Credit Cards » Credit Card News » Town Hall Discussion on Credit Card Issues on the Way
Date May 12, 2009

Town Hall Discussion on Credit Card Issues on the Way

Town Hall Discussion on Credit Card Issues on the WayAs the credit card crisis continues, the White House is once again flexing its influence to confront the issue affecting a large majority of American citizens. This time, President Barack Obama plans to hold a town hall meeting during a planned stop in New Mexico on May 14. The President plans to open discussions on the credit card crisis during the meeting and to push for the passage of the credit card reform bill in Congress.

Robert Gibbs, press secretary of the White House, expressed to reporters the administration’s “strong desire to get something done on an issue of tremendous importance to middle class families and that is to rein in some of the excesses and some of the abuses that we’ve seen from credit cards over the past many years”.

Gibbs further elaborated on the administration’s stance saying, “For many people, credit cards provide an opportunity to finance purchases, but we think there’s a more equitable way to do that. Those reforms are on their way through Congress.”

The White House press release came as cardholders were reeling after the effects of the sudden interest rate increases and banking fees that came to effect last year and earlier this year. Rate hikes and card fees became the norm as banks struggled to keep afloat while the economic crisis continued. Unfortunately, cardholders were ill prepared for the sudden interest and fee increases, having to contend with a failing job market and a drop in the property markets.

The first signs of the changes on credit card legislation were first seen in the  new federal rules which were set to become effective on July 1, 2010. Earlier this year, the credit card crisis got some much needed attention from President Barrack Obama and a bill arrived in the House of Representatives early this year.

The credit card amendment has already passed through the lower house and is currently going through deliberations in the U.S. Senate. It passed through the House of Representatives late in the month of April and was known as the Credit Cardholders’ Bill of Rights. The passage was by an overwhelming vote of 357 to 70.

In the U.S. Senate, the bill is sponsored by Senator Christopher Dodd and Senator Richard Shelby, who is Dodd’s GOP counterpart. The Senate bill has been named as The Credit Card Accountability, Responsibility, and Disclosure Act or the Credit CARD Act. The bill is supposed to be a tougher version of what the House of Representatives recently passed.

As the bill continues to be deliberated in the senate, President Obama’s town hall discussion is calculated to boost support for it and, at the same time, inform the public on what the bill entails and what it will mean for the American cardholder.

Date May 9, 2009

MakingHomeAffordable.gov May Help Mortgage Woes

As a result of the drop in the property markets, many homeowners have found themselves in a difficult situation. The drop in property values has left many homeowners with properties whose values are way below what they owe in their mortgages. Thus, should these affected homeowners want to sell their properties, they would have to bring cash to the table.

MakingHomeAffordable.gov May Help Mortgage WoesThe mortgage problem is at the forefront of the economic concerns that the Obama administration is trying to solve. Early last March, President Obama launched the foreclosure prevention program.

The foreclosure prevention program is aimed at reducing the debt problems that around 4 million U.S. citizens are facing. The $75 million plan approaches the problem in a number of ways. Mortgage investors, loan servicers and borrowers will receive government incentives. Subsidies for interest rate reductions will also be made available.

In return for these incentives, the foreclosure prevention program tasks companies to modify loans to make them more affordable. In particular, the plan aims to change loan rates so that a typical household’s housing payments would amount to at most 31% of its gross monthly income. Those homeowners who have kept up with their payments also get the chance to refinance for lower-cost loans, even in cases where they have minimal or no equity.

During the launch of the foreclosure prevention program, borrowers were already informed to contact their respective loan service companies. However, the companies said that they would need a few weeks before they could actually begin to process applications. Just recently, banks have begun to do just that.

A number of homeowners have started receiving the benefits of President Obama’s foreclosure prevention program. The previous week, Chase Mortgage of JP Morgan Chase issued 15,000 or more mortgage modifications. Bank of America has also released around 100,000 letters to its borrowers and actually began assisting borrowers at risk in April.

For those who are interested in getting their mortgages adjusted, the best solution is to visit the website MakingHomeAffordable.gov. From there, they can take an online quiz to see if they qualify for the program. Eligible borrowers are then given a list of paperwork to prepare. Once the paperwork is ready, they can then contact their loan service company and follow their instructions to apply for debt modifications. Not all loan service companies are participating in the plan, however. Also, borrowers should be able to negotiate with their lenders through the phone and there is usually no need for a face to face meet.

