JPMorgan Chase has dropped the $10 monthly service fee it began charging thousands of Chase cardholders earlier this year and is refunding an estimated $4.4 million to the 184,000 affected cardholders, according to a statement released by New York Attorney General Andrew Cuomo. (more…)
Popularity: 6% [?]
Lawmakers are attempting to resurrect the Credit Cardholders’ Bill of Rights legislation that died in the Senate last year in an attempt to provide relief for indebted credit card holders, reports Inside ARM (“Credit Cardholders’ Bill of Rights Gets New Life in Congress,” March 25, 2009).
Introduced by Sen. Sheldon Whitehouse, D-R.I., and Sen. Richard J. Durbin, D-Ill., H.R. 627 would protect consumers from credit card companies’ predatory lending practices by limiting their exorbitant interest rate increases.
“The standard credit card agreement gives the lender the power to bleed their customer through evolving and ever more crafty tricks and traps,” Sen. Whitehouse said in a Senate hearing last week (“Debating a Ceiling On Credit Card Fees,” The Washington Post, March 25, 2009). “Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to the edge of bankruptcy.”
The proposed legislation would apply to those companies that raise card rates higher than 15 percent plus the current yield of a 30-year treasury bond, which is currently set at 18.5 percent.
Federal Reserve regulations set to go into effect in 2010 that will target predatory lending practices by credit card issuers would be expanded under the new Credit Cardholders’ Bill of Rights:
While banking industry advocates admit that some card issuers have engaged in harmful practices , they say the industry as a whole has not overstepped its bounds and that cardholders issuers could be hurt rather than helped by the new legislation.
If the bill passes, “the market response would simply be to restrict credit, raise interest rates and fees or both,” said Kenneth Clayton, senior vice president and general counsel of the American Bankers Association’s Card Policy Council, in a letter to the Senate subcommittee. “This would significantly hurt tens of millions of Americans at the very time they can least afford it.”
Popularity: 5% [?]
With the unemployment rate now topping 8 percent and some 5.5 million Americans out of work, it’s likely that you know someone who’s been affected by the shrinking job market. In fact, a poll released last month by the Associated Press and GfK found that seven out of every 10 Americans have a friend or relative who’s recently lost a job because of the economy.
Although you probably can’t offer a job to every out-of-work person you know, what you can do is offer your skills, your resources, and your moral support to help your unemployed loved ones cope with the stress of being out of a job and help them get back in the working game.
Popularity: 8% [?]
In order to offset record delinquencies and rising charge-offs, credit card companies are continuing to hike up penalties and, in many cases, double fee amounts for certain cardholders, reports USA Today (“Bank Credit Card Fees Keep Going Up,” March 15, 2009).
By the end of 2008, almost 6 percent of all credit card accounts were at least 30 days late, the highest percentage of delinquent accounts the Federal Reserve has recorded since it began tracking credit card defaults in 1991.
These defaults are forcing card issuers to incur significant expenses both at the time of collection on delinquent accounts and later when the companies have to write off these accounts due to non-payment. To recover a portion of their projected losses before they occur, these companies are choosing to pass the buck to at-risk cardholders through higher fees and penalties.
Consumers may not see relief for penalty rates or for late or missed payments until 2010 when new Federal regulations go into effect that will alter the way credit card companies do business, The Washington Post reports (“Accelerating Debt,” March 22, 2009).
Currently, credit card issuers are getting away with charging an average late-payment penalty rate of almost 27 percent, according to a 2008 survey by advocacy group Consumer Action, and may end up collecting as much as $21 billion from cardholders as a result of these higher penalty fees, estimates Robert Hammer, chairman of the consulting firm R.K. Hammer.
Elevated fees “are a recognition of risk going up,” Hammer says. Financial institutions “are not going to watch their costs go up and take no action.”
Earlier this year, American Express raised its late fees from $29 to $39 for corporate cardholders who were 45 days late on their payments, USA Today reports.
Wells Fargo customers who withdraw funds from their credit cards inside the bank branch have seen their fees double from $10 to $20, and likewise those who withdraw credit card funds from the Wells Fargo ATM have seen their fees double from $5 to $10.
In January, JPMorgan Chase levied a $10-a-month fee on about 400,000 cardholders who had carried a high balance for more than two years and who had made little effort to pay it off. Minimum payment requirements for these customers jumped from 2 percent of their account balance to 5 percent, forcing cardholders to pay more than double what they owe on their accounts each month.
“[Card issuers] have been very much damaged by this economic downturn and tightening of credit and all the losses that their banks have faced,” said Bill Hardekopf, chief executive of LowCards.com, a credit card review site. “If you as a consumer do anything to increase your risk, you will probably very quickly be hit.”
Popularity: 5% [?]
Although the nation’s housing market is in dire straits, a different sort of real estate boom may be taking shape: mortgage loan modifications (“A Different Kind of Real Estate Boom: Loan Modifications,” the Ann Arbor Business Review, March 18, 2009).
New government loan modification incentives, a tight credit market, and millions of homeowners facing foreclosure have all created a huge unmet demand for private mortgage loan modification services.
In some cases the only way for homeowners to avoid foreclosure is to have their mortgages modified, said Gibran Nicholas of the CMPS Institute, a company that trains mortgage professionals, particularly in the states where property values have dropped sharply — Michigan, Arizona, Florida, California, Nevada — and where a greater number of homeowners now owe more money on their home than what their property is worth.
