Debit Cards and Colleges; An Unholy Alliance

Colleges are courting the Devil - the Debit Card Devil. Debt counseling and money management are urgently needed on Campus! Hard pressed for funds, Colleges are resorting to "quiet" side deals to the detriment of its students. By this time most students are aware of some of the traps in credit cards, especially the killer default interest rates. The implication or at least the inference drawn by most people is that Debit Cards Are Safe:. THEY'RE NOT!

During the summer break, students and their parents, guardians, sponsors etc. should pay attention to the increasing use of, and demand for, Debit Cards on College Campuses by the Colleges themselves. The furor over credit card interest and fees has quieted (for now) but a more insidious replacement has arisen; Debit Cards.

A PIRG study, demonstrates that debit card using students have traded a headache for an upset stomach (I realize that shows my age but...). I was a banker for 18 years and ran failed banks and S&Ls for FSLIC and then FDIC. That part of me wants to delve into the extent the colleges have accepted payoffs for signing contracts with Debit Card Issuers that expose their students to legitimized financial crimes; transaction fees, overdraft fees, annual fees, a fee for being late paying a fee...

The Consumer Finance Protection Board ("CFPB") should jump into this mess but it has its hands full, especially with a Congress beholding to the Banking industry. In the meantime States' AGs could take up the fight. It will be easier than the Student Loan problem which is not getting any better in the near and maybe distant future. Here there are no issues with Federal agencies being the card issuers.

Every college, with an agreement with a debit card issuer, should be forced as part of disclosure regulations to explain, in plain English, with documentation provided, how much the college is receiving and what "arrangements" were made with the administration, development office, and financial aid office for starters.

Oh, and maybe, as a mandatory Freshman year course, all colleges should have a 1 credit course in financial management covering topics like budgeting, all forms of plastic, the full cost of attending school, and the probable length of time it will take to pay back student loans. In fact, maybe the college should have to credit each debit card user with student loans, at least one-half of the fees the college received to the Student's student loans

Author's Copyright by Richard Isacoff, Esq, July 2012

rii@isacofflaw.com
http://www.isacofflaw.com/

Bankruptcy: After Christmas?

It's the time of the year where many people start buying gifts for others for the holidays. That, of course, is in addition to buying food, heat, electricity, telephone(s), gasoline, auto insurance, cigarettes (bad for health - bad for pocketbook), cable, clothes (don't forget shoes, socks, and underwear), and paying rent or mortgage and the car payment. Oh, and remember to buy the medications the Doctor prescribed.

Quite a list! How To Pay For It? Many people use CREDIT CARDS. Then comes February 1st and the bills flood the mailbox overwhelming the Letter Carrier's ability to carry all of the Visa, Mastercard, Discover, JC Penny, Sears, BestBuy, Fingerhut, QVC, Amex, Capital One, Orchard Bank, Bank of America et al BILLS.

When asked how they expect to pay, many will say "Well, I HAD to get those presents. I mean, it was Christmas (or Chanukah or whatever other holiday "requires" gift giving)". Says the lawyer at the first consultation about debt relief, "Okay, but how did you expect to pay the bills?" - the classic answer "I didn't think about that. I figured I be able to pay a little on each card, I guess." This response is typical from clients with sufficient income to pay the bill with minimum payments over the next 20 years, and from those who HAVE TO GO WITHOUT FOOD AND HEAT TO MAKE ONE PAYMENT!!

There are several problems here, actually many more than several. The biggest, in a sense, is that with debt that has accumulated over the past 3, 5, or 10 years there is no way ANY PAYMENTS are affordable. Then comes "Can I file bankruptcy?" The real question is "Can I file bankruptcy and still get rid of my bills (a discharge) even though I was foolish...?" There is no easy answer.

In order to eliminate/discharge debt, the Bankruptcy has to be filed in good faith. You cannot intentionally incur debt that you know you cannot pay. At a minimum, that debt cannot be discharged (made to go away). But wait...There's more! When the gifts were being bought and the plastic nearly melting from over-use, did the purchaser intend to repay the credit card company? The easy answer is "Yes, I always pay my bills!" But, is that the honest answer.

Many people just do not think about or know how to think about budgeting. People of all ages get caught up in the "I have to buy a gift for..." mode. So, what can be done for the honest but horrid money manager/giver?

Rule 1. Know how much you take home every month and how much must be spent on essentials, like the list above

Rule 2. If there is any extra, before deducting current credit card payments, be certain that it is truly disposable income immediately. Do not count the money you will save when you stop smoking.

Rule 3. Add up all of your credit card and other unsecured debt (debt not attached to collateral, like a car loan)

Rule 4. Multiply the amount of debt by 3% or 0.03

Rule 5. If the result after following Rule 4 is more than your "extra" (your disposable income) you should not incur more debt.

Rule 6. To figure how much unsecured debt you can support reasonably, DIVIDE your extra/disposable income by .03. So, if you have $200/month truly extra, the Most unsecured debt you can have is $6,000. And, remember that "extra" is what's left after paying all of the expenses listed in the beginning of this posting and any other NECESSARY expenses you have.

Even at the level shown, paying will be a bit of a struggle - things happen that cost money and are unexpected. Missing one month of the payment on any unsecured debt will make everything fall apart and you might never catch up.

If you have done those calculations, and after being careful you find that 6 months (I just picked a number) into the new year that you cannot pay because "Life comes at you fast!", then yes, you can file a bankruptcy with a clear conscience and peace of mind.

Author's Copyright by Richard I. Isacoff, Esq, November, 2011

rii@isacofflaw.com
http://www.isacofflaw.com

No Money To File Bankruptcy!

Bankruptcy is rising but filings are falling! Why? Simple answer: People do not have money to file for protection under the Bankruptcy Code. That may sound/read like an "Of course they cannot afford bankruptcy, they don't have any money!" Unfortunately, this is a new phenomenon.

Until recently, people would call regularly to ask for a free consultation to discuss financial problems which could result in a Bankruptcy case. Generally, we are able to work out payment arrangements with almost anyone. ALMOST is the operative word. If the person has no money and no job, and no way to pay us, even on a $25 per week basis, there is little that we can do as an office.

Understand that every lawyer does a certain amount of INTENTIONAL pro-bono work, and I do not know of an attorney who would turn away a truly troubled indigent person who just lost the house, car, wife/husband etc. That stated, none of us in Private Practice can do everything for nothing - work for free all of the time!
Because of the downturn and especially the lack of employment people aren't even calling because they feel that they cannot afford the cost of getting "peace of mind". My view of the problem is slightly different. We have accepted payments every week for a year from clients, all the while giving them as much protection as we could from creditors. Most lawyers will do that for people really in need.

Some ground rules apply:

1. Don't come in with your partner and state that you cannot afford our fees because you can't cut back on smoking 2 packs a day each. At $9/pk, that's $36/day or more than $1,000 per month.

2. While I encourage people to come in, I do not expect them to ask me to help them with a bankruptcy THEY are going to file.

3. Some folks will have to file Bankruptcy but do not want to give up they "toys" - the snowmobile, PWC, 4-wheeler, or cut back on the $200 per month cable or satellite bill because of all of the special sports channels and events, or drop the $200/mo cell service and on and on...

Filing for Bankruptcy is to give someone(s) in debt a "FRESH START". It is written that way in the Code and is discussed in cases and in Court. No one expects someone looking for that second chance to sell their soul, but to cut back on smoking, or drop a few cable channels, or give up the "bike" would seem a fair trade. The reality is that in a bankruptcy, where no unsecured creditor is getting paid back anything, you are not allowed to keep the snowmobile and the bike and the...

