Following a U.S. Supreme Court decision, the 2nd Circuit Court of Appeals has overturned a ruling for a bankruptcy lawyer who claimed a federal bankruptcy law violated his First Amendment free-speech rights by prohibiting him from advising clients to take on more debt before filing for bankruptcy (“Bankruptcy Lawyer Loses Free-Speech Challenge,” Courthouse News Service, May 25, 2010).

Attorney Zenas Zelotes, who offers consumer bankruptcy services in Connecticut and Nevada, challenged the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) in Connecticut federal court, arguing that the law stopped him from exercising his First Amendment right to freely advise clients in areas such as bankruptcy, debt consolidation, debt management, and debt relief.

The federal judge in Connecticut agreed, finding BAPCPA to be unconstitutional because it prevents attorneys from “advising clients to take lawful, prudent actions as well as abusive ones.”

But while the Zelotes decision was on appeal with the 2nd Circuit Court, the U.S. Supreme Court in March handed down a ruling in another case, Milavetz, Gallop & Milavetz v. United States, which upheld an 8th Circuit Court‘s ruling that bankruptcy attorneys are “debt relief agencies” under federal law.

The Supreme Court’s decision narrowly interprets BAPCPA as a safeguard against debt relief attorneys and agencies from advising clients to “load up” on debt before declaring bankruptcy, in expectation of having those debts discharged.

The high court’s decision reinstated a ban on legal advisories that attempt to exploit bankruptcy protections, prohibiting attorneys from advising consumers to take on additional debt before filing for bankruptcy. The ruling also requires bankruptcy attorneys to identify themselves as “debt relief agencies.”

Justice Sonia Sotomayor, writing for the court, explained, “It is hard to see how a rule that narrowly prohibits an attorney from affirmatively advising a client to commit this type of abusive prefiling conduct could chill attorney speech or inhibit the attorney-client relationship” (“Justices Revive Rule on Firms’ Bankruptcy Advice,” Courthouse News Service, March 8, 2010).

The Supreme Court opinion specified that the type of abuse banned by the bankruptcy provision “will generally consist of advice to ‘load up’ on debt with the expectation of obtaining its discharge.”

In following the Supreme Court decision, the 2nd Circuit Court noted that “the statute does not prohibit attorneys or other debt relief agencies from advising clients to incur more debt in advance of bankruptcy when doing so serves legitimate purposes, nor does BAPCPA restrict ‘frank discussion’ between attorney and client about incurring debt.”

Read the court decisions:
United States v. Zelotes. Opinion, U.S. Court of Appeals for the Second Circuit. Docket no. 07-1853-cv. Decided May 18, 2010.

Zelotes v. United States. Ruling on motion to dismiss, U.S. District Court for the District of Connecticut. Case no. 3:05cv1591 (PCD). Filed November 7, 2006.

Milavetz, Gallop & Milavetz et al. v. United States. Opinion, U.S. Supreme Court. Docket no. 08-1119. Decided March 8, 2010.

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A real estate broker from Orange County, Calif., her former boyfriend, and his brother have been found guilty of intentionally defaulting on mortgage loans for 35 properties in order to steal more than $17 million from home loan lenders.

Kathy Chen, 48; Richard Salgado Gonzalez, 59; and Daniel Gonzalez, 56, were charged in June 2009 with 154 felony counts, including conspiracy, forgery, recording false documents, identity theft, and elder financial exploitation. Chen was arrested June 1, but Richard and Daniel Gonzalez evaded capture.

On May 17, Chen was found guilty on 136 of the felony counts and faces up to 111 years in prison at her July sentencing. Richard and Daniel Gonzalez are awaiting trial as fugitives believed to be hiding in Puerto Vallarta, Mexico (“Real Estate Broker Guilty in Multimillion-Dollar Fraud,” The Orange County Register, May 18, 2010).

After the properties were purchased, the trio acted as an escrow company and made initial payments on some of the home loans in order to deflect suspicion. Then, after intentionally defaulting on the mortgages, the defendants’ plan was to keep the excess money (“Real Estate Broker, 2 Others Accused in $17.5M Fraud Scheme,” KTLA TV, June 2, 2009).

If Richard and Daniel Gonzalez are brought back to the United States and convicted, they each face up to 109 years in prison.

