A couple of years ago, Federal Reserve researchers reviewed 310,000 individual consumer credit files. Among their findings: nearly half (46%) were missing at least one credit limit on their report.
For anyone who is concerned about improving or maintaining their credit score, this is bad news... because when companies like Capital One do not report credit limits to the credit reporting agencies (Equifax, Experian and TransUnion), your credit score can drop significantly.
The first question: How does this happen?
Part of your credit score -- 30% -- is determined by how you use your credit. If you tend to maintain balances at or close to your credit limit, your score will not be as high.
Credit reporting agencies use special software to calculate your credit utilization ratios. Credit utilization refers to how much of your available credit you are using. If a company does NOT report your card limit, the software may substitute your highest balance in place of your actual limit to calculate your ratio.
So, for example, if you have a credit card with a $5,000 credit limit, and the highest monthly balance you've ever had on the card is $2,500, you have a 50% utilization ratio. However, if your most recent balance is $2,000, and the credit card company doesn't report your $5,000 limit, the scoring software may use the highest monthly balance ($2,500) to determine your limit. That would make it appear as though you are nearly maxxed out with a credit utilization ratio of 80% - which could drop your score 20 to 50 points or more.
Recent data from Experian revealed that those with the highest credit scores used only, on average, 17.8% of their available credit.
The next question - Why do companies withhold credit limits?
The answer: Competition and the almighty dollar.
With the average American carrying four credit cards with balances of $9,000-$13,000, it's becoming increasingly difficult for lenders to gain new customers. As a result, they are trying to lure existing cardholders with offers of low balance transfers, cash rebates and more.
Companies like Capital One hope to reduce "poaching" of customers by their competitors, who routinely sift through national credit bureau data looking for prospective customers. The practice of withholding credit limits artificially lowers the credit scores of their customers, theoretically making them less attractive to other lenders. And it might mean that consumers using Capital One cards are paying higher interest rates on their other credit accounts. This makes it more likely that you will remain a captive customer of Capital One and less likely to be offered the credit you deserve from other companies.
Those hurt the most by this practice are consumers with few credit accounts and those just beginning to build their credit history.
Class action lawsuits have been initiated, accusing the Big Three of deliberately shielding data despite knowing that this practice reflects negatively on credit score calculations.
Until the lawsuit is settled, consumers would be wise to review their credit files to see which companies are not reporting accurate credit limit data, and to be cautious about using these cards.
Thursday, December 27, 2007
Thursday, December 20, 2007
One Late Car Loan Payment = 98 Points
How much does one late payment on a car loan cost you?
According to a recent study by credit bureau giant Experian, just one late payment could drop your credit score by 98 points or more. The average person with no late vehicle payments has a score of 703 - those with one late payment have a score averaging 605. Twelve percent of the people in their study have at least one late auto payment on file.
If you're behind on payments more than 90 days, your score could drop to 580 or even lower.
Because of differences in credit scoring models between credit bureaus, the actual drop in score may differ from one to the next. TransUnion says that generally, one late payment can drop a score between 25 and 75 points.
Since your credit history and credit score is one of the primary determining factors in getting good rates on loans, credit cards and insurance (and may even impact whether or not you get the job you're seeking), you want to be sure you make on-time payments.
According to a recent study by credit bureau giant Experian, just one late payment could drop your credit score by 98 points or more. The average person with no late vehicle payments has a score of 703 - those with one late payment have a score averaging 605. Twelve percent of the people in their study have at least one late auto payment on file.
If you're behind on payments more than 90 days, your score could drop to 580 or even lower.
Because of differences in credit scoring models between credit bureaus, the actual drop in score may differ from one to the next. TransUnion says that generally, one late payment can drop a score between 25 and 75 points.
Since your credit history and credit score is one of the primary determining factors in getting good rates on loans, credit cards and insurance (and may even impact whether or not you get the job you're seeking), you want to be sure you make on-time payments.
