Consumers Union Urges Fed to Require Banks to Roll Back Recent Unfair Credit Card Interest Rate Hikes

After Congress passed legislation last year reining in some of the worst credit card lending practices, many banks responded by hiking interest rates before the new rules went into effect, including on customers with perfect bill paying records.  Now Consumers Union, the nonprofit publisher of Consumer Reports, is calling on the Federal Reserve Board to require banks to roll back those unfair interest rate hikes and to put stronger limits on the size of penalty fees and interest charges.
The Fed has already proposed new regulations that would limit penalty fees and require banks to reconsider interest rate hikes imposed during the year leading up to the enactment of key CARD Act protections on February 22, 2010.  But the proposed regulations don’t go far enough according to Consumers Union and should be strengthened to ensure consumers are more likely to see their old interest rates reinstated and don’t face unfair penalty fees and charges in the future.
“Last year’s shameful frenzy of credit card interest rate spikes has saddled millions of Americans with high cost debt, including many consumers who always paid their bills on time,” said Lauren Bowne, staff attorney for Consumers Union.  ”The Fed should undo that damage by requiring banks to lower interest rates for customers who were treated unfairly before the new credit card protections went into effect.”
The Fed’s proposed regulations would require banks to review interest rate hikes made on customers between January 2009 and February 22, 2010 and to reduce those rates “as appropriate.”  But under the proposal, banks are allowed to keep secret their review process with no oversight by the Fed.
Banks could keep the higher interest rate if the reason for the old rate hike still exists, or if the bank decides to come up with a new reason for the higher rate.  Banks would not be required to start this “look back” process until six months after the regulations go into effect – in other words, starting in late February 2011.
Consumers Union urged the Fed today to strengthen the rate review proposal by:

• Requiring banks to reinstate the old interest rate if the reason for the rate hike would not have been allowed under the new protections afforded by the CARD Act.  
• Requiring banks to disclose the methodology they use to review rates and to report to the Fed twice each year the number of rate increases reviewed and the number of rate reductions that result.  
• Requiring banks to begin reviewing rate increases on August 22, 2010, when the rate review provision goes into effect.

Thousands of consumers have contacted Consumers Union over the past year to complain that their credit card interest rates were raised unfairly.  Many consumers reported that their banks acknowledged that interest rates were raised because of the economy or a change in market conditions and not because of anything wrong done by the consumer.  Other consumers reported that their interest rates doubled or tripled after they were a day or two late making their payment or for other minor mistakes.  Before the new credit card protections started on February 22, banks were allowed to raise interest rates on existing balances at any time for any reason.
Starting on February 22, banks were prohibited from raising interest rates on a credit card customer’s existing balance unless the customer has a variable rate card, a promotional rate has expired, or if the customer is more than 60 days late making the minimum payment.
The Fed also has proposed regulations required by Congress under the CARD Act that are meant to ensure penalty fees and charges are “reasonable and proportional” to the customer’s violation of the credit card contract.  However, the Fed’s proposed rule only applies to penalty fees such as those imposed for going over the limit or being late with a payment and not penalty interest rates.
Under the Fed’s proposal, penalty fees would be allowed only if a bank can show the fee is a reasonable proportion of the total cost to the bank caused by the customer’s violation of the credit card agreement or if the bank proves that the fee amount is necessary to deter the same kind of violations in the future.  The rule also proposes a complicated “safe harbor” provision which allows a bank to pick a permissible fee amount without doing the cost or deterrence analysis.
Consumers Union urged the Fed to broaden its proposed regulation so it extends to the size of penalty interest rate hikes in addition to fees and to limit those rate increases to no more than seven percentage points above the non-penalty interest rate.  Consumers Union called on the Fed to simplify and strengthen the “safe harbor” provision for penalty fees by setting it at five percent of the violation or no more than $10

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Reduce Your Credit Card Debt Today

