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Warned about during April 2007
Danny Schechter: “We live in a country where the credit and loan complex has become as powerful as the military industrial complex. There are 10 banks that dominate the credit card business. They basically operate with impunity.”
Source: CBS2 Chicago Until recently, Rush Kittle felt powerless over the rising interest rates on his credit cards. Then he learned that banks are in the mood to bargain these days, so he simply picked up the phone and asked for a break. “I just flat said that I thought the interest rate was too high. And I’d like to get a lower interest rate, and… immediately the guy accommodated me,” he said. Experts say fierce competition is forcing card issuers to negotiate to keep their good customers. “The market is just saturated with credit cards and banks–the only way they’re going to get new customers is to steal them from other banks, and they know that. It costs them about $300 in marketing to get a good customer,” said Scott Bilker of DebtSmart.com. Bilker, who has written a book on the subject, says you need to be persistent when you call. If the first person can’t help you, insist on speaking to a supervisor. “You can say, ‘look, I’ve spent all this money, I’ve paid on time, I’ve made you guys a lot of money. I want a better deal,’” He said. And to improve your odds, come prepared with options. Shop for cards with lower rates, and save those balance transfer offers you get in the mail. “You need a deal breaker,” Bilker said. “That’s what you’re going to do if the bank doesn’t reduce your rate. You’re either going to close your account, or transfer your balance.” No bank is going to advertise that they’re willing to do this, so you have to take the initiative to make the call to lower your rates. Those with decent credit who pay on time and carry a balance have the best chance of getting their rates lowered.
Source: PRNW Consumer financial concerns
Credit Card Usage:
Quality of Life:
Source: Guardian Unlimited Peter Tutton, a social policy officer specialising in credit and debt for Citizens Advice, says: ‘There are problems with secured consolidation loans - we’re seeing lots of evidence that where people do get into [financial] trouble, they’re being pushed into consolidation.’ Citizens Advice is conducting research on credit and debt, particularly relating to the housing market, that will be published in the summer. This, says Tutton, will name and shame lenders involved in such cases. The CCCS says its advisers are seeing a rise in the number of people struggling with loans secured against their homes. Nine times out of 10, a borrower should not convert unsecured loans to secured ones, it adds. James Ketchell, a spokesman for the CCCS, says it is easy to tempt people into such a move at the moment, as interest rates are considerably lower on secured lending than unsecured. ‘It’s a solution for five or six years, but then they build up more credit card debt and personal loans and they’re in an even worse situation than before. That’s why we say that type of loan is to be avoided in general.‘ [more]
Source: Investor Daily Choice called upon all financial institutions to adopt responsible lending charters that would include generous hardship provisions for consumers struggling to repay mortgages and credit card debts. “Some banks have implemented responsible lending charters on their own,” Choice senior finance policy officer Nick Coates said. “We would like to see an industry standard adopted so that consumers have peace of mind no matter who they bank with.” ANZ became the first bank in Australia to adopt a formal responsible lending code in 2005. Choice also called on the NSW government to push through finance brokers legislation to protect consumers from mortgage brokers who offer unreasonably high loans. The Iemma Government has drafted national legislation to regulate and license finance brokers to tackle problems with reverse mortgages. “This legislation has been stalled for more than 12 months and Australian consumers simply cannot afford for it to continue to be bogged down in red tape at a time when interest rates could rise again,” Dr Coates said. A recent Choice shadow shop of reverse mortgage brokers and lenders revealed wide default clauses, poor standards of information and salespeople that encouraged consumers to take out maximum possible loans.
Source: American Chronicle Credit card debt is one of the biggest financial issues Americans have to face every single day. The accumulated credit card debt of the average American adds up to $8000 and is the main cause of bad credit, delinquencies, default and eventually bankruptcy. In order to avoid this situation it is smart to count on the aid of financial institutions. Consolidating your debt with your bank will show them that you are willing to honor your obligations and thus, they will be more flexible. Consolidating your credit card debt into the wrong kind of loan can cause you more travels than the solutions it may bring. You need to understand fully the consolidation process and the options available to you in order to make the right decision. Full service banking can make things easier because you won’t need to resort to a different lender like you need to do when you deal with credit card banks only. There are full service banks that offer credit cards, checking and savings accounts, mortgage loans, personal loans, car loans, consolidation loans and many more. Most of these products get pre-approved when you hire their services and thus are immediately available once you request them. This is a great advantage because you don’t have to suffer those long credit verification processes. The bank knows exactly what your income is, how you spend it and so on. Credit Card banks on the other hand, know only how you spend with their products and don’t offer additional financial products, thus, if you need to consolidate your credit card debt, you have to resort to other lenders that require credit verification and income proof which you may or may not pass. Thus, full services banks are always the best way to go.