Wednesday, December 19, 2007
Put a Freeze on Identity Thieves
Earlier this year, the parent company of TJ Maxx disclosed that information from nearly 46 million credit and debit cards was stolen by hackers - the biggest data breach in history. The stolen information covers transactions dating as far back as December 2002.
The company, which also owns Marshall's and other stores in the U.S. and U.K., revealed that an additional 455,000 customers who returned merchandise without their receipts also had their personal data stolen, including driver's license numbers.
Identity theft is one of the world's fastest growing crimes. A report issued in March by Gartner banking security analyst Avivah Litan estimates 15 million Americans will become victims of identity theft in 2007, up 50% from 2005. Average loss: $3,257 in 2006, up from $1,408 in 2005. With new state laws now requiring the reporting of data breaches, more than 500 incidents of such losses have been reported since February 2005 - losses involving more than 155 million records.
Fifteen percent of identity theft cases involve the opening of new accounts. Criminals use stolen information to open credit card and cell phone accounts, take out loans, and pay medical bills. The victims are left with a corrupted credit history that can take years to correct - and suffer with higher interest rates until their files are cleared.
Consumer advocates and even state governments have been advocating for greater consumer protection in the form of a credit "freeze." Put simply, a freeze prevents the credit bureaus (Experian, Equifax and TransUnion) from releasing your credit report to lenders. Because few lenders will issue credit without this information, it is a good deterrent.
Not surprisingly, this did not sit well with the bureaus, whose core business is making money by selling credit report data. The Big Three issue billions of credit reports each year, amounting to a combined annual revenue of more than $4 billion.
The Center for Responsive Politics reports that the Consumer Data Industry Association (which serves the interests of the credit bureaus) spent $1.4 million on federal lobbying in 2006, trying to fight consumer-ordered freezes and working hard to convince politicians that identity theft wasn't as big an issue as people thought. (Tell THAT to anyone who shopped at TJ Maxx!)
With growing pressure on legislators to enact consumer protection laws, TransUnion decided to offer a file freeze in all 50 states and D.C. this past October. The other two bureaus soon followed.
All three credit bureaus must be contacted for a full credit freeze. Costs are typically free for identity theft victims, and generally $10 or less for non-victims (depending on the state) each time you "freeze" or "unfreeze". This does mean that you will have to unfreeze your file each time you wish to apply for credit - but the increased protection from identity thieves is often worth it.
The company, which also owns Marshall's and other stores in the U.S. and U.K., revealed that an additional 455,000 customers who returned merchandise without their receipts also had their personal data stolen, including driver's license numbers.
Identity theft is one of the world's fastest growing crimes. A report issued in March by Gartner banking security analyst Avivah Litan estimates 15 million Americans will become victims of identity theft in 2007, up 50% from 2005. Average loss: $3,257 in 2006, up from $1,408 in 2005. With new state laws now requiring the reporting of data breaches, more than 500 incidents of such losses have been reported since February 2005 - losses involving more than 155 million records.
Fifteen percent of identity theft cases involve the opening of new accounts. Criminals use stolen information to open credit card and cell phone accounts, take out loans, and pay medical bills. The victims are left with a corrupted credit history that can take years to correct - and suffer with higher interest rates until their files are cleared.
Consumer advocates and even state governments have been advocating for greater consumer protection in the form of a credit "freeze." Put simply, a freeze prevents the credit bureaus (Experian, Equifax and TransUnion) from releasing your credit report to lenders. Because few lenders will issue credit without this information, it is a good deterrent.
Not surprisingly, this did not sit well with the bureaus, whose core business is making money by selling credit report data. The Big Three issue billions of credit reports each year, amounting to a combined annual revenue of more than $4 billion.
The Center for Responsive Politics reports that the Consumer Data Industry Association (which serves the interests of the credit bureaus) spent $1.4 million on federal lobbying in 2006, trying to fight consumer-ordered freezes and working hard to convince politicians that identity theft wasn't as big an issue as people thought. (Tell THAT to anyone who shopped at TJ Maxx!)