If you have a house, we can help you find the funds to pay your mortgage by eliminating unsecured debt. You can keep almost all of your personal property, except for things like the PWC for which you are paying $300/month for the next 36 months etc. But clothing, regular furniture, tools, in most cases automobiles (not 4 or 5), RETIREMENT plans including IRAs, and if you are renting or have no equity in your house a reasonable amount of cash/money in the bank. Depending on the situation, maybe even $10,000.

If you have the $10,000 but your debt is $70,000 you cannot pay everyone back if you have $35,000 in income and a child. But, you can either pay a small portion back, and you can pay the legal fees to file the Bankruptcy. It could be a Chapter 7 (no payback) or a Chapter 13 (payback of what you have left as disposable income each month). Or, if you wish, you can give the Trustee the $10,000, less attorneys fees, and have the Trustee distribute what is left to creditors on a pro-rata basis. It is not required, but if you feel that you should pay back what you can afford, the Trustee will certainly oblige. Just be aware that it isn't necessary in most cases.

ADVICE: If you are in debt to a point where you know you cannot make any meaningful payments, call a Bankruptcy attorney. Payment plans can be worked-out, and the initial consultation to find out about YOUR RIGHTS is always "NO COST" here.

Author's Copyright by Richard I. Isacoff, Esq., October, 2011

rii@isacofflaw.com
http://www.isacofflaw.com

Bankruptcy; Not a Four-Letter Word

Bankruptcy has had a bad reputation over the decades for some good and some bad reasons. The good reasons for a bad reputation all boil down to the issue of fraud: people who have assets and are hiding them from creditors, or people who went into business and ran up debt they could not afford, or consumers who bought "stuff" with credit (cards) with no ability to repay. In the later case, it's rather hard to repossess a vacation cruise, and in the former, if the money from profits is spent, it's gone for good. Unless intent to commit fraud can be shown, normally a Bankruptcy will wipe out debt.

Let's take a step back and discuss what a Bankruptcy does. Quite simply when a bankruptcy is filed, it protects the debtors from creditors. The are two main types of PERSONAL BANKRUPTCY - Chapter 7, where you eliminate debt without any repayment but surrender personal property and real estate that is not protected by law for the benefit of the creditors. A Chapter 13, requires that you have money left over every month AFTER paying REGULAR LIVING EXPENSES, and from the money remaining each month pay creditors on a pro rata basis.

The primary reasons for filing a bankruptcy are not voluntary at all: 1. Medical bills and illnesses 2. Loss of a job or substantial reduction in hours 3. A birth or death in the family 4. A two income household becoming a one income family 5. Bad money management. A DISTANT 6 is fraud - maybe 5%, although some experts will claim 10%.

For whatever reason, people have a negative opinion of bankruptcy - yet people would be surprised to find out about friends and neighbors have filed for protection.

Going to a different reason to have a more moderate opinion of bankruptcy filings is that THE OLD AND NEW TESTAMENTS, AND THE QUR'AN all encourage a forgiveness of debt to those truly troubled by debt. That is for the CREDITOR to FORGIVE the DEBTOR.

It makes no sense for a retired person on a fixed income to have to make a decision between food or medicine; or for a family to have to deny a child the presence of a parent so that parent can work 3 jobs to just pay basic bills. Please do not misunderstand: it is not suggested that filing a bankruptcy is the first course of action to think about, but it should not be the last, after losing everything.

Simple tips, some repeated some not:

1. Don't solicit credit cards or get as many as you can. Determine how much credit you need and only borrower that much.

2. If you find yourself using credit for living expenses, seek a credit counseling service such as Consumer Credit Counseling or Money Management International - just be certain that it is a true not for profit agency, not a scam. If you have to pay a big up front fee - stay away.

3. If you have a bank where you are known and are comfortable at a branch, ask if the bank has someone to help you budget your money.

4. As soon as you find yourself ready to get a second card/loan to make payments on the first, consult an attorney who handles bankruptcy as she/he will also deal with basic debt counseling.

5. Don' let pride get in the way of keeping your peace of mind or all you have left is a piece of mind.

For more in-depth information visit my website http://www.isacofflaw.com or other resources like the National Association of Consumer Bankruptcy Attorneys, or the American Bankruptcy Institute.

Author's Copyright by Richard I. Isacoff, Esq, September,2011

rii@isacofflaw.com
http://www.isacofflaw.com

Interest Free Credit Cards? Remember P.T. Barnum!

Credit Card companies have a new pitch - "0% Interest on Balance Purchases & Transfers Until XX/1/2012". The idea is to give you credit, with no interest on the outstanding balance for 12 months. And, as an added bonus, the offering company will even take your balance, on which you are being charged 20% from another card, and let you move it, AT NO INTEREST, for the same period. Sounds too good to be true? It is!!

First, all of these offers looked at closely, contain a "nominal" fee for making the balance transfer - like 5% of the amount of the transfer. That is a one time immediate capture fee, meaning they get paid by increasing your balance by that 5%. One could say that it's still a bargain because it's only 5% instead of 20%. However, if you pay the entire balance off in 3 months, you paid a rate of 20% annualized, versus paying the old card 20% balance off in 3 months which has the same effective rate. Well, same rate so you are no worse off than if you kept the old card. WRONG!

That 5% fee get added to your principal balance because it's a fee, not interest. So, instead of paying interest on $5,000 (which is the amount transferred in this example) you pay interest on $5,250. But you might retort and say, "Hey, I am not paying any interest on balance transfers so I was no worse off, and if I keep the money for the year, I am much better off - 0% on $5,250 versus 20% on $5000". Yes, that's true - well sort of true. You will be paying whatever the interest rate is on cash advances on the $250 "fee" which is a cash advance. However, like they say in the infomercials "BUT WAIT, THERE'S MORE!".

If by some chance you do not pay the entire balance, transfers from other cars and purchases made during the "introductory period" ending on XX/1/2012, the entire balance AND DEFERRED INTEREST, the amount of interest that the $5,000 would have earned the card issuer for the entire year, becomes part of the balance and you are subject to the regular interest rate which can be, SURPRISE, 20%! Even if you pay the $5,000 transfer amount back in full, if you don't also pay the $250 "fee" you will be charged an amount equal to the interest on all of the $5,000.

So if the regular rate is 20%, you will now have an additional bill of $1,000, which you will pay 20% for until that is paid in full. Actually, if there is $1.00 outstanding on your bill at the end of the introductory period, you will find your next bill has $1,000 added to the $1.00 that was missed in your previous payment.

Outrageous, but perfectly legal. When the Credit Card Act was passed last year, it took 5 seconds for the card issuers to find a way to keep there profits high. This is one way. Oh, and as an added treat, this scenario applies to most of the retailers, like electronics stores and appliance stores and any "big ticket item" stores - "Buy now and pay no interest for 1 full year!". When that "1 full year" is up, if you haven't paid the balance in full, expect all of that deferred interest to hit you on the bill you get in the 13th month.

The FDIC has a great website that will take you through this and a dozen other ways cards can haunt you now, even more than before.

http://www.fdic.gov/consumers/consumer/news/cnspr10/new_realities.html

Look, credit is fine; credit cards are useful and sometimes necessary, especially in emergencies. JUST KNOW THE RULES! Read ALL of the mail - even the stuff that looks like junk mail - there may be a hidden $1,000 charge in that envelope.

Author's Copyright by Richard I. Isacoff, Esq., May 2011

rii@isacofflaw.com

http://www.isacofflaw.com/

Bigger & Fewer: "Banks" Rule

There is a new mosaic, or one that was just not recognized, developing in the Economy, and somewhat specifically in the mortgage area. Banks, systematically getting bigger and bigger, and fewer and fewer, are dictating the rules.