Source: Independent Financial Comparison (one, two) 1. Annual fees are making a comeback Throughout the Eighties and early Nineties, annual fees were the norm, as most credit-card issuers levied them. However, aggressive competition from the likes of the ‘American Eagles’ (Advanta, Capital One, MBNA, etc.) saw annual fees all-but-abandoned in the mid to late Nineties. Sadly, as lenders attempt to cope with rising bad debts and an enforced reduction in late-payment fees, annual fees are now making a comeback. More than a dozen cards now levy annual fees, and firms such as Lloyds TSB and MBNA are selectively introducing annual fees, targetting unprofitable customers and dormant accounts. So, keep a close eye on your monthly statements, in case your card issuer decides to spring an annual fee on you. 2. Balance-transfer fees are rising If you’re paying interest on your credit-card debts, try transferring them to one of the dozens of cards which offer introductory interest-free periods lasting from five to twelve months. These 0% balance transfers cost card issuers a lot of money to subsidise. So, lenders have responded by bringing in transfer fees to offset the cost of providing interest-free credit. If you opt for a 0% balance transfer lasting six months or more, then expect to pay a fee of, say, 2% to 3% of the value of each transfer. 3. Card protection plans aren’t worth it Last year, I acquired a new credit-card and, sure enough, the annoying sales calls began. One product on offer was a card protection plan from the likes of CPP and Sentinel. This cost £29 a year and provided protection against losses due to fraud and theft. Naturally, I turned down this kind offer, explaining that the true cost this product should be about £3 a year. Also, the Consumer Credit Act limits my liability against fraud to just £50 — and card issuers usually waive this sum. 4. Cash interest rates are extortionate If you use a credit card to withdraw cash from a cash machine or over the counter, watch out for two things: cash-withdrawal fees (see point 5) and sky-high rates of interest. Although a typical credit card will charge an interest rate of around 16% a year on purchases, interest rates for cash withdrawals are far higher — anything from 20% to 30% a year. Even worse, you lose your normal interest-free period of between 45 and 56 days). Ouch! 5. Cash-withdrawal fees are steep As well as attracting higher interest rates and forfeiting your interest-free period, making cash withdrawals on credit cards racks up additional fees. Until last year, this fee was, say, 2.5% of the amount withdrawn, with a minimum charge of £2.50. However, cash-withdrawal fees are on the rise, with many issuers now charging 3% (minimum £3). So, get the message: credit cards and cash don’t mix. Stick to making fee-free, interest-free cash withdrawals with your debit card. 6. Credit-card cheques are a rip-off Unsolicited credit-card cheques are of my pet hates. Indeed, I’ve closed more than one account because a card issuer kept sending them to me. The big problem with credit-card cheques is that, nine times out of ten, they are treated in a similar fashion to cash withdrawals. Thus, although they offer ‘convenience and flexibility’, these benefits come at a high price. (While most credit-card cheques charge high rates of interest plus handling fees, look out for low-cost balance-transfer cheques which charge low rates of interest and could save you money.) 7. Foreign usage fees gobble up your spending money When you spend on a credit card abroad, buy from an overseas website, or pay for goods in currencies other than sterling, all but a few credit cards charge you an extra ‘foreign currency conversion’ fee. Typically, this adds 2.75% to the cost of overseas purchases, or £5.50 for every £200 spent. To avoid paying this unnecessary fee, be sure to take the right plastic abroad. The following cards don’t levy this charge, both in EU states and worldwide: Post Office : Classic MasterCard and Platinum MasterCard In addition, watch out for fees for making withdrawals from cash machines abroad, which are broadly similar to those charged here in the UK. 8. Interest rates are too high At present, the Bank of England’s base rate is 5.25% a year, yet a typical credit card charges more than 16% APR on purchases, and even more on cash withdrawals. In my view, this margin (more than ten percentage points over the base rate) is too high. Of course, by keeping interest rates high, banks makes higher profits from our addiction to spending on credit, so don’t expect rate cuts any time soon. 9. Late-payment charges Until last year, most credit-card issuers would levy a penalty charge of between £20 and £25 if you missed a payment, failed to pay on time, or exceeded your credit limit. However, following enforcement action from the Office of Fair Trading (OFT), no card issuer now charges more than £12 per offence. Nevertheless, as an ex-banker, I know for certain that the true cost of dealing with these problems is measured in pence, not pounds, so I firmly believe that the card issuers got off lightly. Then again, recovering unfair bank and credit-card fines is a doddle, if you read our ultimate guide to reclaiming your money! 