With growing pressure on legislators to enact consumer protection laws, TransUnion decided to offer a file freeze in all 50 states and D.C. this past October. The other two bureaus soon followed.
All three credit bureaus must be contacted for a full credit freeze. Costs are typically free for identity theft victims, and generally $10 or less for non-victims (depending on the state) each time you "freeze" or "unfreeze". This does mean that you will have to unfreeze your file each time you wish to apply for credit - but the increased protection from identity thieves is often worth it.
Tuesday, December 18, 2007
The Not-So-Free Credit Report
If you're like me, the most annoying jingles get stuck in my head. For hours.
One of the most egregious offenders is the ubiquitous jingle "free credit report dot com." (If you know the jingle, it's probably stuck in YOUR head now. Apologies.)
FreeCreditReport.com is one of more than an estimated 100 domains that lure unsuspecting customers to Web sites that charge for the same service they advertise as free. Many of these sites are run by the big three credit reporting agencies: Experian, Equifax and TransUnion. (FreeCreditReport.com is an Experian site.)
What the chorus of women crooning those five simple words don't tell you is that ordering a "free" credit report from FreeCreditReport.com "enrolls" you in a free trial of their "Triple AdvantageSM Credit Monitoring"service. If you don't cancel the "free trial membership" within the 30-day trial period, the billing ($14.95 per month) commences. (The FTC agreed to settle charges of deceptive practices against FreeCreditReport.com for $1 million; the FTC went after them a second time, but the second fine was just $300,000.)
Then there's outright deception.
An investigation by the World Privacy Forum identified 96 known misspelled, registered domains designed to exploit typing errors to send people to different sites with fee-based services. Of these sites, 28 were identified as belonging to Experian and other credit services such as MyFico at FairIsaac.
While you can go to http://www.annualcreditreport.com/ to get your free credit reports, confusing menus and solicitations can give unwary consumers more than they bargained for in the way of e-mail spam and the selling of personal information to "affiliates." And some of these online report sites contain a mandatory arbitration agreement which prevents you from taking a case against the credit bureau to court.
Consumer advocates strongly recommend calling their toll-free number instead: 877-322-8228.
Here are some tips on ordering your credit report (courtesy of Bankrate.com):
Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.
No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.
Be secure: Always be sure you're on a secured Web site when entering your personal information.
Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.
Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.
Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.
Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.
One of the most egregious offenders is the ubiquitous jingle "free credit report dot com." (If you know the jingle, it's probably stuck in YOUR head now. Apologies.)
FreeCreditReport.com is one of more than an estimated 100 domains that lure unsuspecting customers to Web sites that charge for the same service they advertise as free. Many of these sites are run by the big three credit reporting agencies: Experian, Equifax and TransUnion. (FreeCreditReport.com is an Experian site.)
What the chorus of women crooning those five simple words don't tell you is that ordering a "free" credit report from FreeCreditReport.com "enrolls" you in a free trial of their "Triple AdvantageSM Credit Monitoring"service. If you don't cancel the "free trial membership" within the 30-day trial period, the billing ($14.95 per month) commences. (The FTC agreed to settle charges of deceptive practices against FreeCreditReport.com for $1 million; the FTC went after them a second time, but the second fine was just $300,000.)
Then there's outright deception.
An investigation by the World Privacy Forum identified 96 known misspelled, registered domains designed to exploit typing errors to send people to different sites with fee-based services. Of these sites, 28 were identified as belonging to Experian and other credit services such as MyFico at FairIsaac.
While you can go to http://www.annualcreditreport.com/ to get your free credit reports, confusing menus and solicitations can give unwary consumers more than they bargained for in the way of e-mail spam and the selling of personal information to "affiliates." And some of these online report sites contain a mandatory arbitration agreement which prevents you from taking a case against the credit bureau to court.