The Big 4 (or 4 1/2) BANKS have made it clear through their elected, and properly paid for members of Congress (politely referred to as "Lobbying"), that they do not want Elizabeth Warren to head the Consumer Financial Protection Board (CFPB) but in case she gets there (during a recess appointment), they want to emasculate (no offense Prof/Dr/Atty Warren) the agency first. The argument or rationalization: No agency should have the authority to enforce existing regulations that affect consumers or pass new regulations to fix really bad problems that hurt the economy as a whole. Even Hemp has more supporters than HAMP!

The same interests have been keeping Congress itself where it is possible, from passing enacting legislation that would force mortgage modifications and punish those who knowingly created, hyped and sold securities that they themselves bet against (hedges). These "Security Instruments", known as Mortgage Backed Securities and more generally categorized as Collateralized Debt Obligations were the mainstay of Lehman Brothers' (remember them?) profits; oh, and don't forget about Goldman Sachs! The play was that if enough mortgages were written, there would be enough good ones to overcome the bad ones: Quantity always wins but only if you are the creator/seller! As Phil McGraw, PhD, better known as "Dr. Phil" says "Well, how's that workin' for you now?" NOT SO WELL DOC!!!!

Wells Fargo is in Court in Tennessee and Maryland trying to avoid being convicted of "Reverse Redlining", the pernicious practice that promised lower income and less educated/sophisticated borrowers, usually minorities, the AMERICAN DREAM - Home Ownership but lied and cheated to make the sale. "Mrs. Jones, the payments will only be $300 per month - for the first month then the rate will equal the 6 month rate of the percentage, the denominator of which is 100 and the numerator is 10 plus no greater than 7% nor any less than 7%,. and, Mrs. Jones, that rate will be in place until the first change date after which the loan will float to the regular level for this type of loan".

"Don't worry Mrs Jones, we at "Fast Talking Mortgage" would never steer you wrong. Just check our rating at the BBB. Here is the telephone number 1-800-waitforever; and if you have any problem with the loan, one of our Loan Specialty Team (for borrowers who complain), will assist you - that telephone number is 1-877-waitforever". If it wasn't so real and so devastating, that kind of "pitch" would make a great Saturday Night Live spoof. People struggling to pay rent are told they can own a home; and then they end up on the street.

The Banks have uniformly maintained that the laws do not apply to them - state vs federal - and even if they do, the banks didn't make the loans, they are just the Trustee or manager or they sold the loan and had just acted as an intermediary, owning the loan for mere seconds. What's worse is that they have all of the money in the world (well not really but more than any Plaintiff does) and are willing to spend ten (10) times the amount needed to fix the problem in order to justify their actions.

In all seriousness, what can be more despicable than convincing low income struggling families that they can buy a home of their own, when the game is just to make a sale of a mortgage and not care whether it's affordable. In fact, most of these loans were granted where the Loan Originator knew the loan would adjust to a point where the borrower would not be able to make the payments. Once again, no one cared. No entity was "on the risk". No bank or mortgage company would lose $0.05, because the loans were sold into a pool - securitized with 2,500 other loans. Again, the thought was that quantity made up for quality and if not, so what! No one loses, except the homeowners and, as we have seen, the Economy.

Add to the mortgage mess - we have the "Interchange Rate" debate. Regulators (formerly called "Revenooers") are trying to force the price charged for each "swipe"/use of a credit or debit card down from an average of $0.44 to $0.12, at least for the big 4 1/2. That is a huge drop in Bank revenue but also a huge drop in what merchants, and therefore consumers, pay for use of the debit card. Folding money looks better every day. Maybe we should all buy stock in Crane & Co., the company that makes the paper for U.S. money.

Group 4 1/2 are fighting the change mightily as they stand to lose $hundreds of millions if the change takes place.

We can then move to the issues about whether a Bank,the kind where you can go and open a checking or savings account, should be allowed to directly make loans and Securitize pools of Loans themselves, avoiding the middleman. In 1974 we had 14,000 banks in the country. By 2017 the count is expected to be 2,500. If you realize that this represents 50 banks for each state, they "Hometown Bank" is dead. Even now, in a city like Pittsfield, MA which has a population of 40,000+/-, a merger of TWO (2) Savings Banks is taking place (thank you FDIC) - the rub is between them they have nearly 50% of the deposits in the entire County. The next largest entity is a Federal Credit Union.

Bigger isn't better, it's just bigger. And, bigger means more power - a greater ability to force laws on or off the books through trade organizations and their lobbyists. Is big bad? Not conceptually; but in practice?. As of Friday 5/06/2011, the ABA (American Bankers Ass'n) seemed to have changed its position regarding Elizabeth Warren and will support the nomination. The CEOs of Group 4 1/2 must be furious. Congress, especially the GOP side, is forcing a "recess appointment" .

There is no easy, or even difficult, answer to this issue. The consolidation of the Financial Services Industry is moving faster and faster. The was a time, not so long ago, when Banks and Insurance companies and Stock Brokerages all had to be separate. Now we have one stop financial shopping. Convenient, maybe. Dangerous - ABSOLUTELY

Author's Copyright by Richard I Isacoff, Esq, May, 2011

rii@isacofflaw.com
http://www.isacofflaw.com

The Recession:It Has An End (We Hope)

I recently saw a billboard that read " THE RECESSION: IT HAS AND END". Tell that to the people who have been irreparably damaged by the economic collapse we have just been through and the slow recovery we are in now.

The recession and the increase in foreclosures has actually aided one sector of business. If you watch cable television, especially after 8pm almost any evening you will instantly recognize the verbal headline "STOP FORECLOSURE NOW!" or one of my other favorites "IF YOU OWE AT LEAST $10,000 IN CREDIT CARD DEBT WE CAN HELP WITHOUT BANKRUPTCY". The telephone number to call is the same "CALL 1-800-WE SCAM U"

Jaundiced, cynical view? Just a hard cold look at an industry that preys off of peoples’ misery in these very difficult times. While the pace of NEW consumer credit debt has slowed, it is more because of the fact that card issuers have increased rates to 30% (just before the Feb. 22, 2010 deadline) or because they have cut back credit lines so that there is virtually no available credit on many card-holders cards - they have been MAXED OUT (Read James Scurlock’s book of that name or get the DVD of this award winning documentary on consumer credit in the US)

The Mortgage rescue scam companies are out there in force promising to save your house provided you pay them anywhere from $1,500 to $7,500 up front for their services. The most that nearly all of them can do is to direct you to complete documents for participation in the President’s "MAKING HOME AFFORDABLE" program.

From experience, most lenders, while they do not want to take houses, do not want to have a mortgage loan on the books that is not paying the monthly installment. It is inconceivable that there are these super companies out there in TV world which can work miracles and force a mortgage lender or a mortgage servicer to take less than it is owed. Some will have your mortgage documents audited - reviewed for any irregularities or violations of the laws that govern consumer lending and specifically mortgage transactions. Others will just keep stalling, using your money until the house is foreclosed on, or right until the week before a foreclosure sale and then return some portion to you. They will blame the lenders - You will not have a home!

On the credit card side, there is at least one company that is offering assistance with credit card debt as "...authorized by the President's Stimulus Plan". The Treasury Department’s, FDIC’s TARP’S, the Federal Reserve’s plan all allow debt reduction. BUT, such plans were always allowed. . The promise that for a "reasonable fee" a company can force a creditor to take 50% is absurd. It is especially harmful to those who stop making regular payments because of the promised salvation described in the 60 second "magic pill"commercial

Quick tips :

1. There is no secret to reducing the debt (see earlier posts). If it is a mortgage, you need an attorney or someone from one of the government sponsored programs to help you through the maze of paperwork.