After contacting the lending company, borrowers will have to wait for the company to decide how to help them out. The company can choose to lower the loan’s interest rate, reduce the balance of the debt, or extend the life of the loan. The goal of the lender will be to lower the monthly payment to at least 38% of the borrower’s monthly income. Once 38% is reached, the government will pay the lender in order to bring that figure down to 31%.

With President Obama’s foreclosure prevention plan, many homeowners in danger of losing their homes can breathe easier. With a lowered monthly payment rate, a majority of homeowners should make it through. An important thing to remember, however, is that the loan modifications do not become permanent until the borrower keeps up with the monthly payments for three months consecutively.

Date April 29, 2009

Visa Commercials Promote Debit Cards

Visa has noticed the trend of increased debit card use during this recession. They’re running several TV ads that promote Visa debit cards for everything from buying pizza, going to an aquarium with your daughter on a Tuesday, and paying for products online.

On April 29th, Visa Inc. reported that their branded debit card total dollar volume of purchases surpassed credit card purchases for the first time during the last three months of 2008 – making the debit card transactions processed by Visa 50.4% of their total transaction volume in the same period.

It’s no mystery why consumers are turning to debit cards over credit these days. Consumers are becoming more conscious of their spending, and people don’t want to rack up any more credit bills if they can help it. Debit cards are popular over cash use, because American consumers have a preference for the convenience plastic provides – beginning in 2003, credit and debit card purchases bypassed cash and check purchases.

“A big group of consumers like the discipline that debit spending can bring them, and that is particularly relevant in this kind of environment,” said Tim Murphy.  Murphy looks after MasterCard Inc.’s main payment products.

Unlike credit cards, which allow consumers to charge more than they can afford to pay when the statement comes and carry the balance from month to month, debit cards only let you spend what you have in your checking account. A Nilson Report provides data for the increase of debit cards since 1987:

nilson

Banks are helping to encourage debit card use through the offering of rewards programs. While debit card rewards programs are not as generous as most credit card programs – it’s still a good incentive that helps people choose debit over credit. Credit card use is expected to decline even more, as Americans continue to monitor and rein in their spending habits.

Date April 28, 2009

Credit Card Companies Cry Unfair

President Obama has advised credit card companies that as President, he would be supporting stricter regulations on the credit card industry and its practices. Coming up in July 2010, tougher regulations on deceptive practices by credit card companies will go into effect. Consumer felt some relief but the credit card executives began to whine.

While many credit card companies are hard at work, raising customer’s interest rates at the drop of a hat or cutting credit from loyal, good-credit customers, the executives still feel as though they have been through enough already with the Federal government. They feel they have already had to work overtime to comply with the new set of rules, even if they don’t start until mid-next year. They also complained because so many customers are defaulting on their contracted financial obligations because consumers are facing job loss and the inability to survive from paycheck to paycheck. They reason that by raising interest rates of the “good” customers, they can make up for the loss from the credit_card2amount of defaults. These executives conclude that what they are doing will help to keep them in business.

Luckily, President Obama wasn’t in agreement. Instead, Obama reasoned that there needed to be more consumer protection while still enabling the credit card companies to make a profit. The new rules will certainly benefit credit card holders for many reasons. One of the major changes will dictate that the credit card companies can no longer raise the interest rates on any existing balances. Late fees can also not be charged unless a reasonable time has passed before a credit card holder hasn’t made a payment. It is these practices that are now taking place that are leaving more consumers struggling with credit card debt.

Essentially, the government wants to help rehab the relationship between the consumer and the credit card issuers. There will be the need for clearer agreements the average consumer can understand in an effort to prevent unknowing applicants get taken advantage of by big business. The President wants the situation to be fairer for all involved and the new regulations for 2010 should be a good start.

Date April 25, 2009

Canadians Looking to New Credit Card Rules, Too

Americans aren’t the only ones dealing with credit card problems. While President Obama met with executives from flagscard issuers including American Express Co. and Bank of America Corp. to review credit-card policies for fees and interest rate limits, the Canadian government Prime Minister Stephen Harper is responding to consumer groups and lawmakers who insist the banks should have lower rates, and more information for consumers for understanding how the credit cards work. Namely, consumers should know clearly what their interest rates are, and not be faced with interest rate increases for unknown reasons.