Consumer advocates strongly recommend calling their toll-free number instead: 877-322-8228.
Here are some tips on ordering your credit report (courtesy of Bankrate.com):
Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.
No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.
Be secure: Always be sure you're on a secured Web site when entering your personal information.
Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.
Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.
Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.
Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.
Wednesday, December 5, 2007
Equifax Must Pay $2.9 Million for Destroying Woman's Credit
Yes, Virginia, there is a Santa Claus.
This year he will be visiting Angela, an Orlando woman, with an extra special gift - $2.9 million - from Equifax, one of the big three credit reporting agencies.
Angela, a medical transcription worker, tried for over a decade to have erroneous information deleted from her credit file. Seems Equifax repeatedly confused her credit information with that of a deadbeat who had a similar name. Despite her continued attempts to dispute the information in her credit report, Equifax kept passing along the wrong information.
This led to Angela's inability to get student loans, credit cards, and even ATM cards. She couldn't apply for a mortgage. She finally sued in 2003.
The jury apparently thought Equifax deserved more than just a slap on the hand. They decided that Equifax must pay her $219,000 in actual damages and $2.7 million in punitive damages for "negligent violation of federal credit-reporting laws." (Two other companies named in the suit - Experian and American Recovery Systems - opted to settle the case out of court.)
According to one expert who testified in the trial, "people have been victimized by the companies' streamlined, automated process of 'investigating' alleged credit-file errors... the process is set up to save money and boost profits rather than protect consumers."
I guess Santa will be giving Equifax a great big lump of coal this year.
This year he will be visiting Angela, an Orlando woman, with an extra special gift - $2.9 million - from Equifax, one of the big three credit reporting agencies.
Angela, a medical transcription worker, tried for over a decade to have erroneous information deleted from her credit file. Seems Equifax repeatedly confused her credit information with that of a deadbeat who had a similar name. Despite her continued attempts to dispute the information in her credit report, Equifax kept passing along the wrong information.
This led to Angela's inability to get student loans, credit cards, and even ATM cards. She couldn't apply for a mortgage. She finally sued in 2003.
The jury apparently thought Equifax deserved more than just a slap on the hand. They decided that Equifax must pay her $219,000 in actual damages and $2.7 million in punitive damages for "negligent violation of federal credit-reporting laws." (Two other companies named in the suit - Experian and American Recovery Systems - opted to settle the case out of court.)
According to one expert who testified in the trial, "people have been victimized by the companies' streamlined, automated process of 'investigating' alleged credit-file errors... the process is set up to save money and boost profits rather than protect consumers."
I guess Santa will be giving Equifax a great big lump of coal this year.
Tuesday, December 4, 2007
When Good Payers Get Screwed
You are one of the "responsible" ones.
You have a few credit cards with decent rates. And you've always paid those bills on time.
So you don't think twice about that holiday discount offer - you know, the one where you can save an additional 10-15% on your purchase if you open up a department store credit card. Your credit is good - you are approved!
The next month, you get your credit card statements and fall out of your chair. Your credit card issuers have just raised your interest rates!
How could this happen when you've always paid your bills on time?
In yet another example of abusive credit card industry practices, big financial companies have adopted policies where they can bump up a consumer's interest rate for their credit card when their FICO score declines - even if they have never paid late on that card. Mind you, your FICO can decline when you do something as simple as open a department store credit card.
Members of Congress are currently investigating this and other abusive practices. The subcommittee found that in many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores "for reasons left unexplained."
Five big financial companies issue around 80% of credit cards in the U.S. -- Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services LLC, and JPMorgan Chase & Co.
One week prior to the Congressional subcommittee's hearing on the issue earlier this year, Citigroup suddenly announced that it would no longer make "any-time-for-any-reason" increases to interest rates and fees charged to customers, at least until a credit card expires and a new one is issued (usually in two years). JPMorgan Chase followed suit, saying they also will discontinue the practice.
