Consumers Skeptical About New Credit Card Regulations

After years of complaints against the credit card companies for unfair and deceptive practices, the federal government approved sweeping new restrictions on credit card companies on Dec. 19. Consumer responses to the measure, however, show that many remain skeptical about the long-term benefits of the changes and strongly disapprove of the 18-month delay in implementation.

Many comments echoed the sentiments of one poster: "When was the last time Barnes & Noble called you up and said they wanted more money for the book they sold you last month? Have you EVER paid in full for a computer or a cd player or a shirt and later received a letter telling you the price was actually 500 or 1,000 percent more than what you had agreed to pay and you had better fork over the bucks? Credit card companies are not our friends; they should not be taking taxpayer hand-outs; they should not be permitted to abuse the citizens of this country. Further, I am SHOCKED that the new rules will not take effect for eighteen months. There is literally NO COST involved in effecting them NOW."

Another wrote: "These rules and regulations need to be implemented NOW, not almost two years from now. What a joke as the ripoff continues. How come the Wall Street bailouts always take place immediately, why do new taxes always take place immediately, but when it comes to given [sic] Main Street some help it always takes years from the time they pass the new rules."

Under the new regulations, banks, credit unions and savings associations are prohibited from raising interest rates on existing balances unless a payment was received more than 30 days late; charging a late fee if a borrower was given less than 21 days to pay; and applying payments in a way that would result in debts with higher interest rates getting repaid last. It also protects consumers against predatory credit cards that reduce available credit to subprime borrowers through fee harvesting.

"I believe the eighteen month grace period was a compromise," one commenter wrote. "This timing could make the regulations toothless. The potential is the banks will cull all accounts, reduce or eliminate available credit for millions, raise interest rates to 29.99% or higher for most people, raise late and overdraft fees to $50 or more, and use their current “contract” to extract as many dollars as possible from cardholders. When the new regulations go in effect they will have us where they want us."

The issue of consumer protection from credit card industry practices will continue to remain a priority in the Senate, according to Sen. Christopher Dodd (D-Conn.). In a recent Washington Post article, he is quoted as saying, "To restore our economic stability, we must stop credit card companies from ripping off their customers and driving them into deeper and deeper debt…While I expect the Federal Reserve's rules to be a significant step forward in addressing this issue, I believe we need a strong law in place to protect consumers from unfair credit card practices including 'anytime any reason' rate increases, universal default, excessive and unreasonable fees, and marketing targeted to young consumers."

The $970 billion industry stands to lose about $10-12 billion in annual revenue as a result of these changes. The banks have provided dire warnings about the measures, citing a probable decrease in the amount of available credit that would be extended to consumers and increased difficulty in qualifying for new credit.

But most agree with one poster's sentiments that the changes are long overdue: "Too little too late. Where was Congress when these scummy vultures were robbing the American public for the past 10-20 years? And why do they have 18 months to continue robbing us? Maybe to have more time to find loopholes and new ways to screw the public? Look, it's no secret any more that a large part of most banks revenues and profits come from usurous [sic] fees and bogus penalties. They have to find a way to continue to rob the public along these lines. And Congress has to give them time to find those ways so the campaign contributions continue to roll in."

Democratic Congress Passes Credit Cardholders' Bill of Rights

For anyone who has experienced universal default, where a credit card company raises its interest rate based on any change in your credit report, even if that change is unrelated to that company… or wondered why their payment due date has shrunk from 21 or more days to just 14… for anyone who has paid off their credit card in full and then got a bill the next month for interest accrued the previous month… for anyone who has been upset that payments are always applied to the lower-interest balance first… good news is on the horizon.

Yesterday, 228 Democrats and 84 Republicans in the U.S. House of Representatives voted to support The Credit Cardholders' Bill of Rights (H.R. 5244). The bill now heads to the U.S. Senate for its consideration.

Not unexpectedly, banks such as Bank of America, JPMorgan Chase, Citigroup, Capital One Financial Corp and Discover Financial Services oppose the bill. With the markets in turmoil and drowning from the collapse of the U.S. housing and subprime mortgage markets, the legislation could limit their credit card revenue by limiting the fees they can charge for practices that consumer advocates say are designed to hurt or deceive consumers. The White House also opposed the legislation, which seeks to curb unfair and deceptive credit card practices, saying it would constrain banks' ability to price risk.

Summary of the H.R. 5244 bill

111 Republicans and 1 Democrat voted "nay." How did your representative vote on H.R. 5244?

Do Medical Bills Hurt Your Credit Score?

MarketWatch recently addressed the issue of unpaid medical bills and the effect that those unpaid bills have on one's personal credit. The reader asked if medical bills are treated the same as outstanding credit card debt and whether it affects the FICO score.

According to the MarketWatch reporter, medical bills are treated differently than credit card debt and as a result, "don't always have a direct effect on your FICO score." That's because medical debt is not always reported to the credit bureaus – just the debts that have been sent to a collection agency. And the debt owed for medical bills does not count toward your total debt utilization ratio – that is, how much you owe on your credit card balances compared to your credit limits.

However, your Credit Mama has a few words of caution. Once your unpaid medical debt is forwarded to a collection agency, the debt is very likely to be reported to the credit bureaus. And as a collection debt, it will have a significantly negative impact on your FICO score.

If you are trying to qualify for a mortgage or car loan, a lender will look closely at any unpaid bills, including medical. Most mortgage lenders require that any unpaid bills over $500 (or multiple bills adding to $500) be paid in full before they will lend for a home or investment.

Fannie Mae guidelines generally require that collection accounts (including medical) in excess of $250 per individual account or $1,000 in the aggregate must be paid in full.

Given the current credit crisis, I believe most underwriters will not waive this requirement.