Borrowers around the nation are up to their knees in debt. Whether this be credit card, medical, bills, or your mortgage it is very important that you try and keep your it under control. One thing many of us out there are guilty for is using our credit cards when it is not necessary. Before you know it, you have obtained three cards from various companies and have three separate bills to pay each month. This can quickly add up to a ton of cc debt, and if you did not manage your expenses wisely then you may have found yourself in a very tight spot. Below we will discuss four tips to help you reduce the amount of debt you have obtained.
1.Try to pay off any delinquent bills first. If you have been late on your payments or started to miss payments this is going to have a negative impact on your credit rating. It is wise that you try and pay off any delinquent bills first to keep from ruining your credit score further. But your score is not the only penalty that you will face, you will most likely see a significant raise in interest rates as well.
2. Find out the annual percentage rate(APR) on all of your current cards. Figure out which card has the highest APR and try to pay it off as soon as possible. To do this you should begin by starting to pay the minimum amount for all cards besides the one with the highest rate. You can use the extra money you save to go towards the highest APR credit card. This should definitely help to start reduce your total amount of debt.

3. Contact your bank and try to negotiate a lower interest rate. A lot of times this can be done with very little effort or follow up calls to your bank. Just give your customer service department a call and let them know that you are in need of a lower interest rate. Tell the representative that if they cannot provide you with the assistance you need then you may turn to another card for a lower interest rate. If your rate has raised because of late payments or they just happened to raise it out of nowhere, then negotiating a lower rate can be fairly simple. Also if you are already delinquent on your cc payments it will generally be much easier to accomplish.
4. Try to find ways that you can pay more on your monthly payments. Think of it this way, if you are only making your minimum payments each month then you are only contributing a majority towards interest, and not the overall principle balance. It will take quite a few years to pay off the cards if you continue to only make the minimum payment. Even if you start to pay just a little bit extra each month you will find that your payoff time will begin to shorten. Find ways to cut out any unnecessary events you have a habit of doing, like eating out all the time.
So before letting your situation get out of hand, follow these tips and begin your journey to becoming free of credit card debt.

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How to Get a Credit Card to Charge Off Balance?

Getting a credit card to charge off balance is never a good thing. Should you be unfortunate enough to have your credit card “charge off” its balance, you will be kicking yourself a million times over for the mistake. A charge off occurs when a creditor writes off an account balance as a bad debt. These bad debts don’t go away like you think they might. Instead, they are directed to a credit collection agency. Credit collection agencies have extreme penalties for people who don’t pay their debts back. They can sue potentially sue the borrower to collect the balance that is owed.
To get a credit card to charge off balance, you usually have to be behind in your payments at least six months or so. The rules of accounting force creditors to zero out the amount owed to them as a “bad debt”. But make no mistake about it, this debt is by no means gone. Making every effort you can to pay your minimum payment on time, every time, will ensure you never get your credit card to charge off balance.
What can you do if your credit card is already charging off balance?
You can reconcile with the credit collection agencies that will attempt to collect the bad debt from you but other than that it’s a dead end road. Your credit card account will soon be invalid and you will be forced to sign up with another credit card company if you ever want to own a credit card again. However, with the delinquent payments and charge off on your credit report it will take a major tole on your current credit standings. Therefore leaving the borrower in a position where it will be difficult to obtain another credit card or any type of loan at that.

It is important to contact the collection agency as soon as you find out the debt has been charged off so you can attempt to settle the amount in a professional matter. These collection agencies are typically good at negotiating a settlement (lump sum payment) or a repayment plan to wipe out the amount owed. The sooner you pick up the phone and make the call, the better chance you have to reach a settlement instead of allowing them to force collections upon you. Many borrowers are able to settle their credit card debt for less than 50% of the outstanding balance.
Making the right financial decisions can help you from making this costly mistake in the first place. A credit card that charges off your balance will leave a negative mark in your credit score. These marks take 7 years to resolve themselves and be removed from your ongoing credit rating. Simply making the minimum payments every month is enough to keep the dreaded “charge off” from ever bothering your financial bottom line.
If you credit card has been charged off and you need a new loan or another credit card in the near future, it is crucial you do everything in your means to slowly rebuild your credit rating as soon as possible. For those individuals who do nothing to rebuild their credit score do not expect any lending institution to provide assistance for years to come.
In this article (how to fix my credit score) you will learn a few different strategies that will help you on your path to a clean credit report.