But legislation may still be needed to get other companies to do the same - and at least mandate that credit card issuers give customers adequate notice (at least 45 days) of terms and rate increases in language that can be understood by a fifth-grader.
You have a few credit cards with decent rates. And you've always paid those bills on time.
So you don't think twice about that holiday discount offer - you know, the one where you can save an additional 10-15% on your purchase if you open up a department store credit card. Your credit is good - you are approved!
The next month, you get your credit card statements and fall out of your chair. Your credit card issuers have just raised your interest rates!
How could this happen when you've always paid your bills on time?
In yet another example of abusive credit card industry practices, big financial companies have adopted policies where they can bump up a consumer's interest rate for their credit card when their FICO score declines - even if they have never paid late on that card. Mind you, your FICO can decline when you do something as simple as open a department store credit card.
Members of Congress are currently investigating this and other abusive practices. The subcommittee found that in many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores "for reasons left unexplained."
Five big financial companies issue around 80% of credit cards in the U.S. -- Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services LLC, and JPMorgan Chase & Co.
One week prior to the Congressional subcommittee's hearing on the issue earlier this year, Citigroup suddenly announced that it would no longer make "any-time-for-any-reason" increases to interest rates and fees charged to customers, at least until a credit card expires and a new one is issued (usually in two years). JPMorgan Chase followed suit, saying they also will discontinue the practice.
But legislation may still be needed to get other companies to do the same - and at least mandate that credit card issuers give customers adequate notice (at least 45 days) of terms and rate increases in language that can be understood by a fifth-grader.
Thursday, November 29, 2007
Consumers Slam Debt Firms with Lawsuits
Not so very long ago, ruthless debt collectors used humiliating and harassing methods to try to squeeze payments out of consumers. Embarrassing post cards, abusive calls at all hours of the day and night, calls to the workplace, calls to friends and family members, and publicly published lists of debtors were among the tactics that collection agencies used to strongarm people into forking over money.
The Fair Debt Collection Practices Act, a statute added in 1978 as part of the Consumer Credit Protection Act to protect consumers from abusive, deceptive and unfair debt collection practices, is at the center of a wave of lawsuits by consumers that have been dragging debt collection lawyers into court for violating the law.
Among the reasons: mistakes in court filings made by those who purchase debt from creditors but frequently lack enough information to avoid making false statements in pleadings, and debt collectors that are filing cases with inaccurate information or filing after the debt's statute of limitations has expired.
There were more than 69,000 consumer complaints made to the FTC about debt collectors in 2006, which is more complaints than the FTC receives about any other specific industry. This was an overall increase of 3.8% over 2005.
How does this impact you - the consumer?
Recent court decisions in fair debt cases are causing a great deal of anxiety among debt collectors and creditors. Increasingly, debt-collection lawyers are relying on what's called the "bona fide error defense" - claims that the mistakes are unintentional and occurred in spite of the debt collector's best efforts to avoid them. But this defense is being successfully challenged in a number of cases. What exactly is a "bona fide error"? This remains unclear.
The National Law Journal reports that a recent federal court decision that denied litigation immunity to a debt-collection law firm creates more risk for debt-collection lawyers.
The FTC is currently examining the law, which hasn't had a major overhaul in its 30-year history, to see if it is out of step with industry developments. Stay tuned.
The Fair Debt Collection Practices Act, a statute added in 1978 as part of the Consumer Credit Protection Act to protect consumers from abusive, deceptive and unfair debt collection practices, is at the center of a wave of lawsuits by consumers that have been dragging debt collection lawyers into court for violating the law.
Among the reasons: mistakes in court filings made by those who purchase debt from creditors but frequently lack enough information to avoid making false statements in pleadings, and debt collectors that are filing cases with inaccurate information or filing after the debt's statute of limitations has expired.
There were more than 69,000 consumer complaints made to the FTC about debt collectors in 2006, which is more complaints than the FTC receives about any other specific industry. This was an overall increase of 3.8% over 2005.