2. Credit Card debt? - Most companies will not even talk to you about a compromise settlement until you are 90 days late. By then, if the company will not accept the "settlement offer" you are so far behind that you will never be able to catch up. There are a few like Consumer Credit Counseling Services of Southern New England (or your location) which will try to negotiate reduced interest rates to lower your payments BEFORE you get too far behind. They change a nominal monthly fees but no up front fee for their service.

3. If you are in danger of losing your home, or of losing your sanity, contact an attorney who works in these fields. You should get objective and non-leading advice. If a bankruptcy is the only way to protect your house, you will be so informed. If you cannot make even minimum monthly payments on your credit cards, a brief consultation, normally free, with an attorney will point that out to you. On the other hand, if there is another way around the problems, a knowledgeable and ethical attorney will be able to show you the way.

In summary - do not fall for the "1 800 we save u" companies. If they were that good, the TV advertising wouldn't be necessary and the Treasury Department would hire them to straighten out the federal budget

Author's Copyright by Richard I Isacoff, Esq, March 2010

http://www.isacofflaw.com/

rii@isacofflaw.com

New Credit Card Regs Effective Today

(See entire posting on this issue at February 10, 2009)

New Credit CARD Act of 2009 rules went into effect TODAY, and the are actually some decent regulations

1. Card Issuers will have to check on the customers ability to repay before issuing cards. Sounds common sense doesn't it! It will be unreasonable, under the new regulation and always has been based on life, for a card issuer to give a card to someone without income or assets, and for a card issuer not to review such information.

2. Before you can be assessed an over-limit fee, you will have to AGREE to allow over your limit charges to be accepted. It is not like so many other programs where you have to say "no" or your in, here if you do not say "YES" you cannot be assessed a fee or penalized in any way if you are approved for an over-limit charge

3. If the Card Issuer is going to increase your rate, for any reason, you must receive at least 45 days notice, and then the increase can only apply to charges/cash advances AFTER the 45 day date. Old balances pay at the old rate of interest.

4. Your rate cannot be increased, in nearly all circumstances, for the first 12 months you have your card. The exceptions include if you get a variable rate card where the interest rate is supposed to go up and down; or if you are more than 60 days late in the first 12 months.

5. If you are under 21, you will have to show that you can afford the payments on your maximum credit limit, or have an over 21 co-signor.

6. Card issuers will not be able to make deals with colleges or high schools to come onto campus to offer cards if the card company offers the school an incentive to let it in.

7. Payment dates must be the same day (1st 4th 8th 27th etc) each month and if the payment date falls on a holiday or weekend, not late fee or penalty can be assessed

8. The new statements must contain information in bold type of the New Balance, Minimum Payment Due, and the Due Date. There must also be a warning of what will happen to the rate and when it will happen if a payment is late. The biggest change in statements is that each month it MUST show how long it will take to pay off the balance at the present interest rate if you make Only The Minimum Payment; AND HOW MUCH YOU WILL HAVE TO PAY, TO PAY OFF THE BALANCE IN 3 YEARS. It must also show how much in total you will pay in each case

9. Credit Card Issuers MUST post their agreements on their websites, have the agreements first approved by the Federal Reserve, and have the Federal Reserve Board post them on the Fed’s comprehensive and advertised Card Agreement Website. (WELCOME TO 2010!)

Note: The full 841 page bill with commentary before final adoption is available at the Federal Reserve’s website but a shortened version along with the long one is at: www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm

Others At:

http://www.fdic.gov/regulations/laws/rules/6500-1400.html

http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7252770

http://www.youtube.com/watch?v=EGY0jooXIsU&feature=player_embedded

Author's Copyright by Richard I. Isacoff, Esq, February 2010

rii@isacofflaw.com
http://www.isacofflaw.com/

New Credit Card Rules - Finally!

In August of last year some of the new Credit CARD Act of 2009 rules went into effect, saving the most far reaching provisions until February 22, 2010. That’s right, just a few days from now. So, what has Congress in store for us now? Actually some decent regulations

1. Card Issuers will have to check on the customers ability to repay before issuing cards. Sounds common sense doesn’t it! It will be unreasonable, under the new regulation and always has been based on life, for a card issuer to give a card to someone without income or assets, and for a card issuer not to review such information.

Currently, most card issuers just check the credit ("FICO") score, or maybe the score and the recent payment history. NEW: Now there must be policies in place to determine the ratio of debt obligations to income; or the debt obligations to assets; or the amount the consumer will have remaining after paying debts. The card issuer may rely on the information provided by the consumer on his/her application. Otherwise the company will have to gather information on deposits, assets, income - just like a real lender. If you "stretch" your income on a credit application (show more significantly income than you make each month) do not look for the laws to help defend you.

2. Before you can be assessed an over-limit fee, you will have to AGREE to allow over your limit charges to be accepted. It is not like so many other programs where you have to say "no" or your in, here if you do not say "YES" you cannot be assessed a fee or penalized in any way if you are approved for an over-limit charge

Right now, many card issuers love it when someone goes $.01 over the authorized limit because the card company can charge a fee of whatever it wants, but commonly $39. True, you do not get rejected at the check-out counter but, maybe you would want to know before buying a hamburger at McD’s for $1.00 and paying $39 for the privilege.

3. If the Card Issuer is going to increase your rate, for any reason, you must receive at least 45 days notice, and then the increase can only apply to charges/cash advances AFTER the 45 day date. Old balances pay at the old rate of interest.

At the present, if you get a rate increase, your fault for being late too often or because the card company is greedy, the increase applies to all outstanding balances - old/existing and new. Now it will be only on the new activity.

4. Your rate cannot be increased, in nearly all circumstances, for the first 12 months you have your card. The exceptions include if you get a variable rate card where the interest rate is supposed to go up and down; or if you are more than 60 days late in the first 12 months.

Teaser rates - will be nearly a thing of the past. The company will have to disclose the teaser rate period and the actual rate it will charge after that period is up And the teaser period must be at least 6 months

5. If you are under 21, you will have to show that you can afford the payments on your maximum credit limit, or have an over 21 co-signor.

We all know of the horror stories about the 17 or 18 year old high school student who get an offer in the mail, sends back the YES I WANT IT postcard, gets a $7,500 credit limit, and then cannot make the minimum payments after one payment is missed and the rate goes from 5% to 30.99% Will this be annoying? Sure, but it will prevent a good deal of anxiety on the part of those under 21 who got "swindled"/misled/were easy marks. If the under 21 can show that he/she can pay, from a provable source, then the card company is permitted to issue the card.

6. Card issuers will not be able to make deals with colleges or high schools to come onto campus to offer cards if the card company offers the school an incentive to let it in.

Surprised that schools would get kick-backs? Why be surprised - look at college football! If there is any kind of permission given, both the school and the card company MUST disclose all arrangements; any that pay the school will be deemed illegal.

7. Payment dates must be the same day (1st 4th 8th 27th etc) each month and if the payment date falls on a holiday or weekend, not late fee or penalty can be assessed

Credit card companies love changing the day a payment is due to, for instance, "25 days from the date the last payment was received if it was not received late". Who knows when the company receives a payment. Also, weekends and holidays are bonus days for companies because they have earned a great deal of late fees the day after those days.