But when, Nick Demeester, a supervisor of the housing group at Michigan-based nonprofit GreenPath Debt Solutions, has been asked if there is an adequate supply of qualified mortgage loan modification companies and counselors to meet this demand, his response has been “Right now, no.”
Although his organization has seen an increase in lenders’ willingness to modify mortgage loans, Demeester said, “We have not seen a lot of deferring of principle,” one of the most effective ways lenders can modify a homeowner’s mortgage. Instead, he said, lenders have preferred to move homeowners from an adjustable-rate mortgage to a fixed-rate loan or to extend the length of the loan, from 30 to 40 years, for example.
Nicholas stated that the potential boom in loan modifications is largely dependent on whether lenders choose to take part in President Obama’s new voluntary loan modification plan — a strategy that rewards lenders with incentives for altering mortgage terms for homeowners.
If lenders begin participating in the president’s program, “The Obama plan is going to create a lot of work for loan modification services,” Nicholas said. The only question is which companies will be getting that business.
Popularity: 6% [?]
Scam artists masquerading as loan modification consultants have become more bold when it comes to deceiving homeowners, California Attorney General Edmund Brown said in a news release issued last week, (“Brown Warns Homeowners That Scam Artists Are Using Forged Letterhead of Lenders to Con Californians,” California Attorney General news release, March 9, 2009).
“Scam artists have sunk to a new low and are using the forged letterhead of lenders to con worried Californians into handing over their hard-earned money,” Brown said. “Californians should be deeply skeptical of anyone who demands money up front and makes extravagant promises that they can save their home.”
The warning from Brown comes shortly after the arrest of Anna Santos of North Hills, Calif., who was charged with money-laundering, conspiracy, and four counts of grand theft for the part she played in a loan modification scheme that stole $700,000 from homeowners.
Under First Gov, a fraudulent mortgage modification company, Santos and others solicited hundreds of homeowners by mailing them flyers that appeared to be from their lender or the government. The flyers, which featured large headers with the words “Final Notice,” falsely promised homeowners that they would receive mortgage modifications to stop foreclosure on their homes in exchange for upfront fees ranging from $1,500 to $5,000.
Once homeowners provided their mortgage information to Santos’ company, they received a “confirmation” letter and other documents that led them to believe that their mortgage lender had been notified of their mortgage loan modification.
When homeowners complained that they were still receiving foreclosure notices from their lender, homeowners were told that their mortgages had finally been renegotiated, but that their lenders needed further “good faith” payments to secure the new terms of their mortgage.
Homeowners were then instructed to submit their payments, in the form of money orders or cashier’s checks, to the fictitious “Payment Processing Department.”
None of these payments, however, were credited to homeowners’ mortgage loans, according to the news release. Instead, Santos deposited the funds into the fraudulent company’s bank accounts and then transferred the money to others involved in the mortgage modification scheme.
Many victims lost more than $6,000 in the scam before the attorney general stepped in and put an end to the group’s criminal activities.
Popularity: 5% [?]
Forget the mattress. The nation’s 8,000 credit unions, which currently offer lower interest rates on loans and higher returns on savings accounts than most commercial banks, may be the new safest place to stash your cash.
Credit unions have largely avoided the troubles of the commercial banking industry by sticking to the basics; they take in members’ deposits and lend back to them at reasonable rates, charging an average of 4.41 percent for a home-equity line of credit compared to the 4.77-percent rate charged by banks (“Safe Havens: Credit Unions Earn Some Interest,” The Wall Street Journal, March 15, 2009). And credit unions have produced, on average, 2.29-percent returns on one-year certificates of deposit, unlike the 1.74-percent returns banks currently pay their customers.
Not only have credit unions’ safe banking practices proved fruitful for their books — they held $575 billion in loans in 2008, up from $539 billion in 2007 — their financial security and customer service appeals have contributed to a significant jump in membership. In 2008, credit union membership rose to almost 90 million, up from 85 million in 2004.
“Community First [Credit Union] not only had the best rate,” said Stephen Birkelbach about his Florida credit union. “I was so impressed with the customer service and the up-front attitude I moved everything over to them.” Not only did Birkelbach switch over his personal and business accounts to Community First, he also used the credit union to refinance his mortgage at 4.25 percent in January and to finance his truck.
Of course credit unions haven’t been completely immune to the effects of the economy; 15 credit unions were liquidated last year and two credit unions closed their doors this year. And credit unions’ delinquency rates have doubled from 0.68 percent in 2006 to an estimated 1.45 percent this year due in large part to high foreclosure rates. But the average delinquency rate for banks, currently at 2.93 percent, is still more than a full percentage point higher than the delinquency numbers credit unions have seen.
Comparatively, credit unions are “solid,” says Karen Dorway, president and director of research for BauerFinancial, a firm that analyzes banks and credit unions.
Credit unions’ services and operations aren’t much different from those at commercial banks:
You can compare your local credit unions and banks at Bankrate.com/brm/safesound/ss_home.asp and at Bauerfinancial.com/btc_ratings.asp, where you can review a credit union’s financial health based on its capital ratio, loan delinquency, and liquidity numbers.
Popularity: 9% [?]