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June 8, 2009

What Good Credit Actually Means When The Credit Card Bill Goes Live

Consumers heaved a sigh of relief when, last May, President Barack Obama signed into law the credit card bill which was fast tracked through Congress and released also this May. Consumers are seeing the credit card bill as a great equalizer which will give them better control over their credit and curtail the unfair and abusive practices of credit card companies.

What Good Credit Actually Means When The Credit Card Bill Goes Live However, credit industry insiders are warning that the credit card bill may not be as consumer friendly as it sounds.

For the past years, credit companies had been profiting greatly, expanding available credit without taking into account the rising debt of cardholders and profiting mainly from high interest rates and large fees instead of debt payments. When the economic crisis hit, the credit industry found itself in a financial dilemma, burdened with toxic assets and increasing defaults. As a way to salvage what they could, they raised interest rates to astronomical levels and increased fees.

With the credit card bill in place, cardholders are hoping that things are going to change for the better for them, credit wise. However, if credit industry experts are to be believed, their sense of relief may be misplaced.

While the credit card bill does provide legislation which will make credit card practices less predatory and more consumer friendly, these same legislation will also mean that credit cardholders are going to have to deal with credit that is harder to get. For instance, the legislation limiting the capabilities of credit card companies to adjust interest rates of an existing debt means that credit card companies are going to be offering higher interest rates at the very start. It won’t matter either how good of a borrower the credit cardholder is.

Credit card companies see adjusting interest rates on an existing debt as a way to adapt the specific credit line according to the risk exposure of the cardholder. Without this capability, they say that they have no other choice but to spread their risks across their customers, regardless of risk. What this means is that, if a one cardholder is not able to pay the interest rate commensurate to the risk that he or she poses for the credit company, then all the other customers of that company have to pay a higher interest rate as a result.

Whether this scenario will actually happen or not still remains to be seen, cardholder advocates counter. Credit cardholders are getting smarter about managing their credit and, with the disclosure amendments in place, they can make much more intelligent decisions. Competition among credit card companies is another factor in their favor as well.

June 2, 2009

Credit Card Law Is All About Compromise

Debates about how good or bad the recently passed credit card law is has been going around even before the legislation got out of congress. There have been some valid points voiced out but, in the end, the credit card law is simply a compromise so that the credit card industry and the consumers survive the on going economic crisis and, perhaps build a better relationship between credit card companies and consumers.

Credit Card Law Is All About Compromise The credit card industry found itself on the verge of collapse when, at the outset of the currently ongoing economic crisis, credit cardholders began defaulting on their credit card payments. The industry found itself especially vulnerable because, for the past few years, they had been profiting mainly from credit cardholders who could reliably pay off the penalty fees, not the their debts. The credit card industry had found these types of borrowers to be virtual goldmines as they continued to pay the credit card companies without really seeing any substantial decrease in their debts. The profits the credit card companies took from these types of borrowers have not been publicly released but experts estimate the value to be quite staggering.

When the economic crisis hit, weak borrowers were the first to default. Coupled with the dry up of employment, the credit card industry soon saw record levels of defaults. In an attempt to stem the flow and recover, they raised interest rates and fees, even for their credit cardholders who maintained a good credit standing. The result was a national outcry that led to the formulation and eventual passage of the credit card bill.

The credit card bill addresses many credit cardholder concerns such as: unfair interest rate hikes, obfuscated industry practices and other predatory credit card practices. While credit cardholders are getting plenty of breaks from the credit card law, they won’t be given credit on a golden platter, either. Interest rate hikes will be controlled but, if the credit cardholder continues to perform poorly in terms of payment, they will get hit with high interest rates. Many predatory practices of the credit card industry will be curtailed but they credit cardholders will have to take responsibility for their credit card buying practices.

The credit card industry will certainly lose a lot of their profitability when the credit card law becomes active. However, it does not mean that the system will collapse entirely. They will just have to adjust to a less aggressive style of doing business. They basically have to return once again to basing credit availability on the capability of the borrower to pay off debt, not on how much they can profit from him.

In the end, the credit card bill simply reinforces what was once common practice in the credit industry: credit available where credit is due.

May 31, 2009

Interchange Fees May Be Next Target for Legislation

The recent passage of the credit card bill from Congress was cause for celebration for credit cardholders, though the legislation itself won’t become active until nine months have passed. Now, the government is looking into other credit card practices that seem unfair to consumers and how best to legislate them.

Interchange Fees May Be Next Target for Legislation Currently, the Government Accountability Office is studying credit card usage among American consumers. They are interested in one particular practice and its effect on merchants and credit cardholders: interchange fees.

