Penalty fees
New protection: Fees for late payments and other transgressions will be capped to the amount of the violation, up to $25. Previously, these fees were often between $35 and $39 regardless of how much was owed. Also, a single violation can no longer result in more than one fee. Note, there isn’t an outright ban on penalty fees higher than $25. Banks that want to impose a higher fee simply need to give regulators justification for doing so. Another exception to the $25 cap is if a customer repeats the violation within six months. Then the cap rises to $35. This new reg only applies to penalty fees, there is no cap on other charges.
Rate hikes
New protection: Banks must review a rate hike every six months to decide whether the increase is still warranted. If the factors that prompted the hike are no longer applicable, the rate must be lowered. This rule applies to hikes dating back to Jan. 1, 2009, when banks began raising rates in anticipation of the new regulations. Note, that even if a bank finds that a rate should be lowered, the reduction doesn’t have to restore the prior interest rate. So even if a rate was increased 10 percent, a review could result in a 1 percent scaleback.
Banks also have some wiggle room in the factors they use to conduct reviews. They can either base a review on the original reason for the rate hike, such as market conditions. Or they can determine whether the rate is in line with their current interest rates for new customers.
Inactivity fees
New protection: These fees will be banned regardless of how they’re dressed up. For example, an annual fee that’s waived if a customer spends a certain amount is still an inactivity fee. Note, there’s still a reason to keep a card active, even if by making a small purchase here and there: Banks can still close inactive accounts. That could hurt your credit score depending on how long you’ve had the account and your broader financial standing. This happened to many customers during the credit crunch, as card issuers looked to limit their exposure to risk by closing unprofitable accounts.
Expiration dates
New protection: Gift cards issued after Aug. 22, 2010 must have expiration dates that are at least five years from their date of purchase. This rue doesn’t apply to rewards or loyalty program. So if you redeem your credit card rewards points for a retailer gift card, it could potentially come with a much quicker expiration date. The same is true for rebate cards issued by retailers.
Inactivity and service fees
New protection: Such fees can only be charged if the card hasn’t been used for at least one year. After that, only one fee can be charged each month. Note, there’s no cap on inactivity or service fees. So even though you can only be assessed one monthly fee, it could quickly eat away at a card’s value if it’s not used. The rules also don’t apply to reloadable, prepaid cards. These cards are sold in drugstores or online and often charge many service fees.
“My whole life is messed up,” says Davis, 41, of Richmond, Va.
Davis, who works nights as a floor technician for Wal-Mart, says he gets at least two calls a day from a debt-collection agency. He’s planning to get married in May and would like to buy a house, but he can’t get a mortgage.
As of Sept. 1, everyone in the USA can get a free credit report from each of the major credit-reporting agencies once a year. Many people are going to find mistakes on their records. But for some, identifying a problem is just the start of a long, hard fight to get the record corrected.
The time-consuming battle can lead to frustration and anger. But beyond that, it can put a hold on a person’s life.
Davis says he can prove he never took out the bad student loan on his record, but no one is interested in the evidence.
He “didn’t go to the school, he didn’t sign the loan, he didn’t co-sign the loan,” his attorney, Jason Krumbein, says. “He’s largely unable to obtain credit anywhere. Not even a cellphone.”
The process of correcting errors on credit reports is “Kafkaesque and Orwellian,” says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. “Count on it taking a long time.”
Problems with credit reports are not uncommon, consumer groups say. A survey last year by the U.S. Public Interest Research Group found that 79% of credit reports contained errors, and 25% contained mistakes serious enough to prevent the individual from obtaining credit.
The credit bureaus — TransUnion, Equifax and Experian — dispute the PIRG survey results but say the volume of data they manage makes some mistakes unavoidable. They maintain 210 million files and update 4.5 billion pieces of data per month, says Norm Magnuson, spokesman for the Consumer Data Industry Association, which represents the three credit-reporting agencies.
The CDIA says about 80% of disputed credit reports are resolved within 10 days. But complicated errors can take months — sometimes years — to erase, Mierzwinski says. They often require dozens of phone calls and letters, and in some cases, lawsuits, to resolve.
Peggy Schmitt, 41, has gone to court to try to prove she isn’t dead.
In 2002, her credit card was rejected by a Minneapolis restaurant. In the next few months, her problems spread. She was unable to refinance her mortgage or buy a car. Lenders wouldn’t do business with her because her credit reports said she was dead, an error stemming from the death of a woman with a similar name.