8. The new statements must contain information in bold type of the New Balance, Minimum Payment Due, and the Due Date. There must also be a warning of what will happen to the rate and when it will happen if a payment is late. The biggest change in statements is that each month it MUST show how long it will take to pay off the balance at the present interest rate if you make Only The Minimum Payment; AND HOW MUCH YOU WILL HAVE TO PAY, TO PAY OFF THE BALANCE IN 3 YEARS. It must also show how much in total you will pay in each case

9. Credit Card Issuers MUST post their agreements on their websites, have the agreements first approved by the Federal Reserve, and have the Federal Reserve Board posat them on the Fed’s comprehensive and advertised Card Agreement Website. (WELCOME TO 2010!)

Note: The full 841 page bill with commentary before fianl adoption is available at the Federal Reserve’s website but a shortened version along with the long one is at:

www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm

Others At:

http://www.fdic.gov/regulations/laws/rules/6500-1400.html

http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7252770

http://www.youtube.com/watch?v=EGY0jooXIsU&feature=player_embedded

Author's Copyright by Richard I. Isacoff, Esq, February 2010
rii@isacofflaw.com

http://www.isacofflaw.com/

Interesting Interest Rates

30 Year Home Mortgage Rate Hits 17% Prime Rate at 16%+ Savings account interest reaches 12% Ancient post depression history NO - 1982

The graph above shows the history of the Prime Rate (interest rate charged to a bank's least risky and best customers) - compare those rates to what you pay for credit cards, auto loans, and mortgages, for a real eye-opener

Here is a little chart of the Fed Funds Rate (the interest rate the Federal Reserve Banks charge member Banks to borrow - single day loans), the 30 Year Mortgage Rate, the Daily Savings Account Rate, and the 1 Year CD Rate (all averaged for the respective year) :

1982: Fed Funds 12.25% Mortgage 17% Savings 12%

1989: Fed Funds 9.17% Mortgage 11% Savings 8.5%

1995: Fed Funds 5.9% Mortgage 7.9% Savings 4.75% 1 Year CD 7%

2000:Fed Funds 6.42% Mortgage 8.1% Savings 5.5% 1 Year CD 6.625%

2005:Fed Funds 3.33% Mortgage 5.9% Savings 2.35% 1 Year CD 3.25

2007:Fed Funds 5.04% Mortgage 6.3% Savings 4.25% 1 Year CD 4.9%

2008:Fed Funds 1.85% Mortgage 6% Savings 2.5% 1 Year CD 2.5%

2009:Fed Funds .25% Mortgage 5.1% Savings 0.5% 1 Year CD 2%

Why are all of the numbers important? They show the level of inflation, the cost to consumers for borrowing, and perhaps most significantly, the profit the banks are making on money. For example, in 1982, while mortgages were 17% plus points, banks were being charged 12.25% by the Fed and paying 12% to depositors. Keep in mind that a deposit in a bank is nothing more than a customers loan to the bank for the rate of interest being paid on the savings account or CD.

At that time, there was a 5% margin between the cost of money and the rate that could be charged to consumers for a mortgage. The MARGIN narrowed to 2%+/- for the next 27 years; then at the height of the crisis, the margin grew to 5% again. So, in inflation and in recession, the Banks made the same margin. Rates were so stable that savings bank bankers were called "3-6-3" bankers: take it in at 3% (savings deposits) lend it out at 6% (mortgage) and go home at 3 (afternoon) (That was the time before securitization of mortgages).

There are two lessons to be gleaned from the figures other than the fact that Banks make money: 1. When the Cost of Funds (to Banks) is low Banks charge what the market will bear. It is a "free market", unlike the regulated days of the 60s and 70s, and Banks can take advantage of this era. 2. The current interest rates are so low, that as to Banks, there is almost free money. This will not stay so cheap for Banks.

With the interest rates so low, and Banks making 5% on mortgages, and more than 3% on Prime Interest Rate loans (the rate charged to the best customers (those with no risk of default - like GM, right?) why are Banks charging 19%-30% for credit card debt? This is the primary debt for consumers beyond a mortgage. The Banks are making an obscene 15% to 25%+ on the average borrower's credit card balance!!

What is worse, in anticipation of the new laws which prohibit card issuers from arbitrarily raising interest rates because of a one time-one day late payment, or because a payment was a day late on A DIFFERENT CARD, Interest Rates on credit cards have jumped 10%-20% and credit limits have been reduced by 50%-75%.

The next post will deal with the profits being made by banks in real dollar terms. Why is any of this important? The so-called recovery is only in the financial markets. Unemployment is soaring, the dollar is weak (to be explained next post) and the average consumer has seen no relief. Oh, and in case anyone has missed the news, foreclosures are still going strong.

Author's Copyright by Richard I. Isacoff, Esq, November 2009

http://www.isacofflaw.com/

Credit Cards - Rep. Barney Frank's Frustration (Mine Also)

Rep. Barney Frank (D), Congressman from Western MA, wants to "push up" the effective date of the new Credit Card regulations. He is prompted by the frenzy of card issuers raising rates, cutting limits, changing terms, and adding fees, all to beat the starting date of the laws. The laws merely set limits on how and how often card companies can change the terms of the agreement you have with them, without prior notice.

The standard argument, that there is no contract unless both sides agree, is not able to be put forth, because in the agreement you signed originally you gave the company the right to make all of these changes, even to your detriment. Is it fair? NO!, Is it legal? Yes, but only until the first of the year.

Congressman Frank's frustration is understandable, especially if you have a card and have been "slammed" by the card company with rates and fees you never anticipated. That these same companies, CitiBank, Bank of America, Chase, all have Federal Money from the bailout is beside the point. As stated in an earlier post, this is how they were able to report record earnings last quarter.

Congress will not change the date to October as Congressman Frank wants, but at least the issue is again being discussed. Unfortunately, the Congressman may suffer a decline in his credibility with his colleagues, but he will have a boost from his constituents.

Right now, everyone should be examining his/her cards and statements to determine if the terms have suddenly changes, if rates are higher, credit limits lower. If you need a card try a local financial institution. If none issue cards, shop for a new one, if yours is not playing fair. Be certain that you read the "Agreement and Terms" disclosure that will be your contract, BEFORE you use the card. Do not hesitate to decline the card even after it is issued to you. Be certain however, that you follow the rules on terminating the relationship or you could find an open credit line, detracting from your credit score, all the while believing that the card account was closed.

To be safe about credit, whether it is cards, loans, mortgages, joint accounts, "authorized user" cards (where the credit is based on someone else who has given you a card to use), get at least one credit report every six months. They are free from http://www.annualcreditreport.com/ .

Check to be certain that only the cards you use are open. Close everything else. While there may be a slight drop in your credit score (see posts of 7/27/09 and 6/11/09), the risk is far less than if you have unused and unwanted open credit lines affecting your score and overall credit standing.

Author's Copyright by Richard I. Isacoff, Esq, September, 2009

rii@isacofflaw.com

http://www.isacofflaw.com/

Get Protection from Creditors - But Wait, There's More!

"Protection from creditors" - just a euphemism for Bankruptcy? No, it is what filing Bankruptcy is and does. There are no more Debtors' prisons and no one has to walk around with a big scarlet "B" on his/her chest. Fine!, but what really happens, and who can file for protection? Before going any further, filing Bankruptcy WILL NOT force you to lose your house or car. In fact, it may help you to keep them.