Medical bills are one of the top three reasons people file for bankruptcy, accounting for half of all U.S. bankruptcies. Most frightening is that 75.7% of those whose illnesses led to bankruptcy had insurance at the onset of the illness, according to a study published in the journal Health Affairs.

Bankrate.com suggests contacting the hospital directly to see whether you can qualify for low-income waivers or financial assistance, and researching nonprofit organizations that specialize in helping people with high medical debt to negotiate on your behalf to reduce the balance. Once you get sent to collections, you are dealing with a for-profit company that is not interested in you – just your repayment of the debt.

In case you missed it - a previous post on the new medical FICO scoring system that is being developed.

Overdraft Protection Will Cost You

Overdraft protection, a service offered by many banks as a convenience, kicks in when a bank approves a transaction and the customer doesn't have enough funds to cover the cost. The bank allows the transaction to go through, like a temporary loan, and then charges the customer a fee somewhere in the range of $25 to $35, regardless of how much the transaction was.

As many unsuspecting consumers have discovered, the convenience factor comes at a cost. One reader wrote that he had deposited a check for several thousand dollars in his bank account. Unbeknownst to him, however, the bank did not release the funds for several days. During that time, he assumed he had funds in his account, and used his debit card for a number of minor transactions – groceries, gasoline, movie tickets, prescription medications. Every transaction racked up an overdraft fee of $35. "That's $140 just in fees… and none of my purchases was over $35," he wrote.

According to a CNN Money article, debit card transactions account for nearly half of all overdrafts, with most of these transactions averaging far less than the overdraft fee itself. And if you don't repay your overdraft within a few days, some banks charge additional fees. The Center for Responsible Lending states that financial institutions "manipulate the order in which they clear deposits and withdrawals in order to maximize overdrafts," and estimates that Americans now pay $17.5 billion each year in fees for abusive overdraft loans, more than the $15.8 billion total paid out to cover those loans.

It's an issue that Congress has decided to act upon. Rep. Carolyn Maloney (D-NY), who introduced the "Credit Cardholders' Bill of Rights Act of 2008" (H.R. 5244), and Rep. Barney Frank (D-Mass.) are trying to protect consumers from such hefty fees with a new proposal: the Consumer Overdraft Protection Fair Practices Act (H.R. 946).

"I've been working on reducing sky-high overdraft fees for several years now," Congresswoman Maloney wrote to CNN Money.com. "Overdraft loans can be useful financial tools, but many consumers are being enrolled in costly overdraft protection programs without their consent." The legislation would require that consumers would have to "opt in" to overdraft protection programs, and banks would not only have to inform consumers when they are about to overdraw their accounts and allow them to cancel the transaction, but also would have to provide full, written disclosure of the overdraft policies to consumers.

But with banks countering massive losses in their mortgage portfolios with revenue-generating practices such as exorbitant overdraft fees, anytime rate hikes, universal default, and reducing the window between the time a bill is mailed and the payment due date, your Credit Mama is guessing that such a move will meet with great resistance by the banking industry lobbyists.

77 Percent Chance Your Credit Card Rate May Change for Any Reason

Imagine if after a year of owning your car and paying down your loan, the car dealer told you that your interest rate on the car loan was going up by double-digits because the dealer was having a bad year. Outrageous! you think. He can't do that!

Yet that is exactly what credit card issuers are doing. A survey released by Consumer Action, a nonprofit education and advocacy organization, found that 77 percent of the major financial institutions they contacted said they reserve the right to increase a cardholder's interest rates - even on existing balances - at any time and for any reason.

The reasons cited by bank officials included "the economy," "business strategies," or "market conditions" (the stated cause of recent rate hikes by Bank of America and Capital One).

At a time when a number of banks are finding themselves too heavily invested in failing mortgages, it is all too clear that some of the shortfall in profits may be covered by bumping rates and fees for consumers like you and me.

Other items of note:

• The average default rate is now 26.87 perent, up from 24.51 percent in 2007. The highest default rate in the survey was HSBC, with a default rate at 31.99 percent. Default rates can click in for a number of reasons, including late payments to another company, too many inquiries on your credit file, or even a small drop in your credit score. Once your rate adjusts to the default rate, it's very difficult to re-adjust it downward.

• "Chasing balances" is becoming a common practice whereby banks reduce credit limits based on their assessment of a customer's risk. A reduced credit limit negatively impacts your credit score by increasing your debt utilization ratio, which may then trigger the universal default clause. And if the consumer isn't aware that the limit has been decreased, he or she may very well be hit with an over-the-limit fee and then a penalty interest rate for being over the limit.

If you're not outraged, you're not paying attention. Contact your House and Senate representatives and tell them to support the Credit Cardholders Bill of Rights in the House (H.R. 5244), and the credit card bill in the Senate Banking Committee.

Shopping for Student Loans Damages Credit Scores

Fact: Too many credit inquiries can damage your credit. That's because the credit scoring formulas assume that the borrower is financially troubled and may even be going bankrupt.

Fact: If you comparison shop for a mortgage or car loan to try to get the best interest rate, FICO's secret credit scoring algorithms lump together all related inquiries that occur within a short period time. Such credit inquiries have a relatively neutral impact on credit scores.

Fact: The New York Times recently reported that students and parents shopping for the best rates on private student loans DO NOT benefit from the same type of calculations as those shopping for home or auto loans. Translation: each time you compare a new student loan, your credit file gets dinged with another inquiry. Each inquiry can drop your score up to 5 points.

It's a bad equation for students and parents:

Too many inquiries = lower credit score.
Lower credit score = higher rates on student loans.

If you have a thin credit history (as many students just getting out on their own often do), such inquiries may have an even greater impact. Anyone who has shopped for a mortgage knows that a measly five points can make a big difference in qualifying for that higher tier interest rate break.