How does this impact you - the consumer?
Recent court decisions in fair debt cases are causing a great deal of anxiety among debt collectors and creditors. Increasingly, debt-collection lawyers are relying on what's called the "bona fide error defense" - claims that the mistakes are unintentional and occurred in spite of the debt collector's best efforts to avoid them. But this defense is being successfully challenged in a number of cases. What exactly is a "bona fide error"? This remains unclear.
The National Law Journal reports that a recent federal court decision that denied litigation immunity to a debt-collection law firm creates more risk for debt-collection lawyers.
The FTC is currently examining the law, which hasn't had a major overhaul in its 30-year history, to see if it is out of step with industry developments. Stay tuned.
Wednesday, November 28, 2007
Warning! Potential Identity Theft Scam
A colleague of mine received a telephone call last night from a person who asked for her by name, then told her that he was calling on behalf of Bank of America ("BOA"). The caller said that BOA was going to provide her with a "complimentary" copy of her credit report in the next 72 days. She told them she was not interested and did not authorize them to request her report. The caller persisted, saying, "But it is complimentary." She informed him that she didn't care and that they could pay her $100 and she still would not authorize them to send her report. The caller became agitated, said "whatever" and hung up.
She immediately called BOA to inquire whether they were actually offering this service. The customer service representative checked the bank's services to see if this was a legitimate offer, and then told her to file a complaint with the FTC because this is not a service being offered by BOA.
The caller I.D. number was "IC 307-737-9533." (She said she had been receiving telephone calls from the same or very similar number every day for the past few weeks, but no one was ever on the other end of the line until last night).
As part of the Fair and Accurate Credit Transactions Act (FACTA), everyone is entitled to obtain a free copy of his or her credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Experian, Equifax and TransUnion). Simply go to http://www.annualcreditreport.com/.
Remember, you should never provide your personal information to any other company or person for requesting free credit reports.
She immediately called BOA to inquire whether they were actually offering this service. The customer service representative checked the bank's services to see if this was a legitimate offer, and then told her to file a complaint with the FTC because this is not a service being offered by BOA.
The caller I.D. number was "IC 307-737-9533." (She said she had been receiving telephone calls from the same or very similar number every day for the past few weeks, but no one was ever on the other end of the line until last night).
As part of the Fair and Accurate Credit Transactions Act (FACTA), everyone is entitled to obtain a free copy of his or her credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Experian, Equifax and TransUnion). Simply go to http://www.annualcreditreport.com/.
Remember, you should never provide your personal information to any other company or person for requesting free credit reports.
Wednesday, November 7, 2007
Beware of Predatory Credit Cards
So let's say you're one of the millions of Americans with weak or non-existent credit. You're desperate to rebuild your credit history, since you know that poor credit leads to higher rates for mortgages, auto loans, insurance and can even affect whether or not you land that job you want. You've heard that one way to rebuild a weak or non-existent credit history is by signing up for a credit card and making small purchases, repaying the debt on time every month.
Somehow these banks seem to know that you want credit - you've received e-mails and offers in the mail. Lured in by promises of credit lines up to $2,000, you apply for a credit card. Congratulations- you're approved! You're a little disappointed that the limit they give you is just $250. It wasn't as much as you'd hoped for, but it's a start.
What you probably didn't do, though, is ask about the TERMS. And you soon discover that your $250 credit line is actually much less, because by merely signing up for the card, you incurred $178 of instant debt due to all those fees that you didn't know you'd be responsible for. There's a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee. If you didn't realize that your actual buying power was really just $72, you might buy something that causes you to go over your limit - which, of course, generates yet another fee.
This is just one example of "fee harvesting," a practice by which credit card companies pile on junk fees to unsuspecting consumers - typically low-income, fixed-income and minorities. It's a lucrative business, generating millions in fees for companies and billions of dollars of debt for consumers.