Schmitt, of Minneapolis, couldn’t convince the credit reporting agencies that she was alive. “It was extremely frustrating,” she says.
FICO woes
Not being able to correct a credit report error can cause a host of problems. Among the biggest and most costly: Unresolved errors can hurt a consumer’s FICO score, the mathematical model used by lenders to gauge the likelihood a borrower will repay a loan.
The lower a FICO score, the higher the interest rate the borrower will be charged. That means a higher monthly mortgage payment.
On a $150,000 fixed-rate mortgage, the average interest rate for a borrower with a FICO score of 760 or higher is 5.48% according to Fair Isaac, which developed the FICO score. For a borrower with a FICO score of between 620 and 639, that average interest rate climbs to 7.07%. That translates to a mortgage payment that is $155 a month higher for the low-score borrower.
Credit-reporting agencies say the use of credit reports and scores has enabled borrowers with good credit histories to obtain low-cost loans, regardless of race, gender or residence. Credit scoring looks “very objectively at your personal credit history, and that objective review eliminates any personal biases” a lender may have, says Rod Griffin, manager of public education for Experian. The system has “made credit more widely available and at lower cost than anywhere else in the world,” he says.
But consumers who have had problems with their reports say a serious error can wipe out years of good credit.
The credit reports of Kenith Burdett, 58, of Eufala, Ala., reflect $150,000 in bad student loans taken out by a distant relative who stole his identity. Burdett discovered the fraud last October when his application for a 5.25% fixed-rate mortgage was rejected. He’s sent police reports, affidavits and other documents to the credit bureaus.
Meantime, to finance his home purchase, he was forced to get two separate mortgages, an interest-only loan and an adjustable-rate mortgage that has already climbed to more than 10%.
The federal Fair Credit Reporting Act requires the credit-reporting agencies to respond to complaints about inaccuracies within 30 days. All three have systems that allow consumers to dispute information online, by phone or through the mail.
If the lender that provided the information confirms it was inaccurate, the credit bureau will remove the item, attorneys say. But if a mortgage company, bank or other lender says the information is accurate, it will often remain on the individual’s credit report, even if the consumer has evidence proving otherwise, says Evan Hendricks, a privacy expert and author of Credit Scores & Credit Reports.
Griffin says credit bureaus have no choice but to rely on the information provided by lenders and other businesses that provide credit information. “We’re telling the story as its presented to us,” he says. “We don’t make up the information. We’re the messenger, which puts us sometimes in a difficult position.”
Some types of hard-to-kill errors:
•Mistaken identities. For more than two years, Sharon Perkins has been trying to convince a hospital in Laurel, Md., that she wasn’t treated in its emergency room.
Her troubles began after a woman with a similar name was treated at the hospital. Perkins, 62, started receiving bills from the hospital at her former home in Maryland, and they followed her when she and her husband moved to Arvada, Colo., last year. She’s been contacted by two collection agencies. On several occasions, she’s been told the matter was resolved, only to receive more notices and calls about the unpaid bill.
“You get to the place where you’re ready to pull your hair out because nobody is listening to you,” she says. “I wouldn’t mind it so much if somebody believed me. It’s been terribly frustrating and embarrassing.”
•Identity theft. Sonya Smith-Valentine, an attorney in Greenbelt, Md., is representing an 18-year-old whose father used his Social Security number to open a credit card account years ago. The son has “provided every piece of identification down to his birth certificate to show he was 10 when it was opened up,” she says. “Nobody will listen to him.”
•Administrative errors. Steve Conzett, 50, of Orlando, believes a mortgage lender’s software glitch wrecked his credit score. His problems started with a late payment on his mortgage in November 2003. A month later, he sold his home and included the monthly installment when he paid off the mortgage. But instead of reporting that the balance was paid, the mortgage lender reported it as “past due at payoff,” Conzett says.
The error, which implied he still owed money on the loan, caused his credit score to drop from above 700 to around 530, Conzett says. The only home loans he could find required “insane payments.” He was forced to buy a smaller house than he had planned, in a neighborhood that wasn’t his first choice.
Efforts to alert credit bureaus to the problem “didn’t do a bit of good,” he says. “The credit bureaus refused to acknowledge the error.”
Automation at issue
Leonard Bennett, a Newport News, Va., attorney who specializes in Fair Credit Reporting Act cases, says the credit bureaus’ automated systems make it difficult to resolve such cases. “No human being ever speaks to another human being in the process,” he says. “The bureau’s sole function is to take the consumer’s dispute, no matter how big or how many pages,” and reduce it to a two-digit code, he says.