Interchange fees are fees that merchants pay whenever a customer uses a credit card. Essentially, when a merchant’s customer uses his or her plastic to purchase an item, the bank of the merchant pays an interchange fee to the bank of the credit cardholder so that the transaction goes through. This is true not only for credit cards but also for debit cards as well. The interchange fee for every transaction is usually at 1% to 2% of the total amount of the credit cardholders’ purchase. Thus, for a transaction of $100, the merchant has to pay anywhere from $1 to $2.

Most people take interchange fees for granted, as they are often buried within their transactions. However, some are taking keen interest in them. Consumer advocates are very much aware of how much interchange fees affect daily purchases of credit cardholders. Merchants are also quite aware of them, being the group who has to shoulder the payment or pass it on to their customers. The credit card companies are also very much aware of the profits that they are getting from interchange fees. Although a 1% charge may seem minimal to the regular consumer, it can mean millions to a credit card company that sees profit from it from thousands of credit card transactions every day.

The recently passed Credit CARD bill (Credit Card Accountability, Responsibility and Disclosure Act) actually has a provision that can be used to address interchange fees. The provision requires investigation on fees that merchants have to pay so that their customers can use credit cards. The main thrust of the provision is to provide disclosure to consumers on the credit card industry’s practices.

Some have noted, however, that disclosure is not enough for change to happen. Although informing credit cardholders of credit card industry practices seems like a good first step, there is still a need for stronger legislation. It ultimately depends on whether there is a change in the way credit cardholders use their credit.

May 30, 2009

Preemptive Measures to watch out for before Credit Card Bill Goes Active

The passage of the credit card bill has given credit cardholders a lot to look forward to when it becomes active after nine months. With the credit card bill in place, credit cardholders can expect to see limitations being put in place for interest rate hikes, credit card agreement transparency, and generally, more protection for them from unfair credit card industry practices.

However, a key fact is being overlooked by many of those who are hailing the approval of the credit card bill – the fact that the bill goes into effect only after nine months has passed. Some industry experts are saying that starting now until the law goes into effect, the credit card industry is going to have an open season on earning as much as they can from their customers. This is to offset their impending losses when the credit card bill comes into play.

Since last year, credit card companies have been increasing their interest rates and cutting off available credit for cardholders. The resulting credit card crunch was actually one of the primary motivations for the credit card bill. Cardholders now need to be aware that what the credit card companies have been doing is not going to stop anytime soon. It is going to continue and may even get worse. It’s going to be nine months of continuous unfair and deceptive credit card practices before credit cardholders will see any positive changes in the way their credit companies do business.

The best that credit cardholders can do in the interim months before the credit card bill becomes active is to be as vigilant as possible with their credit cards.

Interest Rates

Credit card companies can still raise interest rates with relative impunity. They are only required to inform you 15 days of the change in interest rate. Therefore, read the fine print of your credit card bill so that you are aware of any changes in your billing. In some cases, you may have the option of closing the account. You should seriously consider doing so, especially if you can find a credit line with better interest rates.

Watch Your Credit Limit

Balance chasing or cutting down credit limits to just above the credit line’s balance is becoming a widespread practice of credit card companies. Watch your credit limit and avoid overdrafts so that you won’t be charged large overdraft fees.

Rewards and Rebates

Rewards and rebates are probably going to end when the credit card bill goes active. If you have some points stocked or awards pending, take advantage of them now as they may soon end or expire.

May 16, 2009

Credit Card Protection Means Guns on National Parks?

As the bill protecting credit cardholders from unfair and deceptive practices steams through the Senate, unrelated amendments are making their way into the bill. One example is Sen. David Vitter’s immigration provision, which would have banned non-American citizens from owning credit cards. It never really had a chance and was quickly dropped.

des However, one amendment that seems to be holding on is one that allows visitors in national parks to carry guns. Surprisingly, the amendment passed through the senate last Tuesday with 67-29 votes.

The approval of the amendment has caused some uproar in congress and a few smirks as well. Rep. Carolyn Maloney’s aide, Jon Houston said, “It’s just wacky.” Jon Houston was speaking in behalf of Rep. Maloney who was the chief sponsor of the credit cardholders’ protection bill which the House recently passed. She has also been pushing for legislation on credit card practices for the past two years.

As President Barack Obama continues to put pressure on the bill, pushing lawmakers to finalize it by Memorial Day and holding town hall meetings in support of the bill, the bill continues to gather momentum in Congress. The fast moving credit card bill is being seen as a vehicle of opportunity by many senators wanting to pass into law some of their pet bills.

The author of the gun-in-national-parks bill, Sen. Tom Coburn saw the bill as an opportunity to push his bill into law. On the senate floor, Sen. Coburn said that his “isn’t a ‘gotcha’ amendment’. He said that what he did was a genuine step for the protection of the Second Amendment. If passed into law, it would reverse a decision from a federal judge made last March, which blocked President George W. Bush’s last-minute rule change that allowed visitors to national parks to bring concealed weapons.