A report issued by the National Consumer Law Center details how banks and marketers take advantage of inadequate laws and weak oversight by regulators by selling these predatory cards. The biggest offenders named in the report include CompuCredit, Urban Trust Bank, South Dakota-based First Premier and First National of Pierre, and Delaware-based First Bank of Delaware and Applied Bank (formerly known as Cross Country Bank), Capital One and HSBC.
They'll tell you their mission is bringing affordable banking services to the underserved. But what they are really doing is profiting from the poor and desperate.
The root of the problem lies in regulatory and legal loopholes that allow this practice to continue. I don't advocate cutting off people's access to credit. Rather, we need tougher federal controls. Until Congress acts to protect consumers from fee harvesting and other predatory practices, you must protect yourself.
The smaller the print, the more important it is to read it. Before you agree to anything, ask to read the terms. If you don't understand the terms, ask someone you trust to explain them to you.
Remember, if it seems too good to be true, it probably is.
Listen to NPR's report: Low Wage America - Credit Card Companies Abuse the Unwitting.
Somehow these banks seem to know that you want credit - you've received e-mails and offers in the mail. Lured in by promises of credit lines up to $2,000, you apply for a credit card. Congratulations- you're approved! You're a little disappointed that the limit they give you is just $250. It wasn't as much as you'd hoped for, but it's a start.
What you probably didn't do, though, is ask about the TERMS. And you soon discover that your $250 credit line is actually much less, because by merely signing up for the card, you incurred $178 of instant debt due to all those fees that you didn't know you'd be responsible for. There's a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee. If you didn't realize that your actual buying power was really just $72, you might buy something that causes you to go over your limit - which, of course, generates yet another fee.
This is just one example of "fee harvesting," a practice by which credit card companies pile on junk fees to unsuspecting consumers - typically low-income, fixed-income and minorities. It's a lucrative business, generating millions in fees for companies and billions of dollars of debt for consumers.
A report issued by the National Consumer Law Center details how banks and marketers take advantage of inadequate laws and weak oversight by regulators by selling these predatory cards. The biggest offenders named in the report include CompuCredit, Urban Trust Bank, South Dakota-based First Premier and First National of Pierre, and Delaware-based First Bank of Delaware and Applied Bank (formerly known as Cross Country Bank), Capital One and HSBC.
They'll tell you their mission is bringing affordable banking services to the underserved. But what they are really doing is profiting from the poor and desperate.
The root of the problem lies in regulatory and legal loopholes that allow this practice to continue. I don't advocate cutting off people's access to credit. Rather, we need tougher federal controls. Until Congress acts to protect consumers from fee harvesting and other predatory practices, you must protect yourself.
The smaller the print, the more important it is to read it. Before you agree to anything, ask to read the terms. If you don't understand the terms, ask someone you trust to explain them to you.
Remember, if it seems too good to be true, it probably is.
Listen to NPR's report: Low Wage America - Credit Card Companies Abuse the Unwitting.
Monday, November 5, 2007
$3,000 Credit Limit and No Job
When I went to college, I was armed with a word processor (because I couldn't afford one of the newfangled computers), flannel jeans (I was a Florida girl who couldn't wait to experience her first Boston winter) and a toaster oven (for making toast and baking cookies). What I didn't bring, though, was any lick of common sense about credit or credit cards or interest rates. (Not entirely my fault - growing up, my parents were very hush-hush about finances. Talking about finances was like talking about that crazy mouthy aunt with chin hairs - you just didn't do it, but if you had to, it was always in a low voice and the topic was always dropped after a minute or two.)
So naturally, being a broke college student, I signed up for several credit cards. The credit card companies were everywhere on campus. What a deal! Not only did I get credit cards, I got some cool T-shirts and water bottles too.
I was thrilled when the credit cards came in the mail. I felt so "grown up." And the amount of money I could charge - one card had a $3,000 limit! - boggled my mind. Free money! I got my hair cut at a tony place on Newbury Street. I developed an obsession with expensive perfume. I treated my other broke college friends to dinner. I charged right up to my $3,000 limit.