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International travel is already expensive: pricey airfares; costly hotels; rental cars, rail passes, and taxis; and exchange rates that continually bounce up and down. When you’re traveling, you don’t need the added shock of coming home after a long trip only to see hundreds of dollars worth of fees on your credit card and bank statements.

But that’s just the type of thing that can happen to Americans who use credit cards and make ATM withdrawals when traveling abroad. Banks and credit card issuers often charge currency-conversion fees of up to 3 percent for each transaction, and banks can charge steep fees for ATM withdrawals in foreign countries.

2-for-1 Transaction Fees on Credit Cards and ATM Cards

Credit cards typically incur two per-transaction fees in foreign countries. The first is a 1-percent transaction fee that card issuers like Visa and MasterCard charge to convert foreign currency to U.S. dollars. The second, a completely arbitrary usage fee charged by some banks that issue credit cards, can be up to 2 percent of each transaction.

“They’re charging an extra 2 percent for absolutely no reason whatever, just because they believe they can,” said Gary Steiger, who runs the website Free Frequent Flyer Miles, which tracks and analyzes programs and offers from banks and credit card issuers.

ATM cards also typically incur two fees: a withdrawal fee as high as $5, plus an international transaction fee commonly ranging anywhere from 1 to 3 percent or $10, whichever is greater.

Travelers Have Options When It Comes to Paying Fees

Although fees from using credit cards and ATMs abroad can be steep, it’s possible to decrease or, in some cases, even eliminate them.

Travelers can avoid a credit card’s arbitrary 2-percent usage fee if you plan ahead and get a fee-free card prior to going on vacation. Some of these fee-free cards go even further and don’t charge the 1-percent transaction fee for currency conversions.

You can also minimize or even eliminate fees from ATM withdrawals by using an ATM card from certain U.S. banks at an international partner bank’s ATM kiosk.

Best and Worst Credit Cards for International Travel

Worst: Bank of America, Chase, and Citi all charge 3 percent in foreign transaction fees; American Express charges 2.7 percent; and Discover charges 2 percent, though it isn’t as widely accepted in other countries.

Best: USAA World MasterCard and American Express cards from Fidelity charge only 1 percent for foreign transactions.

Best and Worst ATM Cards for International Travel

Worst: Bank of America charges a $5 withdrawal fee (waived for ATM withdrawals at banks participating in the Global ATM Alliance) plus a 1- to 3-percent international transaction fee; Chase adds on a $3 withdrawal fee for non-Chase withdrawals, plus a 3-percent conversion fee; and Citi assesses a 3-percent withdrawal fee (after conversion to U.S. dollars), plus a $1.50 transaction fee.

Best: Bank of Internet, Charles Schwab, and American Bank don’t charge any fees for ATM withdrawals at foreign banks.

Tips for Using Credit Cards and ATM Cards Outside the U.S.

• When signing up for a lower-fee credit card for international travel, beware of some cards that may make up for lower fees with higher exchange rates.
• Avoid using your credit card for cash advances at ATMs. The interest rate on the advance can be as high as 25 percent.
• Take a backup credit card with you. There’s not a single card that’s accepted everywhere.
• Notify your credit card issuer that you’re traveling abroad. Charges in foreign countries may raise security red flags with your card issuer, and a freeze could be placed on your account.
• Make a list of your banks’ international phone numbers, and take them with you wherever you go.
• Be wary of foreign purchases at home. Card issuers have changed the definition of a foreign transaction to include those made or processed outside the U.S. (even if you make them from your computer at home), and you could see fees for online purchases, for example, if the merchant is in another country.

 

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Credit cards can be useful tools for making big purchases without carrying around a lot of cash and can help you out in tough spots like financial emergencies. However, they can also put you in a tough spot if you’re not an informed user and can become difficult barriers to a good credit score if you don’t know how to play the credit card game.

But there are four smart things you can do to increase your awareness, protect yourself and your credit score, and position yourself to take fuller advantage of the benefits that wise credit card use can provide.

1. Open mail and e-mail from credit card companies immediately.

The Credit CARD Act of 2009 requires credit card companies to send out notices at least 45 days in advance of making any significant change in the terms of your account, including things like interest-rate hikes or increases to late payment fees.