Apparently the New York State Attorney General's office has stepped in and asked Fair Isaac, creator of the FICO score, to treat student loan borrowers the same as those shopping for mortgages and car loans. The Times reports that Fair Isaac isn't changing its policy any time soon and believes its policy doesn't cause any damage most of the time.

However, at least one credit bureau – Experian – confirmed that that this policy may have an impact on credit scores. And a spokesperson for Sallie Mae, the nation's largest private student loan lender, says the company does, in fact, see the negative impact on credit scores and believes that students should not be penalized for trying to make smart financial decisions.

The Times still recommends comparison shopping with 3-4 lenders, preferably within a week or two. Fair Isaac did say that IF there is any negative impact on credit scores, it is more likely to occur when people apply to smaller or specialized student loan lenders, and a lesser impact when applying to big banks.

The Times' advice:

"Start with a lender or two that your college recommends, since it may have negotiated special terms with them... [shop] one bank, one finance company that specializes in student loans and then [look] for nonprofit loan agencies that work with people in the state where you live or the state where you attend college (or both, if you’re lucky enough to have a choice)."

Check this list of lenders or ask people in the financial aid office whether a nonprofit lender serves the college.

FICO Decides to Keep Piggybackers After All

Fair Isaac Corporation has had a change of heart.

The creator of the FICO credit score had planned to roll out its new FICO '08 scoring system this year. Among the changes in this new version: banning "piggybacking," the process by which consumers with no credit or poor credit can benefit by being added as authorized users to the accounts of credit cardholders with good or excellent credit. Piggybacking was often used by parents to give their children a head start in building a good credit history or by a spouse trying to help their partner improve his or her score, but came under intense scrutiny after private companies started to profit from a business model that boosted credit scores of those who were paired with someone with good credit. Lenders were outraged by the practice, saying it dramatically increased their risk.

It is estimated that more than 50 million U.S. consumers are legitimate authorized users on another person's credit card. The new provision would effectively lower credit scores for millions of consumers, forcing them to pay more for everything from mortgages to car loans. And since about 1% of consumers would no longer have enough of a credit history to get a score at all, according to a survey by Credit.com, those consumers may not qualify for a loan at all.

Another concern dealt with regulatory issues. Lenders must comply with the Equal Credit Opportunity Act, which requires them to consider a spouse's credit history when weighing a potential borrower's credit risk. They warned Fair Isaac that such a change would prohibit them from using FICO scores if they wanted to be compliant with the ECOA.

At a recent Congressional hearing, the company announced that "after consulting with the Federal Reserve Board and the Federal Trade Commission earlier this year, Fair Isaac has decided to include consideration of authorized user trade lines present on the credit report." In a company press release, they state that their scientists have discovered a way to restore authorized user credit accounts to the calculation of FICO '08 scores while making it "much hard to game the system." No further details were provided regarding this technology.

To accommodate this change, the phased rollout of FICO '08 has been halted temporarily. It is not clear when the rollout will take place.

Identity Theft Alert: Anheuser-Busch Workers at Risk

If you work or have worked at Anheuser-Busch, your personal information (including Social Security number, addresses, date of birth, and more) may have been among those stolen when laptops disappeared from Anheuser-Busch's St. Louis headquarters in June.

Nationwide, about 150,000 people are affected; of those, 87,500 are in Florida.

If you have been affected, you are entitled to one year of free credit monitoring service.

Credit Card Companies Pull Back on Soliciting Via Direct Mail

The days of receiving credit card solicitations in your mailbox on a weekly or even daily basis may be over… at least temporarily.

Facing increasing delinquencies, consumers who are already credit-stretched, industry competition and profit losses, credit card companies have pulled back the reins on mailbox pitches, reducing the number of direct mail offers by an average of nearly 14 percent in the first quarter of 2008 compared to the same period in 2007.

According to a report in MSNBC.com, JPMorgan Chase reduced its mail volume by 34 percent, HSBC had a 23.3 percent reduction, and Bank of America and Capital One both cut mail volume by more than 17 percent.

Mortgage and loan companies cut their direct mailings by 6 percent. A handful of companies, including American Express, Discover and Washington Mutual, increased their volume slightly.

Of course, while there is a measurable decline in direct mail volume from banks and consumer lenders, there still is an enormous amount of direct mail solicitations landing in mailboxes, with an estimated 4.2 billion pieces of mail sent by financial service companies. According to Direct Marketing Association, U.S. banks and credit institutions spent $13.4 billion last year on direct marketing, generating $178.8 in sales.

Debt Collectors Using New Strategies and Technologies to Get Your Cash

As the economy slides and consumer debt and delinquencies rise, debt collectors are having an increasingly difficult time coercing cash-strapped people to fork over payments. Many are getting more creative – and often, more aggressive – in their efforts to collect payments.

According to an article in Newsweek, some collectors are even resorting to the types of harassing tactics that were made illegal years ago.

See You in Court
Collectors are taking people to court more often these days. Interestingly, some are going to court to defend themselves. Minnesota Attorney General Lori Swanson told Newsweek that she sued a debt collection agency for using illegal tactics, and expects this to be a growing trend among other AGs.

Debt Profiling
New software helps collectors assess debtors "most likely to pay big" by calculating what type of debt is owed, how old it is, how big it is, when the account was opened, credit reports, bankruptcy filings and the debtor's socioeconomic status.

Consumer advocates believe the software unfairly profiles debtors, as the data shows almost all of the people sued by debt collectors lived in low income, predominantly African American communities.

Telephone Tech
Collectors are using offshore call centers and automated dialers to find debtors. And about half of collectors are using automated calling systems with recorded messages. The problem with this method, however, is that many calls don't disclose who the debt collector is and what the call is about. Courts have held that this is deceptive. Even more problematic is that recorded messages may be left on a voice mail system used by more than one person – which could be considered unauthorized disclosure of the debt to a third party.