My post of Monday July 27th discussed the need for completing a full personal budget for you and your family (if there is one to consider). Again, make a list of ALL regular living expenses, including cigarettes, gasoline, socks...EVERYTHING EXCEPT UNSECURED DEBT like credit cards and personal loans (Beneficial, CitiFinancial, HFC/HSBC etc. Then figure out your regular monthly income, including OT you ALWAYS get, bonuses you ALWAYS get, child support/alimony, pension, steady part-time jobs etc. then deduct all payroll taxes and insurance costs to get a net income. Next, if you are paid every 2 weeks, multiply the NET INCOME by 26 and divide that result by 12 to get a net monthly income.

THE MOMENT OF TRUTH - deduct your regular monthly expenses from your regular monthly income.If you have money remaining, is it enough to pay all of the minimum payments PLUS 1% of the principal for each card/debt? If the answer is yes, start by making a real month by month budget and start paying down each debt every month. Be sure to be on time, and that means the payments have to be in the mail at least 7 days before they are due, or 10 days before the start of the next billing cycle.

If you cannot make the payments and meet your expenses, then consider a bankruptcy consultation with an experienced Bankruptcy Attorney. You can find one on the web by going to www.nacba.org , which is the site for the National Association of Consumer Bankruptcy Attorneys, or by e-mailing me and we will get you a referral.

Bankruptcy is a RIGHT, not a privilege. The laws and rules are "spelled out" in Title 11 of the U.S. Code. It states clearly in Congressional intent and is sen again and again in cases, that the purpose of the Bankruptcy laws is to give Debtors, who cannot repay their debts, a "FRESH START". It is not punitive - it is a RIGHT.

For consumers, there are 2 sections of the Code that apply: Chapter 13, which is a way for people who have some money left over at the end of the month to repay a percentage of what they owe, be it 5%, 10% or 100%. The repayment period is up to 5 years, and the 30% interest rates stop immediately; and Chapter 7, where the consumer/debtor cannot make ANY payments for a 36 month period, or the amount of the payments would be so insignificant that the consumer really should keep the funds for emergencies.

Most good Bankruptcy lawyers will not charge for the initial consultation which is where she/he will help you determine if a Bankruptcy is the correct financial decision for you. The rules for filing are not that difficult to understand and the next Post will go into the details.

Author's Copyright by Richard I. Isacoff, Esq., July 2009
www.isacofflaw.com
rii@isacofflaw.com

Credit Card Rules - Explained (sort of). What to Do Until Then

On June 11, 2009, I wrote extensively about the new credit card laws - the ones that do us no good at the moment but might as the varied effective dates arrive.

Attached/Linked title of this posting, and again at the end of this entry, is a video that goes through the major points of the new rules.

None of the rules will erase any debt that has already been incurred, regardless of how unfair the borrower believes the debt to be. Interest rates jumping to 30% , late fees of $39 on a balance of $100 with a report of late payments (over 30 days) to the credit agencies, with, of course the accompanying rate increase, and perhaps the most difficult for regular card users, the arbitrary elimination of the available credit/decrease in credit line, without warning or apparent reason.

The 2 real banks, and the 1 "investment bank" (see last post for that definition) that had record profits, Bank of America, CitiBank/CitiGroup, and Goldman Sachs respectively, are the worst offenders. Yesterday, in the Sunday edition of the New York Times, there was a story by David Streitfeld dealing with Bank of America specifically, but the industry in general. In it he describes a woman who could not keep up with the higher and higher interest rates being charged. After pleading with Bank of America to lower the interest rate on her account without success, she just stopped paying her monthly bill. A wise decision? - probably not! - except in this case it was born out of desperation. The result: Bank of America called her with "deals" so she could afford her payments.

Look at the video - read the article in the Times and think about your position. Are you able to go without Credit Cards? Can you pay the minimum payments PLUS 1% of the balance owed to lower the principal and actually pay down the debt? If you can, then you may be able to get out of debt.

Factor in all of your debt - especially the credit cards. IMPORTANT!! - Put together an accurate list of your regular monthly living expenses. Include such things as cigarettes (if you smoke), a reasonable amount for food, eating out if it's unavoidable, enough for gasoline and a monthly budget for car repairs (during the entire year), all of your insurances, clothing (include shoes and underwear), income taxes expected to be paid over and above payroll deductions, student loans, cell phone, cable, Internet, utilities, rent/mortgage, and everything else that you really need to spend or save for each and every month. After all of that, can you pay the minimum PLUS at least 1% of the outstanding balance on all debts, whether each is a credit card, a personal loan from CitiFinancial/HFC,HSBC,Beneficial, or from anywhere else.

If after doing that budget exercise you can make the payments GREAT!! Do not be late on one payment or your plan might become dust in the wind. BUT try. If you cannot, seek financial counseling - not from a TV advertiser promising to reduce your debt to "pennies on the dollar" for a mere $XXXX.XX per month and a non-refundable processing fee of $XXX.XX

Author's Copyright by Richard I. Isacoff, Esq, July 2009
http://www.isacofflaw.com/
rii@isacofflaw.com

http://video.nytimes.com/video/2009/05/19/your-money/1194840368370/guide-to-new-credit-card-rules.html

Credit Card Laws - Sweeping Changes

The predictions of a difficult passage for the new Credit Card Legislation proved to be wrong. Congress, both the House and the Senate, fought back attempts by the finance industry to kill the Bill that will vastly alter the landscape of Credit Card issuance and cost to borrowers/users.

The formal name of the new law is the "Credit Card Accountability Responsibility and Disclosure Act of 2009"or the "Credit CARD Act of 2009" (note - the capitalized "CARD" is part of the actual name) Perhaps another, equally appropriate name would be the "Consumers Attempt at Revenge by Dodd Act of 2009". (Senator Christopher Dodd (D. CT) was the Senate’s primary sponsor and "pusher" of the bill.)

The details of the new law, known as Public Law No. 111-24, are yet to be finalized, as regulations have to be promulgated by various Federal agencies, but the main provisions are truly sweeping. Before briefly discussing each change or addition to the existing laws/rules, it must be noted that the Credit Card industry won one major battle. The original bills in the Senate and the House set an interest rate cap of 15% on any credit card. That provision never made it to a final vote. The industry Lobby made it clear to Congress that it would not permit such a cap on interest rates. In a compromise to get the rest of the improvements in the law passed and signed by the President (which he did on May 22, 2009), Congress dropped a cap on rates altogether.

Here are the primary provisions of the CARD Act of 2009: (Most of the "new" law is a change to the Truth In Lending Act")

1. There cannot be any more interest increases because your payment is received a day or two after the due date. Further, the increase in rate can only apply to FUTURE uses of the card - new purchases, advances etc. The balance owed at the time of the increase in the rate can only be charged the rate in effect before the change.

2. If there will be an increase for being late, you must be 60 days late, unless there are other issues involved. (The law gives the credit card issuer the right to raise a rate for future use of the card because of factors such as increased risk etc.) Even here however, the change applies to new balances only and there must be the new notice given.

3. Rate increases, in general, must be preceded by a 45 day notice and can apply only to FUTURE balances. It is important to note that the non-retroactivity of increases in rates applies here also.

4. If there is going to be a rate change, other than a change due to your card having a variable interest rate that goes up or down based on an index like the prime interest rate, or the U.S. Treasury rate etc, you MUST receive at least 45 days notice.

5. One major change is that if you or the credit card issuer terminates the card account, you MUST be given an amortization period of at least five (5) year to pay the outstanding balance OR you cannot be charged more than twice the regular minimum monthly payment. You cannot be forced to pay off the balance in a lump sum.

6. Unless you get a low introductory rate (teaser rate), there can be no interest rate increase for the first year. The exception is if you pay more than 60 days late.

7. The monthly interest/finance charge can not be calculated using the prior month’s balance if there has been a payment on that balance before the new statement date. That is a major change as many companies computed interest against balances that had been paid-off during the month.

