on Unfair Credit Card Acts or Practices. The Office of Thrift Supervision is urging banks to adopt this practices as soon as policies and systems can be updated but I will not hold my breath.

I. Interest Rate Charges- Banks will be required to disclose the annual percentage rate ( APRs ) at account opening and prohibits them from raising rates unless expressly permitted. The bank is permitted to raise rates after a specified period if the increasing rate was disclosed at account open. The bank is also permitted to raise rates on new transactions after an account is open for a year and after providing a 45 day advanced notice. They may also increase your rate on existing balances if you ( the consumer ) is more than 30 days delinquent in paying the credit card bill.

II. Reasonable time to day – Prohibits banks from treating a payment as late unless the consumer has been provided a reasonable amount of time to make payment. The rule defines this as a minimum of 21 days.

III.  Payment Allocation – This will require banks to apply payment amounts in excess of the minimum payment using one of two specified methods: by allocating the excess payment to the highest interest balance, or proportionately to all balances. ( In my opinion a concession so the Banks can still work interest fees at least partial to their advantage. )

IV. Double-cycle billing – Prohibits banks from using a practice called double-cycle billing where interest charges are assessed using your average daily balance over two months. This means if your balance was $1000 in one month and you paid $500 your average daily balance would be calculated with $1500 instead of $500. This especially hurts people who pay off their balance because they will still pay finance charges even though they pay their balance in full every month.

V.  High-Fee sub-prime cards- Prohibits banks from charging fees for granting credit through a sub-prime card using the majority of the available credit during the first year after opening the account. More specifically, fees exceeding 25 percent of the available credit must be spread over no less than the first six months that the account is open, rather than charged in their entirety during the first billing cycle.

Link to Office of Thrift Supervision Press Release

I wish I had tidings of joy or silver bells but its going to be a dollar menu Christmas. Now I admit I am usually an optimist but the economy has hit a level that is causing even some of the most successful to reign in their spending habits. What is to be done when people who earn a good living struggle to make ends meet? Now I have made my fair share of fiscal mistakes but as positive as I can be the only solution I can see is to earn more money.

Now for a lot of people this may not seem like a very desirable and or feasible option but you can only cut so much until you are left with things like, gas to get to work. Now it may not be desirable because chances are you are not going to earn nearly as much with some side job as you earn at your primary job. This of course could be untrue as well if you find a business you can start part time and grow in to a successfull venture. Of course this would also mean a great amount of time and sacrifice. However, the end result can be very rewarding.

As I stated before it may not be feasible because of time constraints, family, or maybe you are not comfortable with the idea of running your own business. Maybe you just work some extra hours, or part time when possible to make ends meet. Either way I have a great amount of respect for those who are willing to work hard and take matters into their own hands. So, collect cans, save your loose change, clean houses, it does not matter because when things improve you know that what you accomplished, was accomplished through your hard work.

Believe me I would love for a large sum of money to fall into my lap but we have to be honest with ourselves at the possibility of such a thing occuring. Chances our near zero. Granted it happens but remember they only tell us about the winners not about the far greater sum of losers. Believe me, I have searched hard and know there is no easy way out. And if someone tells you there is they are lying. We are the worst savers and worst debtors in our nations history. We have seen the reality of those decisions. Lets face ourselves and commit to turning our bad habits in to good habits. We need to start saving into money market funds and mutual funds and live within our means by not using credit cards or other debt unless absolutely necessary. Good luck my friends.

~ Matt