Industry spokesman Magnuson says the automated systems make the process more convenient for consumers because they can report problems at any time of the day or night.
Under the federal Fair Credit Reporting Act, consumers who are unable to resolve errors can ask the credit bureau to include a statement about the dispute in their file. But a dispute letter won’t raise an individual’s credit score, and “it’s widely disregarded by creditors,” privacy expert Hendricks says.
That leaves frustrated consumers with only one other alternative: to go to court.
Occasionally, lawsuits against credit bureaus lead to big awards. In 2003, a Portland, Ore., jury ordered TransUnion to pay Judy Thomas of Klamath Falls, Ore., $5.3 million. A federal judge later reduced the award to $1 million. In her lawsuit, Thomas said she spent six years trying to get TransUnion to remove another woman’s credit information from her credit report.
Most successful lawsuits result in much smaller awards. Many cases are settled out of court for less than $25,000, Hendricks says. For the credit bureaus, settling cases is less expensive than improving their procedures, he says.
Magnuson says the Federal Trade Commission and state attorneys general can impose sanctions on the credit bureaus if they violate the law.
Besides, flouting the law “doesn’t make good economic sense, and it doesn’t make good business sense,” he says.
Peggy Schmitt disagrees. A U.S. district court judge recently dismissed her lawsuit against TransUnion, but her attorney plans to appeal. Schmitt thinks credit bureaus lack the checks and balances necessary to correct mistakes. Dealing with them “was a very big struggle,” she says. “I don’t have faith in the system.”
See full article:
http://www.usatoday.com/money/perfi/credit/2005-09-27-credit-report-usat_x.htm
During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.
The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.
Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.
The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.
When houses doubled in value, middle class homeowners making $80,000 a year were taking out $300,000 home equity loans for new cars and boats. Now, with no home equity, the chances are pretty good of walking away and not having the bank collect.
Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.
Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. People got 90 cents for free (more or less). But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.
Debt Settlement Companies that promise to reduce or eliminate credit card balances and other debt for customers will no longer be allowed to charge an upfront fee. A new rule goes into effect October 27th, according to the The Federal Trade Commission. That rule is that debt settlement companies will now only be able to charge a fee once a customer’s debt has been reduced, settled or renegotiated. The FTC said that the new restrictions are a crack down on the debt settlement industry, which flourished during the economic downturn as borrowers struggled to pay bills.
Since the start of the recession, the Better Business Bureau has received more than 3,500 complaints about debt settlement companies. Customers complained that they ended up deeper in debt or were sued by creditors after failing to make payments. The bureau did not separately track complaints against the industry prior to the recession.
Debt settlement companies often charge an upfront fee, typically a percentage of the customer’s outstanding balance. In exchange, the company promises to negotiate with creditors to reduce or eliminate the debt, sometimes by as much as half.
The new FTC regulations also require debt settlement companies to disclose to customers how long it will take to get results, how much it will cost, and any negative consequences that could arise from the process.
Despite rumors to the contrary sweeping Wall Street and Washington, D.C., the White House says it is not planning to order Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of people who owe more than their homes are worth.
“The administration is not considering a change in policy in this area,” said Treasury spokesman Andrew Williams.
Mortgage bond prices stabilized after that rumor was quashed. Let’s see what effect, if any it will have on the number of bankruptcies filed.
Source: Reuters News (08/05/2010)
As economic times remain tough, U.S. consumers’ credit card debt hovers at about 852 billion dollars. Average household credit card debt is over $15,000. If you are struggling to manage debt, then ads like these may be tempting:
* Eliminate 50 -70% of your debt legally. It’s your right!
* Pay off your debt for pennies on the dollar.
* New government programs! Take advantage of free and easy programs for those in debt right now.
* If we can’t get you out of debt in 24 hours, we’ll pay you $100!
* Stop harassing calls from debt collectors!
What’s the problem with such “offers”? They are misleading and deceptive at best. At worst, they are fraudulent, abusive and unfair. Signing up for them could leave you in worse shape financially than before. This report gives you the facts behind the claims of debt settlement companies and profiles better options for resolving debt problems.
What Are Debt Settlement Programs?
Debt settlement companies are for-profit companies that, for a fee (or fees), try to negotiate lump sum settlements of unsecured debts for lower amounts than the full balances you owe. To “qualify” most companies want you to have at least $10,000 in debt, but that amount varies widely.