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Visa Helps Protect Consumers From Deceptive Marketing

U.S. Senator Rockefeller applauds Visa effort to curb online ‘data pass’ scam

SAN FRANCISCO, April 27 (LoanSafe.org) – Visa Inc. (NYSE: V) announced today it is taking another step in an ongoing effort to protect consumer security and confidence in the payment system by prohibiting web merchants from providing cardholder information to other companies without the consumer’s knowledge or active consent.
The misleading practice, called “data pass,” usually involves a consumer shopping at a familiar retailer. At checkout, the consumer receives an offer for a discount or reward and does not realize it is from a different merchant and comes with unexpected monthly membership fees or recurring charges. Such deceptive marketing can result in high levels of consumer disputes and degrades the efficiency, reliability and security of the payment system. According to a 2009 U.S. Senate Commerce Committee staff report, 35 million consumers have paid $1.4 billion for “data pass” marketing offers.(1)
“Visa’s priority is protecting our cardholders and the integrity of the electronic payments system. Consumers who shop online using their Visa cards should be confident that they will only be charged for the products and services they legitimately intend to purchase — not those that are foisted on them through deceptive data pass schemes,” said Martin Elliott, senior business leader, U.S. Payment System Risk, Visa Inc.
Visa’s rules already prohibit merchants from sharing a cardholder’s account number and other Visa transaction information with any entity that is not directly involved in completing the transaction, preventing fraud, or as required by law. To address the data pass practice, merchants will now have to prompt consumers to re-enter their card information to accept a subsequent offer from a third-party merchant. This provides a clear signal to cardholders that a second purchase is being initiated and protects them from questionable marketing practices.
In 2009, the U.S. Senate Committee on Commerce, Science and Transportation investigated the issue and merchants who use this practice.
“I applaud Visa’s decision to prohibit merchants from using ‘data pass’ marketing on its network,” said Senator John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation. “The Senate Commerce Committee’s investigation showed that this aggressive marketing practice enabled unscrupulous e-commerce companies to scam millions of American consumers out of more than a billion dollars. Our Committee’s investigation revealed how appalling this practice is and makes clear it should not be allowed — I’m glad to see Visa has reached the same conclusion.”

The announcement follows Visa’s program launched in December with the U.S. Federal Trade Commission and Better Business Bureau to educate consumers on deceptive marketing practices. Visa continues to aggressively enforce risk programs to identify and address merchants who use bogus marketing tactics to dupe consumers.
“Protecting cardholders is among Visa’s highest priorities, and we want to ensure every business in the payments system has the same commitment to ensuring consumer confidence,” said Elliott.
Visa credit and debit cardholders in the United States are protected by Visa’s Zero Liability Policy, which protects them from any financial liability in the event of an unauthorized purchase. Visa cardholders also have the right to dispute purchases. Visa suggests a few tips for online shoppers:

• Take time to read the fine print and understand all terms and conditions, so what you think is a free or discount offer doesn’t turn into recurring charges you didn’t intend to make.
• Review card statements when you get them for any unauthorized charges, and notify the card issuer promptly of any unusual activity.
• Try to resolve the situation with the merchant. If you’re unsuccessful, contact the card issuer immediately to dispute the charge.