Paying attention to communications from your credit card companies allows you to opt out of any changes you disagree with. Unfortunately, opting out typically means choosing to cancel the credit card account and pay off any balance under the account’s existing terms, usually within five years — which may not be a bad thing if you’re staring down the barrel of a 10-percent interest-rate hike.

2. Use inactive credit card accounts once every three months.

Credit card issuers don’t like never- or rarely-used credit cards because they represent zero profit. Check with your credit card company or read your account terms because card issuers will close dormant credit card accounts or issue inactivity fees. Citi, for example, charges annual fees of $30 to $90 for some credit card accounts if you don’t spend enough during the year.

But closing a zero-balance account if you don’t use it may not be a good choice either. Among other consequences, closing a credit card account will cause a jump in your debt-to-credit limit ratio that could cause your credit score to nosedive — at least temporarily, but long enough to potentially hurt terms for any loans you might be trying to get.

Instead, use your inactive credit card account once a quarter, even for small purchases like a tank of gas, and pay it off immediately when you get the statement. This occasional use will be good for the bank and good for you. Banks make from 1–3 percent on all credit card transactions, and paying off credit card accounts on time and in full is good for your credit rating.

3. Spend credit card reward points.

If you have a rewards credit card, you might want to consider redeeming your points as soon as you can. Credit card companies are looking for ways to cut expenses in this tight economy, and because they typically reserve the right to change reward program details at any time, some are cutting back rewards programs or making it more difficult to spend rewards points.

For example, Citi has changed its ThankYou Network program and imposed an expiration date on points, while Chase Freedom cardholders have lost control over which spending categories get the 3-percent cash-back rate.

Check with your credit card company, and stay on top of your rewards programs. You may be better off redeeming rewards before your credit card issuers change the reward terms.

4. Beware of over-limit protection offers.

Over-limit protection for credit card purchases can seem like a good idea. But what card issuers mean by is allowing you to make bad decisions and spend over your limit, which almost always incurs a fee. Capitol One, for example, charges $29 per over-limit transaction for the “protection” service.

With the passage of the Credit CARD Act, credit card companies can no longer charge you over-limit fees for purchases that exceed your account’s limit unless you opt into an over-limit protection program. Don’t opt in. Without your opt-in, your credit card company will just decline your transaction when you don’t have enough credit left to spend, which actually does more to protect you and your credit score than allowing you to spend more than you should.

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There are a lot of coupon-clipping websites that offer to help consumers save a little here and there off online purchases. It’s one of the things that makes the Internet so consumer-friendly.

But there are so many coupon-clipping websites that offer the exact same service that determining which ones offer reliable deals and which ones don’t has become a difficult proposition. It’s one of the things that makes the Internet so consumer-unfriendly.

That’s why we’ve put together a list of five reliable coupon-clipping websites and explained their differences, because it’s what makes them different that makes them better.

Coupons.com

Coupons.com offers the same comprehensive coupon variety as Sunday newspapers with the convenience of a simple website layout that supports easy online browsing.

ZIP code–specific coupons are available, and coupons can be printed out for in-store use if you download and install the website’s coupon-printing software. One word of caution: Not all retailers accept online coupons, so check with stores first before using them.

CouponCabin.com

CouponCabin serves up fresh deals updated three times a day to keep the hottest discounts pouring in.

Sections for “most-used coupons” and “favorite deals” highlight the most popular ongoing deals in a staff-verified database of discounts. You can also subscribe to a weekly e-mail newsletter delivered on Mondays that highlights the latest coupons.

CouponMom.com

Coupon Mom’s simple site design, useful interface, and reliable coupons make saving quick and easy.

Online coupon codes, printout coupons, and free samples are among the types of deals you’ll find in a largely offer- and banner-free website design. The virtual coupon organizer aggregates reliable coupons from several sources, and you can subscribe to e-mails that alert you to deals from preferred merchants or even particular consumer goods you’re interested in.

RetailMeNot.com

At RetailMeNot, a dedicated user community separates good deals from bad and ensures incredible reliability.

Users indicate whether a coupon code worked for them and can add comments that let other users know when the last time a code was reported as working and if there were any issues with the code. Subscribers to an e-mail newsletter can get notifications of new codes for favorite retailers.