More and more collectors are calling cell phones – which often means that those in the lower-income bracket are paying for minutes spent on calls from collectors.

Negotiating Payment Plans
Under the philosophy of "a bird in the hand is worth two in the bush," collectors are becoming more open to negotiating partial payment plans.

Remember: debt collection agencies must identify themselves, and if you request it, they must prove that the debt is, in fact, yours.

Identity Theft Alert: Alaska Air Customers' Credit Cards Misused

If you bought tickets from Alaska or Horizon airlines, pay close attention to your credit card statements. (You should be doing this anyway, you know.)

About 1,500 customers have been notified that their credit cards were misused when a call center employee diverted some payments to a personal account.

The airlines' parent company is working with police to resolve the investigation and have stated that customers are not responsible for repaying the diversions that took place between August 2006 and June 2008.

I Never Said You Could Pull My Credit!

Dear Credit Mama,

I got a copy of my credit reports and noticed what appears to be a list of companies that have pulled my credit… companies that I had contacted about their service but never actually did business with or authorized to pull my credit. Don't businesses have to get permission to run a credit report? And should I do anything about this?

-- Danielle


Dear Danielle,

Yes, you are correct – under the Fair Credit Reporting Act, businesses must have your permission or a "permissible purpose" to pull someone's credit. (Permissible purpose means they have a legitimate need for the information.)

Merely inquiring about a service does not give the company the right to run your credit report. Companies should tell that they are pulling your credit or ask for your permission first. Employers must get written permission from you in order to check your credit.

These types of inquiries – known as "hard" inquiries – can have a negative impact on your credit score and will typically remain on your credit report for a year, sometimes up to two years.

Although the impact may be relatively minimal -- five points or so per inquiry -- recent studies show that an increase of just 30 points in one's credit score can have significant financial benefits… which means every point in your favor is important.

Hard vs. Soft Inquiries

Hard inquiries include requests for new credit (credit card or loan, or increase in credit card limit), employment credit checks, and applications for certain services such as cell phones or utilities.

Soft inquiries occur when your creditor reviews your files, creditors extend you offers of credit, or when you pull your own credit.

Action Steps

When inquiring about services, be upfront and let them know that you do not want your credit pulled without your permission.

If you believe that the companies listed on your credit report did not have a legitimate reason to access your credit, you can contact the company and request that they correct the information. You also can contact the credit bureaus directly to correct your report.

If the company is in the wrong and refuses to correct the information, you can sue them for up to $1,000 in statutory damages for violations of the Fair Credit Reporting Act.

Consumer Knowledge About Credit Improving… But Still Poor

Consumer awareness of credit scores is improving, but not enough to prevent $28 billion in credit card finance charges, according to a survey by the Consumer Federation of America and Washington Mutual, Inc.

According to the report, most Americans know why credit scores go up and down – for example, two-thirds understand that paying off a large credit card balance improves credit scores, and 80 percent know that missing monthly credit card payments lowers scores. And just about half of Americans have obtained their credit scores in the past two years.

However, the findings show that less than a third of Americans understand that a credit score reflects the risk that a consumer won't pay back a loan – most believe that it reflects factors such as their overall financial resources and that demographic factors such as income, education and age affect their score. And 59 percent did not know that maxxing out a credit card would lower their credit score.

According to estimates by Washington Mutual, a boost in one's credit score by 30 points would save a consumer $105 a year in credit card finance changes, as financial institutions offer lower interest rates to consumers with better scores. That translates to annual savings of $28 billion for all consumers.

To learn more about credit, check out the free webinars under "Your Credit Mama Recommends…"

Thieves Steal Gas With Stolen Sweetbay/Hannaford Customer Credit Cards

With gas prices floating over $4 a gallon and diesel approaching $5 a gallon, fuel is a valuable commodity that is attracting thieves along the East Coast.

The arrest of five Florida men who drove pickup trucks with hidden gas tanks that could hold up to 1,000 gallons of fuel brought to light a disturbing trend – the use of stolen credit card numbers to purchase excessive quantities of fuel at gas stations in several states. Murphy Oil, which runs Wal-Mart gas stations, reported losses of $1 million in one month as a result of similar gas thefts.

New cases involving the 4.2 million stolen credit and debit card numbers from the recent Hannaford/Sweetbay breach are being investigated as the crooks continue to try to convert the stolen numbers to cash.

If you used a credit or debit card at Sweetbay or Hannaford stores between Dec. 7 and March 10, keep a close eye on your bank or credit card statements and immediately challenge any purchases that are not yours.

Are You a Recent Victim of Identity Theft? If So, the FTC Wants to Hear From You.

The Federal Trade Commission has announced in the Federal Register that it will conduct a wide-ranging study of identity theft victims in order to assess the current remedies available to them following the crime. Identity theft victims who have contacted the FTC between January 1 and May 30, 2008, will be asked about their experiences after contacting one or more credit reporting agencies and when they sought to use their FACT Act rights.

The FACT Act (Fair and Accurate Credit Transactions Act of 2003) gives consumers certain rights in dealing with identity theft, including the ability to place fraud alerts on their credit files if they are, or suspect they may become, victims of identity theft, to block information on their credit reports that resulted from identity theft, and obtain copies of their credit reports free of charge.

For the seventh year in a row, identity theft has been the top consumer fraud complaint handled by the FTC. The agency's recent report shows that of 813,899 total complaints received in 2007, 258,427 (32%) were related to identity theft. The monetary losses related to identity fraud totals more than $1.2 billion; the median monetary loss per person was $349. Not included in this is the time-value equivalent (for example, the hours spent on the phone with credit bureaus, creditors and police, or monitoring bank and credit accounts for fraudulent activity), which can be significant.