(1) “Aggressive Sales Tactics on the Internet and their Impact on American Consumers,” staff report, Commerce Committee, U.S. Senate, November 19, 2009.
About Visa Inc.: Visa Inc. is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable digital currency. Underpinning digital currency is one of the world’s most advanced processing networks — VisaNet — that is capable of handling more than 10,000 transactions a second, with fraud protection for consumers and guaranteed payment for merchants. Visa is not a bank, and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable its financial institution customers to offer consumers more choices: Pay now with debit, ahead of time with prepaid or later with credit products. For more information, visit www.corporate.visa.com.

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New Law Helps Credit Card Holders Pay Down Balance Faster, Pay Less Interest and Improve Credit Scores

Credit card borrowers who pay more than the minimum payment each month can reap big savings under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, a Center for Responsible Lending analysis finds. (For the full analysis, http://www.responsiblelending.org/credit-cards/research-analysis/capitalizing-on-new-consumer.html .)
Under the new law, known as the Credit CARD Act, borrowers can pay down existing credit card debt sooner by paying less interest than under the old rules, all the while improving their credit score.  The CRL analysis estimates that for each dollar above the minimum that a customer pays, he or she may save two dollars in interest.
“We want Americans to know that the new law’s changes to credit card practices can work for them,” says Joshua  Frank, CRL’s senior researcher on the credit card industry. “We urge credit card customers to make the most of this new law by paying as much as possible above the minimum.”
While paying more than the minimum has always been a good idea, the new law allows the strategy to earn even greater benefits.  Under the law, any amount that customers pay above the required minimum must be applied to the balance in their credit card account carrying the highest interest rate. That’s the opposite of what credit card issuers had been doing for years, when they applied payments to the lowest-rate balances first — maximizing interest charges.
The technique worked for credit card issuers because most people were unaware of the practice and, even if they knew, could have done little about it.  Frank says the new law puts borrowers in the driver’s seat.  But, he cautions, to benefit they have to take control and pay more than the minimum.

The CRL analysis, “Capitalizing on New Consumer Protections: Four Tips to Rid Yourself of Credit Card Debt Sooner and Save Money,” advises credit card holders to:

• Pay more than the minimum amount due each month.
• Watch out for hair-trigger interest rate hikes. While rates on existing balances can be raised only if a borrower falls behind by two months, the new law still allows issuers to raise rates on new purchases or cash advances for any reason.
• Decline offers to opt-in for over-the-credit-limit coverage because this lets the issuer extend additional credit at exorbitant cost.
• Avoid credit cards requiring grievances be settled through mandatory arbitration rather than in the courts. CRL research has found mandatory arbitration favors issuers over consumers

For its new analysis, CRL studied several scenarios with different types of balances and  interest rates.  One that is common in the market featured a borrower whose credit card had one balance for purchases and another balance for cash advances, which carry a higher interest rate.  By paying an extra $100 above the minimum in one month, this borrower saved $224 in interest expenses over the life of the loan.
About the Center for Responsible Lending
The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions.

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Yes, It’s OK to Pay Your Credit Cards and Let Your Mortgage Go

Recent conditions in the financial markets have caused many homeowners to be unable to pay their monthly mortgage bills. They have either lost their jobs, over financed their homes or are simply in over their heads. Many of these homeowners have resorted to paying their credit card bills so that they can have a last line of debt defense after they lose their homes.
Long term joblessness rates are the highest that they have been in the past 40 years. The national unemployment rate is hovering close to 10% according to the Bureau of Labor & Statistics. Many of these individuals who are unemployed or under employed do not have the skills required to stand out in the work force. They also are older and do not have the drive to retrain themselves to be an asset to companies today. Their homes are more likely than not already behind on mortgage payments and they are often much beyond the point of being able to save their home financially.
Something has to give and many consumers are wondering what to pay and what not to pay in order to survive in the future. For many Americans today, it has went from the past of deciding what the moral thing is to do – to now, where everyday is just about survival tactics. Having food on the table and a roof over their heads.
What creditors should you pay and which ones should you tell to screw off?

