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:

• Prevent credit card companies from arbitrarily increasing interest rates on existing card balances

• End the practice of “double cycle” billing that currently allows creditors to charge interest on debt that consumers have already paid on time

• Prohibit lenders from advertising “fixed” rates unless the rates aren’t subject to change, or unless the fixed-rate period is clearly disclosed to the consumer

• Forbid lenders from applying cardholder payments to higher interest rate debts last

• Force creditors to accept payments made the following business day when the bills’ due date is a Sunday or a holiday

• Require creditors to offer more reasonable cut-off times for on-time mailed payments

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.

1. Help them sign up for unemployment benefits.
   One of the most useful things you can do for friends who have recently lost their job is help them start collecting an unemployment check. If you can guide them through the process of applying for unemployment benefits, especially if you’ve been through the experience before yourself, you may be able to help them feel a little less overwhelmed by everything they’re facing.
2. Create a job-hunt tool kit.
   Give them a nice folder or notebook cover that they can take into interviews, along with a pocket notebook that they can use for brainstorming job ideas, jotting down interview answers, or keeping networking and contact information. For something a little more personal, include a gift card for a coffee shop or bookstore, or a subway or bus pass to get them to their interviews.
3. Offer a social networking tutorial.
   Help them set up a networking profile on Facebook, LinkedIn, and Naymz. Teach them how to create their own blog or website so that they can put up their portfolio, showcase their skills, and start promoting themselves online.
4. Donate your workspace.
   Your work or home office has all the tools your out-of-work friends and family need to search for a job — free Internet access, a computer, a printer, a fax machine, maybe even a scanner or copier, and a quiet, private space at your personal desk where they can focus on their job hunt.
5. Give them a break from the job search.
   Let them know that it’s impossible and, frankly, ineffective to spend the entire day looking for a job. Offer to treat them to lunch or coffee to get them out of the house. If they’re uncomfortable accepting a free meal, you can at least advise them to take time each day to do something they wouldn’t be able to do if they were at work — go for a walk outside, see a movie, or just take a nap.

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.”

Fees Double For Some

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% [?]

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.

What to Know Before You Switch

Credit unions’ services and operations aren’t much different from those at commercial banks:

• Membership requirements: You will most likely need to have either your neighborhood, school, workplace, or church in common with a credit union to become a member. Search www.findacreditunion.com to find one near you.
• Service features: Most large credit unions offer the same range of services as banks, including checking and savings accounts and consumer loans. Some credit unions only require a $25 deposit to open up a savings account.
• Deposit insurance: All federal credit unions, as well as most state credit unions, are regulated by The National Credit Union Administration, and credit unions are federally-insured through the National Credit Union Share Insurance Fund and have the same insurance limits as 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% [?]

Sen. Bernie Sanders, I-Vt., has a plan to rescue consumers from interest-rate hikes on everything from mortgages to credit cards: He’s proposed a piece of legislation that would force all companies offering consumer loans to cap interest rates at 15 percent, according to The Bennington Banner (“Sanders Seeks Interest Rate Cap,” March 13, 2009).

Currently, credit card companies, based on a 1978 Supreme Court decision, are only required to abide by the interest-rate restrictions enforced in their home state. Many financial services companies have taken advantage of this state-by-state enforcement and established headquarters in South Dakota and Delaware, states that don’t have restrictions on how much interest banks can charge.

Sanders’ bill would overrule that court decision, imposing the 15-percent interest rate cap on credit cards and consumer loans issued in all states, and would limit the fees banks can charge. His plan is modeled after a similar interest rate cap implemented under the Federal Credit Union Act nearly 30 years ago, which was set at 15 percent and later increased to 18 percent in 1987 by the National Credit Union Administration.

“If a rate cap has worked for credit unions all these years, it could work for our friends in the financial industry as well,” Sanders said.

A New Era for Credit Card Rates

Sanders believes his legislation will be met with staunch resistance from banking industry lobbyists, but he says it’s time for financial service companies to end their “culture of greed.”

Credit card companies are taking billions of dollars in taxpayer bailout money, and, in some cases, receiving zero-interest loans from the Federal Reserve, all while ratcheting up fees and interest rates. Citigroup credit card holders, for example, have been told their rates could go as high as 30 percent if they miss a single payment, and JPMorgan Chase customers who have large balances may have to start paying $10 monthly fees.

Sanders says the free-wheeling rate hikes and fees currently implemented by banks is “loan sharking,” and these banking tactics are making it even more difficult for struggling consumers to pay down their debts.

“This is very significant because right now there are millions and millions of people who are paying outrageously high interest rates on their credit cards. We think enough is enough,” Sanders said. “At a time when things are so bad, they need relief in terms of these interest rates.”

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