Credit Card Protection Means Guns on National Parks Don Tatro, speaking for Sen. Coburn said, “It was just an opportunity. Congressional leadership has been trying to keep it from happening; and this was just the first opportunity.”

Observers from Capitol Hill do not see that the gun will negatively affect the passage of the credit card bill. The gun measure itself may actually not even make it at all, as its chances of survival are actually minimal as the bill approaches final deliberation.

Unrelated amendments such as the gun amendment are actually slowing down the credit card bill deliberations. The Senate spent last Thursday wading through 30 more amendments to the bill and Sen. Chris Dodd pleaded for reason from lawmakers adding amendments. Sen. Dodd, sponsor of the credit card bill, has complained that the credit card agenda is now being “taken over by other items”.

May 11, 2009

Three Ways To Win Against Credit Card Debt

Credit card debt is a fact of life. That needs to change as soon as possible, especially if you want to survive the economic crisis. To do just that, read on.

Don’t Spend What You Don’t Have

Credit cards are very convenient, no argument. With credit cards, you don’t have to carry a wad of cash every time you go out, you only use a small, thin card to pay for your purchases and you get to shop even if you don’t actually have the money to pay for it. That last one is the problem.

Credit cards make it easy for you to buy something on the assumption that you can pay for it someday. Most people rationalize that they can easily pay off their credit card purchase by paying a fraction of the item’s price every month. Unfortunately, that is not always the case which is, of course why many people are finding themselves in credit card debt nowadays.

If you really want the convenience of a credit card, use a debit card. With a debit card, you are buying with your own money. Thus, you can be sure that when you buy, it is paid for then and there. You won’t have monthly payments or interest rates. It’s a win-win, unless you want to buy something which you don’t have the money for. If, you really need to spend what you don’t have, read the next one.

Pay Your Debts Right

If you read your monthly credit card bill, you’ll see some figures their labeled as “minimum amount due”. Avoid paying that as much as you can.

If you only pay the minimum amount on your bill, you’re not actually paying to lessen your debt balance. You need to remember that the longer your balance stays on your bill, the higher the interest you are getting. So what you really want to do is ignore that deceiving “minimum amount due”, calculate the highest amount you can pay towards your actual debt balance and pay that amount. That way, you avoid the high interest rates and get to congratulate yourself on playing smart.

However, if you’re in over your head already, the last one is for you.

Move To A Cheaper Card

Credit companies love to sell you credit cards. It can be annoying but it can give you a break with your credit card debt problem. If your credit card is an old one, the interest rate on that card is probably higher than that of a new card.

What you should do is to get a new card with a low or even zero interest rate and move your card balance to that. Just be aware that the low or zero interest rate is usually offered for a limited time, usually a few months. Make sure you maximize your payments during that period to get the best out of the deal.

May 9, 2009

Consumer Borrowing Falls, Smart Spending is the Order of the Day

Consumer Borrowing Falls, Smart Spending is the Order of the Day The economic recession, the rise of unemployment, and the fall of the property markets have hit the country quite hard. For the average American, the reality has been rising loan rates, the risk of losing homes, and the threat of unemployment. As a result, every American has had to rethink the way they spend their earnings.

Today, Americans around the country are moving away from their old, consumer-driven spending habits. The order of the day for most Americans is now spending smart. It seems that frivolous spending, a common practice just a few years ago, is now on the way out.

Paco Underhill, an expert in consumer psychology, has stated that the consumer mindset is undergoing a major change due to the recession. He was recently quoted saying, “Our retail culture is in a major transition. Conspicuous consumption is now bad manners. Too many of us have spread ourselves far beyond our means. We can’t do this anymore.”

“Our closets are full, our houses are too big, we have too many cars. It’s time to make some very wrenching changes,” he further elaborated.

It seems that American spenders are doing just that. A report released by the Federal Reserve last Thursday shows that consumer borrowing dropped to $11.1 billion this March. Reuters had earlier polled industry analysts who had expected consumer borrowing to drop to $3.5 billion for March. The annual rate of consumer credit fell to 5.2% this March. This totals $2.55 trillion. Not since December 1990 has consumer credit percentage dropped so low.

The drop in non-revolving credit was to the tune of $5.7 billion, which is equivalent to a 4.2% rate, to $1.6 trillion. Non-revolving credit encompasses closed-end loans, such as those taken out for holidays, cars, boats, and college educations. On the other hand, the drop in revolving credit in March was at $5.4 billion, which is at a rate of 6.8%, to $946 billion. Revolving credit is composed of borrowings from credit cards and charge cards.