This decision has to be well thought out. You need to decide if you want to keep your home or not and if you are one of the thousands of homeowners who are deciding to walk away, then now is the time to put pen to paper and see what bills should be paid and which ones you are going to let go. Obviously, if you are strategically defaulting on your home, it will be wise to stop paying your mortgage and start planning your exit..
A homeowner who decides to stop paying his or her credit cards and mortgage as well as any other bills that come in is ruining his or her credit completely. While it may not be a good idea to pay a mortgage bill since you are bailing on your home, it is important to continue paying as many monthly bills as possible to keep some credit and to show good faith.  The more bills that an individual pays the better it looks for them when they apply for home or apartment to rent.
A foreclosure or deed in lieu of foreclosure proceeding can take as many as 250 points off of a credit users credit report. Keeping a credit card current as well as paying down the balance as much as possible will score some positive points on a credit report. A credit score will also reflect bills that are paid on time.
Late mortgage payments that are past due or a foreclosure these days are easier to explain than making no credit payments whatsoever. It is important that users of credit who want to stay in their homes keep paying their mortgage to do whatever they can to try to save their homes. However, if you plan to walk away, not paying their mortgage bill and focusing on their credit cards is a wise idea.

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How do credit card companies handle past due payments?

Typically, the process to collect a debt will follow the same route for most consumers who have missed payments on their obligations. First off, the original creditor (the lending institution that lent you the funds) will make an attempt the collect the past due amount. If the creditor cannot collect a payment from you, they will then send (or possibly sell) the debt to an another collection agency who will make further effort to collect the debt, and if that has no affect, then they may choose whether or not to send the account to an attorney in your state who will take legal action to collect the full amount owed.
In some cases, the debt will never be transferred over to an attorney, but in other instances, the original lending institution may send your account immediately to an attorney to collect full payment. Everyone’s situation is unique and the results will definitely vary depending consumer’s specific circumstances.   
Below we will discuss the five stages most creditors take in efforts to collect a debt.
Step 1: Reminders to pay
Once you are about thirty days past due on your debts, you will start receiving reminders about the past due amount. Whether it be through the mail or they contact you personally the creditor will calmly notify you about the missed payment. During this time, the borrower will be penalized with late fees and possibly even see an increase in interest rates.
Step 2: The creditor will start reporting late payments to the credit bureaus
This typically this occurs when the borrower is more than sixty days past due,  however, some creditors will do this immediately once a payment is missed. Keep in mind that this will take a negative tole on your credit rating and may even start to increase your interest rates.
Step 3: Collection activity will begin to increase

It does not matter if the account is 60, 90, or even 120 past due, you will find most credit card companies will bombard the borrower with collection calls.
Step 4: Possible charge off
Once the debt becomes 120, 150, or 180 days overdue, most creditors will charge off the account. This helps saves creditors money at the end of the year when taxes are due because the write the debt off the company’s books and report it as a loss. The charge off will also typically go on the borrower’s credit report as well, in turn having a negative affect on their credit score.
Step 5: Debt transferred to a third party
After the debt has been charged off, they will then typically either assign the debt to a collection agency, or send the debt to an attorney to pursue legal action.

How do you deal with past due accounts?
If you have past due payments or your debt has been charged off, it is likely you are in need of help to avoid being sued for the amount owed. One thing you can try to do is negotiate a settlement for the amount owed. Debt settlement will involve negotiating with your creditor in efforts to lower the total amount owed, in some cases you can negotiate up to 50% (or more) of the balance to be canceled.
Another option would be to go through credit counseling. Credit counseling can be beneficial as it may assist you by combining multiple debts into one account, help lower your current interest rates, and possible even help negotiate the late fees be waived from your account. Keep in mind that not all credit counseling companies are legitimate so you need to be careful before hiring someone for help. One reputable credit counseling company we found is Money Management International and Consumer Credit Counseling Service (CCCS).

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