10. Minimum monthly repayments mean misery Minimum monthly repayments (MMRs) are the work of the Devil. Until the mid-Nineties, credit-card issuers would demand an MMR of at least a tenth (10%) of an outstanding balance. However, fierce competition for customers has whittled this away such that most card issuers now require an MMR of 3%, 2.5%, even a measly 2%. Of course, the lower the MMR, the longer it takes to repay your debt. Indeed, as MMRs mainly consist of interest and other charges, they hardly chip away at your debt at all. For instance, let’s say that you owe £2,500 on a credit card which charges an interest rate of 1.5% a month (19.56% APR) and has a minimum monthly repayment of 2.5% (minimum £5). If you pay only the bare minimum, you will repay this debt in 26 years and one month. Over the decades, you cough up a total of £6,058, which is your original debt of £2,500 plus interest of £3,558. Therefore, avoid MMRs like the proverbial plague! 11. Negative payment hierarchies bump up the cost Be very wary of transferring a balance to a 0% credit card and then taking this card shopping. Unless your 0% deal also extends to purchases, you will pay standard rates of interest on your spending. This is because almost all credit-card issuers apply what’s known as a ‘negative payment hierarchy’. In other words, your monthly repayments first go towards repaying your cheapest debt, such as a 0% balance transfer, leaving your most expensive debt to accrue interest. Nationwide BS is the only major credit-card issuer not to use this sly trick. 12. Payment protection insurance is hugely overpriced As I warned in Millions Conned By Card Cover, credit-card issuers charge extortionate premiums for payment protection insurance (PPI). Also known as credit card repayment protection (CCRP), this optional insurance meets your monthly repayments if you are unable to work due to an accident, sickness or unemployment. This protection is up to ten times as expensive as it should be, so don’t buy it — unless you like being mugged, that is! 13. Credit cards encourage you to spend more When spending on credit cards, we often splash out more than we initially intend to. Indeed, Keith Tondeur of money education charity Credit Action warned that paying with plastic encourages us to spend around a third (34%) more. Tondeur’s report, Escape from Debt, was originally published in 1993, and I imagine that this overspend will be much worse these days. Thus, if you find it hard to resist impulse purchases, then steer clear of credit cards. 14. Twelve different ways to calculate interest According to consumer group Which?, the UK’s top twenty credit-card issuers charge interest in twelve different ways. This makes a mockery of Annual Percentage Rates (APRs), because a card with a ‘higher’ APR can be cheaper than one with a ‘lower’ APR, depending on how each calculates interest. Thus, Which? recently made a super-complaint to the Office of Fair Trading, asking it to introduce a standardised formula for calculating credit-card interest.
Source: Newsday Nearly half of U.S. banks use universal default, enabling them legally to raise consumers’ interest rates as high as 40 percent. Credit-card issuers justify the practice by saying it’s an indicator of increased risk - the higher the risk, the higher the rates. This hidden and unfair practice, however, is harmful to New York consumers. To give an understanding of why credit-card companies don’t want universal default stopped, consider the potential for profit. There are approximately 30 million credit cards issued in New York State, with the average consumer holding more than four cards and 16 percent carrying 10 or more. Statistics for 2004 show that the average household credit card debt was $9,300 nationwide, and total card debt is currently about $800 billion nationwide. In addition to universal default, consumers face new penalty fees along with complicated and ever-shifting interest rates that are driving up the costs of using cards. For example, some issuers are charging cardholders a $5 to $15 fee to make a single bill payment by telephone, and between $2 and $13 to obtain a single copy of a billing statement. In the 1980s, companies provided a 15-day grace period before fees were assessed or interest rates were raised. But today these charges can be issued even if your payment is just minutes late. Yet another practice, called double-cycle billing, charges interest on your current balance as well as your balance from the prior month, even if you paid on time. Information about these practices is often buried in the fine print of a credit-card agreement that can run 20 pages or more. Nationwide, banks collected a record $17.1 billion from such penalty fees in 2005, a 15.5-percent increase from 2003. Late-fee charges increased 160 percent over a 10-year period to an average of more than $33 per late payment in 2005. More and more New Yorkers are at risk of higher debt from using credit cards; seniors and college students in particular are two groups that have been relying more on credit cards in recent years. A new study by the National Consumer Law Center says the average credit-card debt for consumers aged 65 to 69 has skyrocketed 217 percent in the past decade, to $5,844. Ten out of 12 colleges allow companies to set up tables on campus and offer free merchandise for students who apply for credit cards. This aggressive marketing is contributing to student debt. About 47 percent of college students have four or more credit cards. By the time they graduate, students often have doubled their average credit-card debt while tripling the number of credit cards in their wallet. In March, Citigroup - one of the largest issuers of credit cards - announced it was voluntarily giving up use of universal default after congressional hearings and consumer groups began focusing more attention on this unfair practice. Although this is encouraging news, other major financial institutions have not followed suit, and those companies have enough tricks up their sleeves to make the day the credit-card statement arrives in the mail a day of high anxiety.