And it appears that even with data breach notification laws in place by nearly all of the states, it has not slowed the proliferation of identity theft. Part of this is attributed to consumers ignoring data breach notification letters. But in most instances, inadequate security practices by companies handling sensitive data are the culprit.

The deadline for submitting comments is Sept. 2, 2008. Comments filed in electronic form should be submitted at: https://secure.commentworks.com/ftcfactasurvey. To ensure that the Commission considers an electronic comment, you must file it on the web-based form.

*** Remember: If you had any type of loan account between January 1987 and May 28, 2008, you are entitled to learn your credit score – free of charge – and get at least six months of a monitoring service from credit reporting giant TransUnion. The monitoring service would provide e-mail notification of late payment reports or accounts opened in your name – red flags that would indicate identity theft. You can file a claim by visiting http://www.listclassaction.com/ or calling 866-416-3470.

Credit Card Business "Rife With Scams"

Dear Credit Mama,

First, the credit card companies started changing the payment due dates on me. I used to get the bills about three weeks in advance of the due date. Then suddenly, it was two weeks. Now sometimes it seems like less than that.

I'm smart enough to always look at the due date right when the bill comes in and mark it on my bill-pay calendar. But last month they hit me with a late payment charge… when I KNOW I sent the check with plenty of time for it to arrive at the processing company. I'm lucky that this wasn't a card with a 0% "provisional" rate since that would have been bumped to 32% with this one wrongly-processed payment. I feel like their game now is to nickel-and-dime any extra fees they can squeeze out of the average consumer! Is it just me??

-- Joe "Fed UP" in N.C.

Dear Joe,

If you think that the credit card companies aren't necessarily on the side of consumers, you're right. The tactics that have been used increasingly over the past several years have capitalized on the tendencies of consumers not to look at their bills too closely, not to question extra fees, and to pay their bills as close to the due date as possible.

Thought I'd share an interesting comment that was posted on a diary on the dailykos.com blog. The author, KeepingItBlueKrstna, gives an insider's perspective on what it's like to work at a credit card company and offers some nuggets of advice:

I worked for a major credit card company, which has since been bought and then bought again, but it was one of the major players.

When I worked there, it was clear that the processing company we used was late posting payments that had arrived on time. They did it all the time.

The Customer Service Reps brought it to the attention of management and it was escalated all the way to the CEO. So did they fix the problem? No. They made a video (I kid you not) of how efficient the payment processing company was and how their systems worked and held a meeting to show it to us. They told us, sure you get a lot of calls about this, but it's because there are only so many possible due dates, and you'll get a wave of calls about late fees after certain due dates. They said "It's the customer's fault" (or the post office's fault) and don't waive too many late fees.

This was a large scale fraud like the one described above where statements are mailed late. And it wasn't just the late fee revenue they were after. They used people's "late" payment history as an excuse to raise their interest rate on the card to penalty levels, even if that was the only late payment. In some cases, they used that one "late" payment as an excuse to change someone to a card with an annual fee instead of none.

The credit card business is rife with scams like these, masquerading as a normal way of doing business.

I strongly advise paying your credit card bill online within the terms posted there. If it says your payment will be posted in 3 days, make it 4 days before the due date. This is, in my opinion, the only safe way to avoid late fees. If you are mailing your payment, no matter how careful you are, you could get screwed.

If you get an unfair late fee, you should not only call to ask for the fee to be reversed, but also at least ask to have that late payment wiped off your payment history. (We were able to do that - it was called a re-age, but don't use that term - someone may think it's fishy that you know it.)

We were told repeatedly only to waive fees for the very best customers and if we waived or re-aged too many accounts, we would get written up. But I did it all the time and never got written up. Especially for nice people.

Credit Card Advice From An Insider

Wanted to share this interesting post I found at DailyKos.com, courtesy of Lava20.


Who am I? My name is Nicole. I worked for the two largest credit card companies in the world. I worked in various departments, but the most important department I worked for was customer service. This advice is just one friend to another. It is based on my own personal experience with what does and doesn't work.

1. Protest every fee. Overdraft fees. Late fees. Call and ask for the fee to be waived. If you were late. Call. If they tell you no. Ask again. If they tell you no. Ask for a supervisor. Most fees can be waived. The times the bank will not waive a fee is if you are 60 days or more behind. Or if you are always over your credit limit. I promise you. If you are willing to spend the time. That fee will be waived. This works about 85% of the time. I'll be honest here. The only reason that they may not waive the fee is if you are over 30 days late in the last 6 months or over 60 days in the last 12 months. So catch up if you can. Then make that call. You might be part of that 15%.

2. Report your card as lost or stolen. WHAT? Yes. This goes for debit cards also. Once you give out your credit card number, you have no control over who has access to your information. How often? I do this twice a year. If you shop online a great deal, do it more often. I know no one who reads this surfs porn, but if one does do this, you might want to cancel your cards more often. It doesn’t effect your credit report any, if at all. As long as you’re not doing it every week on every card, you’re fine. This is also helpful to prevent id theft.

[Note from Your Credit Mama: If you struggle to pay your minimums or have a hard time keeping your account below the limit, DO NOT DO THIS. If you are late on your payment or over your limit or have an internal "credit score" too low, or bad credit elsewhere, when you call to do this, they will close your account since it was "stolen" but may NOT issue you a new card. Also, many card issuers now routinely issue replacement cards after a certain period of time.]

3. If the bank makes an error, it’s never in your favor. So don’t do any sort of direct authorization to your checking account. For example, you might give your checking account number and routing number so that the minimum payment will be charged every month. Not a good idea. Errors can happen. I have seen many times where the bank has charged the members account for the total credit card balance instead of the minimum balance. This causes the members checking accounts to become overdrawn. The bank may be required to reimburse you for their own credit card fees. But it is completely up to the credit card company if they pay your banks fees (overdraft fees, fees to the store you wrote the check to etc.) Don't risk it. Your best bet here: Use your personal banking account and sign up with your bank to pay bills online.