Finance Minister Jim Flaherty, will announce new rules for credit cards next week that will include regulations for issues that are unfair to consumers. Some of these changes will include a required 21 day grace period for all credit cards, which means that if the payment is sent within the 21 day window there is no interest accumulated. Currently, grace periods vary from one bank to the next. Banks and credit card companies will need to indicate clear interest rate change information – so that they’re unable to simply increase credit limits whenever they want.

“We have to make sure the system operates fairly, and everybody knows the rules,” Jim Flaherty said during an interview with Washington.

The Bank of Canada cut the overnight rate to a record low of .25% earlier this week, but most banks are charging almost 20% interest on unpaid bills which isn’t giving cardholders much needed relief from the interest-rate cuts.

Canadians, just like Americans, are living off credit cards more frequently than ever before. The neighbors to the north are also experiencing record numbers of people losing their jobs, and will be facing huge credit problems if the trends continue. Canadian bank credit card balances have increased from $41 billion from August of 2008 to $49.9 billion currently – which is an increase of almost 40% in a year’s time, according to a report by Deloitte.

According to Moody’s Investors Service, credit card losses rose to 3.1 percent of the average balances in the third quarter, which is the 7th consecutive period of increases. While still training the United States card losses of 6.6% of balances, the number is still too high.

Up to three parliamentary committees in Ottawa may be holding hearings on credit card and bank issues, with the committee reports being watched closely by Flaherty to determine whether additional governmental regulations will be needed.

Date April 24, 2009

Chief Economics Adviser Gets Some Sleep During Meeting With President and Credit Card Executives

In a meeting held in the Roosevelt Room of the White House with President Obama and credit card executives on summersweb1April 23rd, 2009, the chief economics adviser, Lawrence Summers was caught taking a nap at the table. Of course, the photographers had a good time with this, snapping pictures left and right of the man has he nodded off, holding his head on his hand and eventually sliding right off his hand before waking up.

Reporters all over the internet have also had a good time with the story, and comments from readers express outrage that in a time when the economy is doing so poorly and millions of people are wondering how they’ll keep food on the table our chief economics adviser is snoozing on the job. Some have gone as far as saying his ability to nap during the meeting just shows a lack of concern for American citizens – since Mr. Summers needn’t worry about where his next paycheck will come from.

The Caucus reported the story yesterday, with a couple of photographs, including the one seen here. While inappropriate to nap during a meeting, people should cut the man a little slack. The world happens to be in a major economic recession, and you can bet the chief economics adviser has been kept busy working with the President to come up with solutions to the troubled economy. Aides reported that Mr. Summers has hosted a number of midnight telephone calls, in addition to working the normal day hours – it’s human to become tired and need to sleep when the body and mind aren’t given enough time to rest.

Date April 11, 2009

Banks in Better Financial Position Want to Pay Back Government Loans to Avoid Restrictions

obamaOn April 3rd, President Obama came out of a meeting with senior economic advisers and said, “what you’re starting to see is glimmers of hope across the economy.” Banks that are now in a better financial position are looking to pay back the bailout loans they received in order to avoid the restrictions that are attached to that money – increases in executive pay, for one, and hefty premiums banks agreed to pay when they first received the bailout funds.

The Obama administration’s next step for fighting the recession is to complete stress tests of banking institutions – similar to the testing that took place with General Motors before the forced resignation of the chief executive. The balance sheets of the weaker banks will be examined over the next three weeks for “toxic assets”, like mortgages that no one is willing to purchase at this time. Banks are resisting this process because they will have to show big losses when they relieve their financial statements of deteriorating mortgages and mortgage-backed securities. Analysts have estimated that US banks have more than $1 trillion in mortgages on the books – but only a small percentage have been labeled as likely losses. Goldman Sachs economists estimate that banks are valuing their mortgages at an average price of 91 cents on the dollar – but this is much higher than investors would be willing to pay for them at this time.

Despite the resistance, senior officials are pushing forward with the plans as they are expected to prove pivotal for the next phase of the bailout effort. The new $500 bill to $1 trillion plan will make use of public subsidies to encourage private investors to purchase mortgage assets and help provide some economic relief.

The Treasury has plans to subsidize purchase of these “toxic assets” of mortgages and mortgage-backed securities with low-cost loans to buyers to help cover the upfront expense – but there is a large percentage of analysts that warn that most banks will remain reluctant to sell the assets and this becomes one of the Obama administration’s biggest challenges for pushing forward with this bailout plan.