Source: AlterNet Last week, the FDIC and the Federal Reserve Board were forced to remind the nation’s bankers to verify their customers’ incomes — adding that it might be a good idea to determine whether or not said customers could afford their mortgage payments. The new guidelines are expected to have a chilling effect on what the industry calls “home ownership.” Many esteemed economists have expressed hope that the resulting declines in home values, which have been inflated by the lack of such guidelines, will not stop too many Americans from cashing out the equity in their homes to keep consumer spending up. In other words, the “new economy” is based on people slowly losing home ownership, not gaining it. [more]
Merrill Lynch’s buyout division and Pacific Equity partners are to buy Australian credit-approval company Veda Advantage for $661 million. The partnership between the US and Australian investment banks to acquire the largest business of its kind in the territory came after Veda’s board unanimously agreed to the offer of $2.93 per share. News of the acquisition of Veda, which provides credit-checking services for credit-card companies and banks, comes at a time when record levels of household debt in Australia has seen the ratio between debt-to-income double during the last ten years. Michael Birch, of asset management company Wallace Funds Management, told Bloomberg: “Consumer credit keeps rising and Veda has a monopoly business. From a user’s point of view, they’re the only ones with a reliable credit database.” Since the deal was announced shares in Veda rose by seven per cent to $2.85. Last year Veda’s second-half profit grew by 66 per cent following the sale of the debt collection department of its business for $25 million.
Source: Sunday Herald UK banks and credit card agencies last year offloaded a record £6.5 billion in unpaid debts to money collection agencies, up from about £4bn in 2004. Estimates suggest the total debt being chased could reach more than £8bn within the next three years. Some experts warn that, unlike some banks and card issuers who are seen as a softer touch when it comes to collecting money owed, the new “owners” of the debt are more likely to hunt people down, regardless of how vulnerable they are. Joanna Elson, chief executive at the Money Advice Trust, which runs Scotland’s National Debtline advice service, said: “The further away debt gets from its original lender, the less interest they may have in ensuring good practice. There may be some collection agencies who cut corners.” One recent case seen by the Sunday Herald was that of an 85-year-old, now living in sheltered accommodation, facing a demand for almost £2000 for money she owed on a Barclaycard back in August 1999. The original debt had been barely a quarter of that amount, but grew after interest of almost 1.5% a month was added to what she owed. A Barclaycard spokesman declined to discuss the case, but said: “Those who have failed to repay their debts should always assume that their debts have not gone away. Where we do pass on a debt to a collections agency, this action will only be undertaken after all other options have been exhausted. Customers who are in this position will be informed that their debt is being passed onto an agency for collection.” The surge in the amounts being sold on comes as the big banks wrote off £6.7bn in bad debts in 2006, according to the British Bankers Association, the industry trade body. Total figures for card companies are not known, but Barclaycard alone was forced to write off a staggering £1.57bn in bad debts last year. However, contrary to what many believe, “writing off” debt does not mean those who owe the money are no longer chased for it. However, consumer groups argue that debt collection agencies are bound by the Limitations Act of 1980, which says a creditor has only six years to take legal action over a debt. After that, the slate should be wiped clean. But Kurt Obermaier, executive director at the Credit Services Association, which represents debt collection agencies, says: “If you owe me £20, the fact that I can’t sue you after six years doesn’t mean you no longer owe it to me. It does not finish the debt and I can go to you seven, eight or however many years later and politely ask you to pay me back that money. If you refuse, I can politely warn you that I will be coming back to see you next week to ask you to reconsider.”
Source: MSNBC Some banks and card issuers will even boost your rate if you’re late on another bill — an industry practice known as “universal default.” The theory is that is you miss paying another bill (even if you’re disputing that charge), you’ve somehow become a riskier borrower. In some cases, these agreements say they have the right to raise your rate “at any time for any reason.” Your only remedy is to pay off the card in full and cancel your account. Fees have become a huge money-maker for credit card issuers. Late fees now average $34 per month; “over-limit fees” — that’s when you spend more than your credit limit — average $31 per month, according to a recent report by the Government Accountability Office. After hearing loud complaints from consumers about these practices, Congress has begun holding hearings on the credit card industry and is looking into curbing the most abusive practices. “The disclosures on calculating interest rates are so complicated that virtually no average consumer can understand them,” Sen. Carl Levin, D-Mich., said at a recent hearing. “In some cases, consumers become overwhelmed with penalty interest charges that can double or triple the size of their debt, and make it nearly impossible for them to pay their bills.” Levin cited a case in which a card holder overspent his limit three times for a total of $200 and was charged over-limit fees 47 times amounting to $1,500. |
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