4. Do not sign up for anything the credit card company wants to auto bill you for. Save yourself the time and headache. Insurance. Fraud protection. This is a billion dollar industry. And normally you will get no benefit from it. In fact, you will most likely spend more time trying to cancel it than any benefit you will receive from it. I have yet to meet the person who saved time or money with a fraud prevention unit that they couldn't do on their own. If you want to, go for it. Good luck. You're going to need it.

5. The only thing that will save you money is time. You must call. Every single time. Program the customer service number to your credit card company into your phone. right now. You don’t have to have your credit card number to call. Have them look your account up by your Social Security Number or name. Call every month to ask for lower interest rates. To have fees waived. To check your balance. To lower your credit limit. For every little thing.

I want to give an example here. Two different accounts. One group of members have high credit limits, pay off their bill in full every month. The other group pays as much as they can every month and has interest fees. Who saves the most? The first. Why? Because they call. They will have us read off every damn purchase. They will have us explain in detail over and over again how the interest is calculated. They will stay on the phone for 30 minutes to get the $50 yearly membership fee waived. And you know what? It works. They get a free service, basically. And bravo. The credit card company expects this. They also count on you, the person reading this right now, to be the person who doesn't do this.

One other thing I would like to bring up with this diary. Sometimes things happen. For example, I’ve seen entire zip codes where card members statements arrive late. Thousands may not receive their statement in enough time to mail the payment. This is strange because it appears that most of these card members all live in the same zip code, or they may all hold Union cards (the highest interest rate and the most revolvers – people who carry balances.) This makes the card member late in sending in a payment. And wouldn’t you know it. Millions of late fees. Most call to have the fees reversed. That’s fine with the credit card company. Because they only really need 10% to not bother.

Did you just say 10%? Yes. That’s all they need really. It doesn’t cost them anything if you never call. In fact, they can save here too. What would a smart bank do?: on the days the late mailed statement arrives, make sure that is the day that most of your customer service representatives are off. That way people will have to wait longer to get through to a live agent. Many don’t want to spend their Saturdays waiting for a customer service rep to answer. So they hang up. BINGO that 10% just went to 12% now. Millions. So again. Read #1.

One neat trick credit card companies use is to shorten the amount of time you have to send in a payment. This varies by bank. Normally you want 25 days. I've seen as short as 20. Call. Ask them for a longer length of time to send you bill in. Even if you don't need it. Why have the bank earn interest on the money if you can?

One final word of advice. Try not to sign up for auto anything. Again, it is so very difficult to get things auto-billed to stop. The company might be great, but unless you are getting a huge discount, I wouldn’t take the risk. If you do insist on auto-billing make sure you do #2! And if you do have things auto billed...make sure it is to a debit or credit card. That way you can easily report it lost/stolen when your friendly everyday auto insurance company decides to raise your premiums and change from monthly to biannual.

Okay. I saved the best for last. Guess what will work more than all the other things listed her combined? BE NICE!!! W T F?!?! Yes, calling with a bitchy attitudes actually inspires a customer service representative to do the least they can for you. Now, I may be taking the 100th call for the day about the statement arriving late, and all 99 of them have been royal jerks...then I get lucky number 100...who has read this diary and might start off the conversation like this, "Thank you so much for taking my call, I really hate to call with this, but do you think you can help me out with this late fee..." Throw in the customer service representative's name, no matter how horrid, tell them you love that name...

That Visit to the Marriage Counselor May Hurt Your Credit Score

Same with a visit to a massage parlor, bar, tire and re-treading shop or billiard hall. Discrimination against consumers based on purchasing behavior is the heart of the issue in a lawsuit filed by the Federal Trade Commission against Atlanta-based card issuer CompuCredit Visa.

According to a report in Business Week,

The allegations, in part, focus on CompuCredit's Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn't properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices.

"The company touted that cardholders could use their credit cards anywhere," says J. Reilly Dolan, assistant director for financial practices at the FTC. "What they didn't say was that you could be punished for specific kinds of purchases."

The algorithms for determining credit scores – and there are many different versions – are highly guarded. Your Credit Mama has outlined the basics of the FICO scoring model, which is based on things like debt utilization, on-time payments, etc. But it appears from this lawsuit that there are many undisclosed variables that can have a negative impact on your financial profile. If you've always suspected that purchasing behavior – not just payment history – influences your credit score, this case may prove you right.

The Federal Deposit Insurance Corp. is also seeking $200 million in penalties from CompuCredit in the matter.

First, Thieves Steal Identities. Now They Steal Homes.

The Chicago Tribune recently investigated an FBI report on new identity theft tactics being used by thieves to "steal" your home.

The report warns of several ways in which people have been conned out of their homes. While thieves generally target vacation homes or empty homes, the FBI has investigated sales of occupied houses. By law, as the rightful owner, you won't lose your house as long as you have proof that you are the legitimate owner. But it's likely to cause an enormous expenditure of time and money.

Among the cases being investigated by the FBI:

• Con artists "stole" an occupied house and sold it to someone so enamored of the great price is getting that he's satisfied with online photos.
• Thieves posed as the rightful owner and took out home equity lines of credit against the property, draining it slowly so it wouldn't be detected.
• Thieves deposited proceeds from an illegal loan into a business account to get under the lender's radar.
• Cons changed the title of a house to his name and sold the house.

All of the schemes involved using the owner's personal information to create fake IDs and Social Security cards so that the thief can file the papers to complete and/or transfer the property.