After you sign up with a company, you are asked to save a certain amount monthly in a special account or your own account. When you’ve accumulated a predetermined sum, and only then, the company will begin to try to negotiate settlements with your creditors. However, most companies charge an up-front fee, typically 15-17% of the amount you owe, plus monthly fees. Most companies take these fees out of the amount you are saving; in many cases, the first few months of saving may all go to fees. Some companies may charge a back-end fee—a percentage of the money they save you—in addition to the up front fees.
The Federal Trade Commission (FTC) considers large up front fees as unfair to consumers. Such large fees mean that people who already have problems paying bills tend to drop out of the programs before the companies even begin to try to negotiate a settlement. In spite of money-back guarantees, getting money back can be difficult for consumers.
Most companies also advise you to quit paying your credit card accounts, even those you may be current on. The reason, they say, is that creditors won’t negotiate settlements until the accounts are in default. Many companies imply that not paying these accounts will hurt your credit rating only a little, less than bankruptcy, because you are in their debt settlement program. However, according to a recent report by the General Accountability Office, the FICO company (which developed the most frequently used credit scoring program) indicates that your credit score will take a big hit and that being in a debt settlement program has no effect on how your credit is rated. There is also no guarantee that the company will be able to negotiate a reduced settlement. Most debt settlement companies make a number of other misleading claims, that we examine below.
How Does Debt Settlement Differ From Other Debt Counseling or Debt Management Options?
Reputable, nonprofit credit counseling services help consumers look at their complete financial picture. They typically help clients develop a budget and, often, help them create a debt management plan. In such debt management plans, the credit counseling organization typically works with a consumer’s creditors to develop a payment plan that has lower payments that are easier for the consumer to manage, but the total amount of balances owed is not reduced. Reputable nonprofit counseling organizations may charge a modest fee for helping with debt management plans.
Debt consolidation loans, another option, are used to pay off full balances of credit card and other debt; the consumer then makes just one payment for the new loan rather than multiple payments. In appropriate circumstances a consolidation loan from a reputable lender, such as your credit union, may result in paying less interest overall and sometimes may result in a lower payment. The term (length) of the loan and its interest rate (APR) are factors in whether a consolidation loan achieves these goals.
What Are the Facts About Common Debt Settlement Claims?
Advertisements for debt settlement services on the Internet, in the mail, and via phone use a variety of claims to prompt consumers to check out their services. Here are the facts behind some of the most common claims.
Claim: Guaranteed success in reducing debt. Many companies claim success rates as high as 85%, 90% or even 100%.
Fact: Success rates are actually very low. According to the Federal Trade Commission (FTC), there is no guarantee that a debt settlement company can persuade a credit card company to accept partial payment of a debt you legitimately owe. Investigations by several state attorneys general and the FTC found that most enrollees fail to complete debt settlement programs. In Colorado, for example, less than 10% of enrollees completed the program.
Success to the debt settlement company may not be success to the consumer, either. In just one New York example, a widow who completed her program ended up paying out thousands more than she originally owed. Because she finished the program, the company counted her as a “success.”
Claim: Debt can be reduced 50 to 70 percent. Some companies claim more modest figures, such as only 24 to 40 percent.
Fact: Debt reductions, when the company succeeds, are typically much smaller. In a lawsuit against debt settlement companies, the New York State Attorney General’s office found that only 0.3% (three tenths of one percent) of clients received the promised debt reduction of 25% to 40%. Although industry-reported data indicate higher figures, it’s important to note that these data are voluntarily self-reported and may use different measurements. The Association of Settlement Companies (TASC), a trade group, in a survey of larger member companies reported that 34.4% of enrollees completed their program and settled at least 75% of their debt. Even if there were no problems and inconsistencies in the survey methodology, these figures (25% reduction for a third of clients) are still a long way from the 50-70% reduction in debt and 85-100% success rates so often claimed.
Claim: You have a legal right to debt reduction or “debt relief.”
Fact: Credit card companies and other creditors are not legally obligated to accept offers for less than the full outstanding balance of accounts. Although some states have laws and regulations related to debt settlement, these laws affect the practices of debt settlement companies not creditors or consumers. In addition, neither the federal Fair Credit Reporting Act (FCRA) or the Credit Card Act of 2009 address or include issues of debt settlement.