When the bill came, it was all I could do to make the minimum payments. I had a job, but the majority of that had to go toward my work-study commitment. Long story short - I DID pay off the credit card - but it took YEARS to do so.
When I read "The dirty secret of campus credit cards" in BusinessWeek, it brought back a lot of memories and questions. Why in the world would a credit card company give a $3,000 limit to a college student who stated on her credit application that she had no job? But marketing to college students - easy targets because of their limited financial resources and naivete - has been part of campus culture for decades.
Why? Colleges and universities benefit from "sweetheart deal" kickbacks. We're not just talking free dinners. We're talking about secretive deals worth $20 million dollars per university. Schools earn "a set fee for each student, alumnus, or professor who signs up for a credit card, as well as a percentage of overall charges made on the cards." In exchange, the school gives credit card companies access to student lists and exclusive marketing privileges at school events.
Can you blame the schools? State schools are having an especially hard time as they deal with budget cuts. But in an era when more than 85 million people have joined the national Do Not Call list (and that figure is from 2005!), why are secret deals being made to release student information to the types of companies that many of us have chosen to avoid?
Well, that may stop. State legislatures in New York, Texas and Oklahoma voted earlier this year to clamp down on marketing credit cards to college students. And I understand that this is an issue that Congress will be examining in greater depth.
Don't get me wrong. I am not against issuing credit to college students or stifling capitalism. I do think, though, that college students - and many adults too - don't understand the increasingly complicated terms and conditions of credit cards, or even the basics of how they impact their credit and financial health. All I'm saying is - let's do this responsibly, and include in their education not just English, calculus and biology, but the ability to understand and manage credit cards wisely.
So naturally, being a broke college student, I signed up for several credit cards. The credit card companies were everywhere on campus. What a deal! Not only did I get credit cards, I got some cool T-shirts and water bottles too.
I was thrilled when the credit cards came in the mail. I felt so "grown up." And the amount of money I could charge - one card had a $3,000 limit! - boggled my mind. Free money! I got my hair cut at a tony place on Newbury Street. I developed an obsession with expensive perfume. I treated my other broke college friends to dinner. I charged right up to my $3,000 limit.
When the bill came, it was all I could do to make the minimum payments. I had a job, but the majority of that had to go toward my work-study commitment. Long story short - I DID pay off the credit card - but it took YEARS to do so.
When I read "The dirty secret of campus credit cards" in BusinessWeek, it brought back a lot of memories and questions. Why in the world would a credit card company give a $3,000 limit to a college student who stated on her credit application that she had no job? But marketing to college students - easy targets because of their limited financial resources and naivete - has been part of campus culture for decades.
Why? Colleges and universities benefit from "sweetheart deal" kickbacks. We're not just talking free dinners. We're talking about secretive deals worth $20 million dollars per university. Schools earn "a set fee for each student, alumnus, or professor who signs up for a credit card, as well as a percentage of overall charges made on the cards." In exchange, the school gives credit card companies access to student lists and exclusive marketing privileges at school events.
Can you blame the schools? State schools are having an especially hard time as they deal with budget cuts. But in an era when more than 85 million people have joined the national Do Not Call list (and that figure is from 2005!), why are secret deals being made to release student information to the types of companies that many of us have chosen to avoid?
Well, that may stop. State legislatures in New York, Texas and Oklahoma voted earlier this year to clamp down on marketing credit cards to college students. And I understand that this is an issue that Congress will be examining in greater depth.
Don't get me wrong. I am not against issuing credit to college students or stifling capitalism. I do think, though, that college students - and many adults too - don't understand the increasingly complicated terms and conditions of credit cards, or even the basics of how they impact their credit and financial health. All I'm saying is - let's do this responsibly, and include in their education not just English, calculus and biology, but the ability to understand and manage credit cards wisely.
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