"In one case prosecuted by the feds, the ID thieves used the name-change mechanism offered to people who are getting married or divorced to obtain false driver's licenses, which they used to get Social Security numbers," the Tribune reported. In most cases, though, business records are the main source of private information theft.

A "red flag" rider to the Fair and Accurate Credit Transaction Act of 2003 was recently passed by Congress. This rider, which takes effect Nov. 1, 2008, requires any business that handles personal documents to develop a program to prevent ID theft. That includes financial institutions and creditors.

The guidelines say institutions should be on the lookout for actions such as:

• ID theft alerts from fraud detection services, customers, law enforcement agencies and others
• a credit bureau's notice of credit freeze provided to an institution along with the institution's requested consumer credit report
• an increase in credit report inquiries or other unusual patterns on a credit report
  the appearance of doctored or forged documents
• inconsistent information
• identifying information associated with known fraudulent activity
• use of a single Social Security Number or other identifying number used to open accounts under different names
• applicants failing to provide all required identifying information
• information supplied that is not consistent with existing information on file
• a new revolving credit account used in a manner commonly associated with fraud patterns
• an account used in a manner not consistent with established patterns of activity on the account
• mail sent to the customer's on file address repeatedly returned as undeliverable.

Sigh. Yet another good reason to check your credit report regularly.

WaMu Suspends $6 Billion in HELOCs

As banks look for ways to stop the bleeding and reduce their losses, WaMu has decided to tighten its purse strings by joining Bank of America, Countrywide, JPMorgan Chase and others in reducing or suspending home equity lines of credit (HELOC).

The amount of money that WaMu has eliminated is about $6 billion. The company cites those customers with declining home values and poor payment histories as primary targets for a HELOC reduction or suspension.

If you have had your home equity line of credit suspended or reduced, you will want to keep an eye on your credit score. That's because this type of action can increase your debt utilization ratio and drop your score significantly.

For example:

If you had a $25,000 credit line and you have used $10,000, your debt ratio is:

$10,000 (debt) ÷ $25,000 (total available credit) = 40%

But if the bank suspends your account to your existing balance, your debt ratio is maxed out:

$10,000 (debt) ÷ $10,000 (total available credit) = 100%

Since 30% of your credit score is your debt ratio, going from 40% to 100% debt ratio will not only decrease your financial flexibility but also your credit score.

There's No Substitute for Checking Your Bank Accounts

Fraud alerts can only do so much to protect you.

A recent identity theft victim discovered that fraud alerts -- while very helpful in guarding against thieves who try to obtain credit in the victim's name -- don't protect the victim 100% against financial losses.

Meet Patrick Grant. Patrick is a professor at the University of Virginia. According to a story in The Richmond-Times Dispatch, Patrick knew something was amiss when he found three letters in his mailbox that stated they would not raise his credit limit -- because he had never requested it. According to the report:

"Identity thieves in New York had opened a checking and savings account in Grant's name, aided by his Social Security number and a fake New York driver's license with his name on it. Using an online banking feature of the fraudulent checking account, the thieves hijacked Grant's existing Bank of America credit-card account... They drained Grant's credit-card account by authorizing cash-advance payments, which they then withdrew from an ATM. Over the course of nine or 10 days, the thieves obtained $22,000 with Grant's credit card."

While Patrick is not positive how his identity was stolen -- his information had been compromised several times in university-related data breaches -- the first thing he did was purchase credit monitoring and place fraud alerts on his credit file. But the thieves didn't try to use his identity to open new lines of credit. Instead, they just tapped into his existing credit accounts.

In November 2007, the Federal Trade Commission reported that 3.7 percent of all American adults -- or 8.3 million people -- had their identity stolen in 2005. These thefts totaled an estimated $15.6 billion in losses. And the numbers are increasing.

It's a good reason to keep a close eye on what's going on with your bank accounts.

Ain't Nothin' Like the Real Thing… But You Should Still Do It

Hey Credit Mama, is that Free TransUnion Score that I can get through the settlement my REAL credit score? --Eric

Well Eric, the short answer is "no." The score you will get if you take advantage of the TransUnion settlement (which provides most Americans with free credit monitoring services and unlimited access to their credit scores for a limited period of time) is TransUnion's proprietary "personal credit score."

As you know from my previous posts and webinars, credit scores are like wines – there are different varietals for different purposes. TransUnion's score is NOT the same score that lenders will see and use to evaluate you for loans.

But there IS a value to the settlement offer. That is, in an age where identity theft is one of fastest growing crimes in the world and that three-digit score means everything, you should know what is in your credit file in order to correct errors (and nearly eight out of 10 credit reports contain errors). It will also give you an opportunity to see how your actions (such as paying down debt or removing inaccurate, negative information) are impacting your score over a period of time.

In addition, it is believed that should enough people take advantage of TransUnion's offer, the monitoring services offered by the other credit bureaus (Experian, of FreeCreditReport.com fame, and Equifax) will be devalued. One of the biggest complaints by consumer advocates was the unwillingness of credit bureaus to include a credit score with the free credit report that they are legally mandated to provide each American every year. Given that credit scores impact interest rates on any type of loan you can get, insurance rates, and even job offers, it is practically a necessity to know what your score is. So far, selling credit scores and monitoring services has been a huge moneymaker for the bureaus – to the tune of $150 million for Equifax alone, an increase of 22 percent in 2007.

According to an article on msnbc.com, consumer advocate Ken McEldowney of Consumer Action "thinks if consumers who sign up for the free offer get an appetite to see their scores for free, perhaps people will no longer be willing to pay for them. The TransUnion settlement will obviously hurt that firm's ability to sell its credit monitoring product, which retails for about $10 a month. But McEldowney thinks it will also hurt sales of similar products by Equifax and Experian, too."