Claim: A debt settlement plan is government sponsored, government “authorized,” or government “approved.” Some companies use advertising headlines such as “New Government Programs! New free and easy programs are available for those who are in debt right now!” or “Obama Credit Card Bailout” or “Credit Card Debt Relief Bill.” Website domain names imply government sponsorship of programs; consider, for example, creditreliefact.com, creditcardbailout.com or GovernmentDebtRelief.org.
Fact: Debt settlement plans are NOT part of any government programs whatsoever. When asked, marketers often explain that this claim means simply “the government allows us to do this.” Others may imply that because banks received government TARP bailout money that the government is pressing banks to do something for consumers. These claims are totally false, according to the FTC, the GAO, and other government agencies.
Claim: Enrolling in a debt settlement plan will stop calls or other action by creditors or collection agencies.
Fact: Collection efforts will continue and may even increase. Although a debt settlement company may send cease-and-desist letters to creditors or indicate that an individual has entered a debt settlement program, these are largely ineffective. Collection calls may actually increase. If individuals cease paying accounts, creditors may turn the account over to collection agencies; they may also sue the account holder.
Claim: Ceasing to pay credit card bills will hurt your credit rating very little. Debt settlement companies may also say that the impact on your credit score will last only as long as you are in the program and that settled accounts will not hurt your credit long-term because they will be listed as “paid in full.”
Fact: Not making credit card minimum payments will damage your credit rating. Payment history counts for approximately 35% of your credit score in the FICO system. Missing payments for any reason negatively affects your score. Settled accounts are recorded as such, not “as paid in full,” unless the company negotiates that listing—something creditors say rarely happens. Information about account settlement, like other data, stays on your credit report for seven years.
Claim: If we can’t get you out of debt in 24 hours, we’ll pay you $100. Other less extreme claims promise to have consumers debt-free in 12, 24 or 36 months.
Fact: Claims are misleading. The majority of plan participants drop out before finishing. When the GAO asked one company to explain the 24 hour promise, the representative said that if the client had a large lump sum available they could do that but “ninety-nine point nine percent of the people that come to us to not have the ability to do that.” At another company, the representative say that “24 hours” was a “typo;” the headline ought to have said 24 months.
Claim: Debt settlement companies are government regulated. One representative told the GAO investigator that their company was “licensed and regulated” by the TASC, which is “like the SEC.”
Fact: Debt settlement companies are not federally regulated. Some states have laws about debt settlement practices. The Association of Settlement Companies (TASC) is a nonprofit trade group and lobbyist as is the United States Organizations for Bankruptcy Alternatives (USOBA). Although these trade groups set standards for practice and consumer protection, member companies do not necessarily follow those standards. In the GAO investigation, for example, a majority of the 20 companies examined belonged to one or the other trade organization and all but one were judged to have used misleading, abusive or fraudulent practices.
Other Potential Problems with Debt Settlement
In addition to deceptive claims promises, debt settlement practices pose other difficulties for consumers.
* It’s hard to know who you are dealing with. Many websites are marketers for one or more affiliates. In its investigation, even the GAO had difficulty tracing the webs of connections.
* Many companies post “consumer education” websites or articles that appear to warn consumers away from deceptive or abusive debt settlement practices; in fact, these are actually veiled solicitations for business. We found one misleading article that was designed to look as if it came from the FTC but was fake; it appeared in one of those web-based article databases to which anyone may contribute.
Other Options for Managing Debt
Contact your creditors yourself. The FTC and other experts suggest that consumers keep lines of communication open with creditors. By calling your credit card companies directly you may be able to negotiate better terms. Setting Your Credit Card Debts from the FTC gives you some tips.
Consider credit counseling. Talking with a reputable, nonprofit credit counseling organization can help you develop a plan to manage your money, bills, and debts. Talk first to your credit union about services they may provide or a credit counselor they recommend. UFCU offers the BALANCE Financial Fitness Program whose services include reviewing your credit report, money management counseling, debt management, housing counseling, and Identity Theft solutions.
For More Information call: 845-357-7700
Read full article:
http://getreal.ufcu.org/index.php?option=com_content&view=article&id=524&catid=36&Itemid=108
Like many middle-class families, Michael Westerman and his mother began the college selection process with a grim determination. They would do whatever they could to get Michael into the best college they could with the expectation that every college is to some degree affordable and in the end worth it.
Today, however, Mr. Westerman, is a 27 year old graduate from Syracuse University with over $100,000 in college loan debt and the inability to make full monthly payments even with his degree from a prestigious school.
Well there’s always rugby.
This post if a placeholder for the 2 new categories real estate and criminal.