8. No fee can be charged for going over your credit limit unless you specifically, and in writing, permit the card company to allow charges over your limit. Further, if there is a fee, you can only be charged once in the current billing cycle. So, if you go over limit 4 times during the month, you can only be charged one over-limit penalty fee.

9. If you pay by telephone or over the internet, you cannot be charged a service fee unless the company expedites the payment for you. So, if the payment is normally credited the next day if received after 2pm, but if you pay by a check by phone at 4pm and get the payment credited to your account that day, you can be charged a reasonable service fee.

10. When you make a payment more than the minimum amount due, all amounts over the minimum must be applied to the highest interest rate items in your balance. A simple example: you owe $1,500 for purchases which has an interest rate of 10%, and you owe $1,000 for a cash advance with an interest rate of 15%. You have a minimum payment due of $50, but you pay $200. After applying the $50 minimum payment amount in whatever way the company and you "agreed to" in the "contract", the rest of the payment, the remaining $150, goes to pay down the cash advance because the interest rate being charged is higher than for the purchases.

11 Your statements will be different. Every statement must show the current balance and the interest rate being charged for each type of card use (cash advance, purchase etc). Further an most important, the statement must illustrate how long it will take to payoff your actual balance assuming you make only the minimum payments and what the total cost in interest will be. The same document only also show how much interest you would pay in total if you pay off the card in 36 months (both assume no further card use)

12. Any one under age 21 must have a parent, guardian etc co-sign for him/her unless the under-age person can demonstrate with proper financial disclosures, that he/she has the ability to pay the debt that may be incurred by him/her-self.

As with all laws, the devil is in the details. Here, the details will be set by the Federal Reserve Board which will enact regulations to "fill in the holes", provide definitions like what is the proper financial statements for under 21 borrowers, and what the new statement should look like, and what rules have to be in place for the "reasonableness" of all fees etc.

Finally, certain provisions take effect on 90 days, some in 9 months and some 9 months after the rules are made which has to be done within 15 months. In general ALL of the provisions requiring new notices become effective at the end of August 2009. The others ... hopefully we will have firm dates in the near future.

Author's Copyright by Richard I. Isacoff, Esq., June, 2009

http://www.isacofflaw.com/

rii@isacofflaw.com

Recession: What To Do While It's Here

The Recession is showing signs of lessening. The Recession will continue into 2010. The recovery from the Recession will be the steep upward move that the economy went down, like a "V". The recovery will be longer because it won't be a "V" but a "U". Doesn't anyone know - The President; the head of the Treasury; the Chairman of the Federal Reserve; your brother's wife's third cousin who delivers the Wall Street Journal?

What should you do if you have debt problems, or have a mortgage that has adjusted up in rate and cannot afford the new payments or have a credit card or two that has increased your rate from 6.99% to 15.99% (you were 1 day late and paid the $39 late fee) but Lawrence Bossidy, former CEO of Honeywell, says he has no concern about people who make a contract and won't stick by their agreement?

Here are some suggestions that might help you out of the money bind:

1. Ignore the headlines - no one knows when the Recession will end or how fast the recovery will be. Rather than panicing and then fainting, read the whole article - more than one. Try to get a balanced perspective on whatever the front page big bold type means by checking at least several sources.

2. If you listen to a business channel(s) compare and contrast several opinions and several channels

3. Prepare a realistic monthly budget for you and your family. Determine how much income you have left (if any) after regular monthly expenses - without and with debt service.

4. How much of a reserve do you have for emergencies, like a temporary job loss. You should have at least 3 months and really at least 6 months

5. If your mortgage is an Adjustable or Variable Rate Mortgage ("ARM"), can you afford the payment if the rate goes up the maximum permitted when the rate changes? If not, you should start trying to contact your lender. Most of the Federal Programs that are in place are NOT for delinquent borrowers, but are for those who might fall behind unless . . .

6. Credit Cards: Pay down as many as possible. If that is not realistic, pay $25 more than the minimum payment on each. Be sure to ail your payment at least 7 days before it is due. It is critical that you are not 1 day late. You rate will skyrocket and you will have the privilege of paying $39 as a reminder

7. Credit Cards: Don't keep moving balances to get a lower rate. If you have a very high rate card, move that balance as a transfer to a new card AND CLOSE THE OLD ONE. Again, do not be 1 day late in your payment or you will be back into double digit rates.

Do not wait for the GOVERNMENT to help. The Senate has all but killed the chance that the House-passed amendment to the Bankruptcy Law, which would allow Bankruptcy (Federal) Judges to modify home mortgages, will ever become law. This was due to intensive lobbying by the banking and finance industry. The same fate awaits the Consumer Credit Card reforms the House just passed by more than 4 to 1 ( see the next post for details on both)

Author's Copyright by Richard I. Isacoff, Esq, May 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Credit Cards and Credit Crunch - the Other Monster Under the Bed

It is official - credit card default rates are higher, as much as 30% higher than last year, and higher than the experts thought they would be. Okay, how much of an expert did you have to be to know that. All you need to have, to know the defaults are getting worse, is a CREDIT CARD, or two or three or four or...

What are the reasons? That may require an expert. Could it be the loss of 4 million jobs, or the increase in interest rates even when the Banks are paying next to nothing for the money they are lending, or people using credit cards just to buy food and pay for heat until the cards max out, or homeowners making the last few mortgage payments they will be able to make with the credit cards, or is it just cardholders being irresponsible and using the cards to pay for filing bankruptcy?

It has been reported that the total outstanding amount of credit outstanding for credit cards, used or unused credit, will decrease by 50% or $2 trillion by 2011. Card companies are cancelling cards, jumping up rates (see earlier post), and telling card holders that the cards will not be renewed. Okay, let's just fold up our tents and go home. These are the same financial institutions that got bailed out again, today, by the Treasury. The thanks?

Advice for those of us who will need or think we will need to use revolving credit (credit cards) goes something like this.

1 Pay down or even off the cards that are charging you the highest rate.

2. DO NOT be late on any card payment - the issuer can cancel your card or increase the rate.

3. Do not apply for any new cards - the applications you make will not only affect your credit score but existing card issuers might look at this act as a need for more credit, and they are afraid you will not be able to pay

4. Review your credit reports carefully to be certain only real credit is reported, that only your debts are shown, and that closed accounts are reported properly. Go to the web site http://www.annualcreditreport.com/ and order one report from each of the 3 bureaus - Experian, Equifax, Transunion. Be sure you do not ask for your score - it will cost you to get that,while the report itself is free. Do get fooled by other sites like freecreditreport.com as you will probably end up paying for something

5. Decide if you really need credit cards, beyond a small limit card for emergencies. Try living without them now because you might not have them later anyway.

6. DO NOT TAKE A HOME EQUITY LOAN TO PAY OFF CREDIT CARDS. You are changing unsecured debt into secured debt, and the security is your home.

7. See a credit counseling service or a good debt counselor to help you determine the amount of credit you will need month to month. Even if the lesson costs $250, it is far less than the interest on even a modest balance when the rate is 30%.

Is there an end in sight to the craziness? No! Maybe a halfway point? Yes

Author's Copyright by Richard I. Isacoff, Esq., March 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Credit Card Companies - Legal Loan Sharking?

The last post discussed the Debt Collection practices of many credit card companies. As the economy tightens even more, many people will turn to their credit cards as a last resort to buy necessities, like food, medicine, and gasoline (to get to work if they still have jobs). An earlier post discussed the companies raising interest rates for no other reason than they can.