The sales figures of major retailers for April are also quite telling. Discount stores and supermarkets are winning out against their more high-end competitors. From food to clothing purchases, most Americans are moving towards where the best value is. Consumers are beginning to recognize the importance of holding on to their dollars and are being very careful in their spending. As a result, previously scoffed at buying practices such as buying pre-owned items and “private label” store products are becoming more and more the norm.

The appeal of high priced, luxury branded goods is also beginning to wane.
The changes in buying behavior have its positive and negative effects. Some retailers, for example, are being hit by the change in consumer practices. Clearly, they will have to adapt to this new consumer behavior trend or risk losing everything.

May 8, 2009

Pull Yourself Out Of Debt

With rising credit interest rates and ever increasing credit fees, everyone desperately wants to get out and stay out of debt. Unfortunately, more than it has ever been before, this is something that is much easier said than done. Still, there is hope. With a bit of belt-tightening, some smart spending decisions and keeping an eye on the details, it is possible for you to live debt free, even with the current economic climate.

Pull Yourself Out Of Debt According to industry insiders, the average American family owns at least one credit card. Credit cards are very convenient when it comes to payment. They can even be lifesavers in situations where there is no cash immediately available. However, credit cards can be deceptively convenient when it comes to purchases. So much so that most credit card owners find themselves surprised by the amount that they have to pay after they’ve gone through a spending spree.
Sooner than they think, they find themselves deep in debt.

According to experts, if a person’s take home pay loses 20% to nonhousing debt, then he is overextended. Another indicator of overextension is when 30% of a person’s monthly income go directly to paying the rent or the house mortgage. Other indicators include not knowing the total amount of debt, paying only the minimum balance in credit card bills and borrowing in order to pay debts.

If you find out that you are overextended and unable to keep up with your debt payments, don’t panic. You can still get yourself out of debt, though it will require some effort.

The first step to get out of debt is to keep track of where the money is going. This is not as trivial as it sounds. Little purchases, bank fees and other small amounts that most people take for
granted often add up to a considerable amount at the end of the month. It is best if you keep a written record of the month’s expenses. This makes it easier to track where the month’s budget is going.

By keeping track of your expenses, it is then easier for you to find out where the money is going and whether some of it can be diverted to payoff your debts. This often mean that you will have to get creative. For instance, you might consider bringing lunch instead of buying lunch from the cafeteria or your favorite fastfood place. The main goal is to minimize your monthly spending. This way, you can free up money to pay off debts.

When paying of your debts, make sure to prioritize debts with higher interest rates. If at all possible, transfer your high rate debts to your low rate credit cards. Look for low rate cards and transfer to them. Try to minimize using your credit cards and, if you really have to, comparison shop. Also, limit your credit card purchases to necessities as much as possible.

April 23, 2009

President Obama and Banks Meet To Discuss Credit Card Practices

Credit card consumers may be relieved to hear that President Obama and top economic officials will meet with the credit-obama heads of 14 major banks to discuss unfair credit card practices. Since the beginning of the financial crisis credit card companies have implemented many practices to try to reduce their level of risk. Unfortunately most of these aggressive practices are putting Americans finances at higher risk as they continue to struggle with increased unemployment, loss of savings and other fallout associated with the recession.

With the possibility of tighter government regulation on the horizon administration officials would like bank executives to take action voluntarily but will point out that President Obama supports legislation to force regulations on unfair or predatory lending practices.

Here are a few of the issues that are likely to be addressed:

Increased Interest Rates- Many consumers are under the false impression that you are guaranteed your current interest rate unless you fail to meet your end of the credit card agreement. This is not the case, in fact many consumers have been caught off guard because credit card companies can raise the interest rate at any time for any reason. This is more frustrating when you consider the fact that the Federal government has brought short term interest rates close to 0% for banks who are borrowing money.

Slashing Credit Limits- In an effort to reduce the damage of customers defaulting on their credit card agreement, credit limits are being reduced- sometimes below the current balance on the consumers account. This can result in consumers being charged over the limit fees in addition to increasing the debt to credit ratio which accounts for 30% of your FICO credit score.

Closing Inactive Accounts- Consumers who have not used their credit card recently may be surprised to discover they no longer have that option at all. Credit card companies are closing inactive or unused accounts. Again, this increases the debt to credit ratio leaving many consumers taking a hit to their credit score.

Payment Allocation- Currently credit card companies apply consumer payments to low rate balances while higher rate balance continue to rack up interest charges which allows the balances to grow. New regulations would require any amount over the minimum payment to be applied to either higher interest rate balances or evenly distributed to all balances.

Targeting Students- Sallie Mae recently released survey results indicating more and more college students are using credit cards to pay for college expenses. As a result students are graduating college with not only student loans but also higher levels of debt which can make finding financial stability very difficult in post college years.

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