SmartSource.com

SmartSource’s wide selection of coupons combined with information on local store sales helps maximize consumer savings.

A wide selection of coupons and information on store sales can be customized by ZIP code and, as at Coupons.com, coupons can be printed out for in-store use with the website’s coupon-printing software. But the same caution applies: Not all retailers accept online coupons, so check with stores first before using them.

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Examiners with the Chicago Federal Reserve failed to regulate risky lending activities which led to such severe losses at two banks in Indiana and Michigan that they were closed, said Federal Reserve Inspector General Elizabeth Coleman (“Chicago Federal Reserve Failed to Halt Speculative Bank Lending,” BusinessWeek, May 5, 2010).

An Office of Inspector General report criticized Chicago Fed supervisors for allowing the Irwin Union Bank and Trust of Columbus, Ind., to excessively extend credit to subprime mortgage borrowers with insufficient collateral. Supervisors were also cited for allowing the Warren Bank of Warren, Mich., to concentrate too heavily on investments in commercial real estate. Both banks eventually collapsed under the weight of dramatic asset losses.

Irwin Union Bank nearly tripled in size between 2000 and 2005 by offering borrowers subprime loans worth as much as 125 percent of their home’s value before being closed by the Indiana Department of Financial Institutions in September 2009.

Coleman’s report found that Chicago Fed supervisors missed “multiple opportunities between 2002 and 2009 to take additional and stronger supervisory actions,” in order to salvage the bank.

Irwin Union Bank eventually lost more than 20 percent of $2.7 billion in total assets, a failure that cost the FDIC’s deposit insurance fund $552.4 million.

In 2004, Warren Bank held commercial real estate loans equaling 790 percent of total capital and 70 percent of total assets before being closed by the Michigan Office of Financial and Insurance Regulation in October 2009.

Such a high concentration of assets resulted from poor oversight by Chicago Fed supervisors combined with bank leadership that was “overly optimistic about the bank’s ability to withstand the economic downturn and [therefore] did not adequately manage the risks associated with its loan portfolio,” the report stated.

Warren Bank eventually lost more than 52 percent of $530.9 million in total assets, a failure that cost the FDIC’s deposit insurance fund $276.3 million.

In a letter attached to the Inspector General’s report, Patrick Parkinson, the Fed’s bank supervisor in Washington, D.C., agreed with Coleman’s analysis of the bank failures, stating “additional and stronger supervisory actions may have been warranted.”

But Brian Olasov, a managing director at the McKenna Long & Aldridge law firm in Atlanta, told BusinessWeek that the Chicago Fed wasn’t the only party responsible for the collapse of the banks.

“These loan products were in demand and performing well right up until the music stopped. In retrospect, bank lenders, capital market investors, and regulators all got it wrong,” Olasov said.

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The state of Colorado has filed a consumer protection lawsuit in Denver District Court against Denver-based American Mortgage Consultants, owner Oliver Paul Maldonado, and principal employee Santiago Fabian Pineda, on suspicion of fraud and deceptive advertising, announced Colorado Attorney General John Suthers (“Suthers Files Charges in Alleged Loan Modification Scam,” INDenver Times, April 29, 2010).

AMC is alleged to have used deceptive advertising to ensnare approximately 170 consumers in a web of fraudulent loan modification and foreclosure relief services between January 2009 and March 2010, according to the complaint filed by Suthers’ office on April 29.

Advertising during the months in question included telephone marketing, direct mail, radio advertisements, and Web marketing. Additionally, video of President Obama and materials form the Federal Deposit Insurance Corporation were used to allegedly mislead consumers into thinking AMC was affiliated or partnered with the federal government.

The company is accused of charging their customers an upfront fee of $2,500 — a practice that is illegal under Colorado law — in exchange for promises to help them renegotiate or modify their home loans. However, according to the complaint, AMC did little more than ship its customer’s loan modification applications to a company in Ohio for processing.

In light of the lawsuit, Suthers encouraged Colorado residents facing foreclosures or considering foreclosure relief to first get information and help — including consumer rights and legal information — from the free Colorado Foreclosure Hotline at (877) 601-HOPE (4673).

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