The majority of the card companies are owned by banks In some cases these are the same banks which are trying to recover losses incurred in bad loans; often, improper mortgage lending practice results. So, "Let it go forth throughout the land that WE, who can offer 0% financing and raise the rate the next day, have determined that NOW is the time to strike. The masses need us more than ever and we can cash-in".

LOSE HERE, MAKE IT UP THERE!

Cynical - no - realistic. I was in the business and know how it used to work. Consequently, I understand all to well the need for a profitable business line in the Bank to offset losses. Citibank, as an example, has let business many customers know, that at the expiration of the current card, the interest rate will go to the prime rate (the rate the best businesses get from banks) PLUS 18.99%. Even now, with the prime rate extremely low, the effective interest factor on one of those business cards would be 22.24%. And that is for business which pay every month, and pay more than the minimum. Others are being told that they are no longer welcome, and to find another lender.

What makes this difficult is that the same approach is being taken in the retail side, with ordinary people who pay every month, with maybe a late payment (5-10 days) once in a while. They get charged a late fee of $29-$39 depending on the card, and then, if they are late at all, the card issuer raises the rate to the "Default Rate" which is between 24.99% and 31.99%. Further, in all of the card agreements the issuers state that they have the right to raise the rate to the Default Rate if, in the opinion of the issuer, the card holder has a change in financial circumstances. This translates to "if you are late on any card, even once, we can jump your rate from 6.99% to the Default Rate. The term for this provision and practice is the "Universal Default Provision".

Delinquencies are rising quickly, not because people do not want to pay, but because of a late payment the interest rate has jumped 400%, and the card holder can no longer make even the minimum payment. If he/she has more than one card, the effect is multiplied by the number of cards. Now come the collectors!

COLLECTORS - THEY DEMAND THE 30 PIECES OF SILVER - OR ELSE!

Most collectors receive a commission on what they collect. Some collectors are paid strictly on a commission basis. To make a living, the collectors will lie, insult, threaten, call family members, neighbors, ask for post-dated checks, and do many of the things that are illegal under federal or state laws, or both. (see the post dated February 8, 2009 for details).

If you get behind and the calls start "when will you be sending in you payment? If I don't get it by then I will repossess your dentures", do not panic. Keep track of who call, when the call takes place, and the basic content of the call. Again, please refer the the Feb. 8th posting for details.

Try to determine if you can enter a payment arrangement, not with an individual creditor if you have multiple cards, but with all of them. Contact "Consumer Credit Counseling Services", or "Money Management International". They are the only 2 true non-profit organizations that have good relationships with most card issuers and which charge a nominal fee for services. They DO NOT charge a large up-front fee. Run from places that do.

AGAIN, E-MAIL OR CALL ME IF YOU HAVE SPECIFIC QUESTIONS AND NEED HELP.

Author's Copyright by Richard I. Isacoff, Esq, February, 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Credit Cards Profit Margins Getting Larger

CREDIT CRISIS - BAILOUT - FINANCIAL MARKETS CRISIS - RECESSION

The Credit Card Crisis is getting closer and closer. Homeowners who mortgage payments got too high, have been using their credit cards to pay the bills. Additionally, it is the Christmas shopping season, when many shoppers use credit cards hoping to pay later for what they buy today. The Credit Card industry - BANKS - are raising their interest rates, at a time when they can borrow money from the Treasury for almost nothing, or possibly get part of the $700 billion TARP (bailout) handout.

Now, for a bit of background. To a Bank, a deposit account of any kind is a liability - it is actually borrowing money from depositors. At the same time, a loan it makes to a Borrower, with depositors money, is an asset. Traditionally, banks have based their profit margins on a 3%-5% spread or margin between deposits and loans. In fact, going back a number of years, a Savings Banker was known as a 3-6-3 Banker. Take it in at 3% (deposits) Lend it out at 6% (loans) and go home at 3 (pm). Strange, but we had gotten back to that formula, at least for mortgages made by Banks.

Banks got larger and felt that they could exploit the revolving credit market - Credit Cards. Here, the Bank (card issuer) give a credit limit that a card holder (borrower) can use and pay, use and pay etc. Because the amounts started out to be small and the debts were unsecured (no collateral), in comparison to a car loan or home mortgage, Banks charged a higher interest rate for Credit Card interest. But the spread began to increase so that Banks had gross margins (before losses and costs) of 8%-10%.

As the traffic would bear, the rates increased so that before the current crisis, it was not unusual to have a Credit Card Issuer (Bank) paying 2%-4% for deposits and charging 14%+/- for interest to average card holders. Sure, there were the promotions for 0% interest, but the majority of those "come-ons" ended with the Cardholder paying one day late, or the Credit Card issuer (Bank) holding a payment for a few extra days, so the Cardholder was charged a late fee of $39 AND HAD THE INTEREST RATE JUMP TO 19.99%-30.99%.

Now, Banks are trying to make up for bad loans in mortgages, in commercial loans, in investments for the Banks portfolio (Mortgage-Backed Securities come to mind), and financial uncertainty. So now even "good" customers are getting charged higher interest rates for keeping a balance on the Credit Card. CitiBank has just sent notices to the bulk of its Cardholders notifying them of a change in the rate. Regardless of the prior rate, the new rate is now the Prime Interest Rate (rates that the best borrowers pay to Banks) plus 8.99% WITH A MINIMUM OF 14.99%. Cardholders can opt-out of the change so long as they pay-off the card balance by the time the card renewal dates comes around. If one opts-out, at the renewal date, Citi will close the account and either demand payment in full or force the Borrower to pay the ten current rate on any balance.

Citi is not alone. If you pay regularly, but have a balance for more than 2 years, JP Morgan Chase will charge a monthly fee, and increase the minimum monthly payment from 2% of the balance to as much as 5% of that balance. The list of card issuers (Banks) goes on but the basic theme is the same: Borrow money from the Treasury or Federal Reserve Bank, paying .5%(1/2% ), or from depositors paying about the same rate, maybe .5% higher, AND LEND IT OUT TO CREDIT CARDHOLDERS FOR 15%-25%, while making the minimum payments twice what they have been. The Consumer portion of the Credit Market is going to pay for the commercial losses and bad investments - Main Street is paying for Wall Street. And do not forget about the Universal Default Rate - be late on one card, and the rest of the Cards can move your interest rate to its default rate.

This explanation is a bit over-simplified, but not much. Margins in the Credit Card business are at all-time highs. What will happen in February when all of the Christmas gift generated Credit Card bills come in? Who will be able to afford them? And, if the credit lines get closed by the Banks, how will the homeowner/credit card holders pay to live in the house?

This formula spells disaster for Cardholders (consumer and small business borrowers) and as a result will probably lead to a new round of mortgage defaults and foreclosures, and certainly a spike in Bankruptcy filings as more and more Cardholders find that a 5% minimum payment is so far out of reach that it makes no sense to even try. A good portion of my practice is in the fields of Bankruptcy and Debtor workouts, but I shudder when I think of the disruptions to families, losses of homes, the payment defaults will bring.

Congress could act to stop the gouging by Credit Card issuers (Banks), regulate the issuers which are not Banks, and provide the needed Mortgage Relief that would eliminate some of the need to use the Cards.

I encourage every Credit Cardholder to read carefully all of the information she/he receives to be certain the change, if there will be one, can be at least anticipated and plans made to deal with the "financial dislocations" (unpaid bills and blown budgets) which result.

Please feel free to e-mail through the website link at the bottom of this post if you need a calculation or advice. The service is free and the margin is less than 0% (My contribution to the cause)

Author's Copyright by Richard I. Isacoff, Esq - November 2008

http://www.isacofflaw.com/