So spread the word… and start checking the http://www.listclassaction.com/ Web site on June 16, 2008.

Encore! TransUnion Class Action Settlement #2

The beleaguered credit reporting giant TransUnion has agreed to another settlement, this time to end litigation* that alleges they violated the Credit Repair Organizations Act (CROA) when they marketed and sold their credit score and credit repair products.

If at anytime between Dec. 1, 1999, and April 16, 2007, you used credit monitoring services provided by TransUnion or TrueLink, you are entitled to receive three months of credit monitoring services for free from TransUnion. This will give you unlimited access to your credit report and credit score.

To qualify, you will need to submit an authentication form by July 22, 2008. The form, which can be printed and mailed or filed electronically, is available at www.townessettlement.com/claim.php3.


*Townes v. TransUnion, LLC and TrueLink, Inc.

Get Your No-Strings-Attached Credit Score Thanks to TransUnion Settlement

If you had any type of loan account between January 1987 and May 28, 2008, you are entitled to learn your credit score – free of charge – and get at least six months of a monitoring service from credit reporting giant TransUnion. The monitoring service would provide e-mail notification of late payment reports or accounts opened in your name – red flags that would indicate identity theft.

More than 160 million Americans are expected to benefit from the proposed settlement – the largest class action settlement in U.S. history, according to Peter Chapman, editor of the Class Action Reporter.

Under the settlement (which is expected to be officially approved in September), consumers would be able to select one of two options:

• A basic service would provide free credit monitoring for six months. It normally retails for $59.75, according to the settlement. Those who select this service can also apply for a cash payment, which would be paid out of any remaining money in the $75-million fund after two years. (Although Your Credit Mama seriously doubts that there will be any money left in the kitty.)
• An enhanced service would provide nine months of free monitoring, plus use of a "mortgage simulator" that lets consumers see whether improving their credit score would affect their mortgage rates and how much they could save if it did. This option also includes access to one's insurance score, which is used by some insurers to set rates. The settlement values this option at $115.50.

BONUS: there are NO strings attached. A credit card number would not be required to sign up for either service. After the free service ends, TransUnion could not charge for an extension unless it was requested by the consumer.

The lawsuits came about because TransUnion – through a subsidiary company – sold consumers' private credit data to retailers and lenders that wanted to market to select types of customers. Federal law prohibits the sale of credit data except under certain circumstances – such as when the consumer applies for a loan.

You can register your claim beginning June 16 by visiting www.listclassaction.com or calling 866-416-3470. (As of today, the Web site is not up yet.)

Sallie Mae Wrecks Credit Scores of One Million Loan Holders

A glitch in the way Sallie Mae – one of the nation's largest student loan firms – reported information to the credit bureaus last week caused the credit scores of approximately one million loan holders to plummet – some by as much as 150 points.

According to an article on msbnc.com, the borrowers affected by the glitch were the ones who used graduated payment plans. These plans assume that former students will make more income as they progress in their careers, and thus allow them to pay back less in the early years of their loan, and more in the later years.

FICO, however, interpreted the new reporting as "arrangements made with credit grantor to make partial payments." This made it seem as though the borrower had negotiated for a reduced payment plan after being delinquent – a big black mark on a credit report. And FICO's scoring algorithms penalize those with top credit scores more than those who are consistently delinquent.

According to Sallie Mae, the glitch affected "roughly 10 percent of our 10 million customers," and only impacted Equifax credit reports and scores. (The reporting error was fixed before TransUnion and Experian updated their files.)

For any affected consumers who were in the process of getting a loan, insurance or a job, this would have had a devastating impact on the rate and terms they were able to get. While Sallie Mae says the problem has been corrected and scores returned to what they should have been prior to the glitch, the only way for borrowers to know for sure is to purchase a copy of their credit report.

Given that credit scores control so much of our lives, this situation exemplifies the concern that a simple error can wreak havoc on the financial health of millions… and reinforces why you should always keep an eye on your credit.

Texas Man Successfully Uses LifeLock CEO's Identity to Get $500

From the annals of "I could have seen that coming" come reports that LifeLock CEO Todd Davis' widely publicized Social Security number has been successfully used by a man in Texas to trick an online payday lender into giving him $500. Davis learned about the fraud when the lender called him to collect.

This was not the first time people have tried to steal Davis' identity. According to a story today on Yahoo news, Davis reported that at least 87 unsuccessful attempts have been made. Of course, Davis pretty much asked for it by plastering his Social Security number on billboards, television ads and in print, practically daring would-be identity thieves and hackers to test his company's ability to prevent identity fraud.

LifeLock, already facing a lawsuit by credit bureau giant Experian, is now facing lawsuits from consumers in Maryland, West Virginia and New Jersey contending that the service did not work as promised. The lead attorney in these cases, David Paris, is trying to obtain class-action status, and claims he uncovered records of other people applying for or receiving driver's licenses at least 20 times using Davis' Social Security number.

Davis stands by his stunt. He told reporters, "There's nothing on my actual credit report about uncollected funds, no outstanding tickets or warrants or anything… There's nothing to indicate my identity has been successfully compromised other than the one instance. I know I'm taking a slightly higher risk. But I'll take my risk for the tremendous benefit we're bringing to society and to consumers."

LifeLock's services include helping consumers set up fraud alerts with the major credit bureaus, which inform them when someone tries to tap into their credit. The fraud in Texas occurred because the payday lender did not go through one of the three major credit bureaus before approving the transaction.

The services, however, can't completely immunize a consumer from identity theft. If a stolen Social Security number is used on a job application, on a form submitted for medical services or during an arrest, the lack of reporting requirements make it impossible for any company to know with certainty that someone's identity has been compromised.

That's not the end of LifeLock's headaches, however. The company is also being sued in Arizona over its $1 million service guarantee. The plaintiffs in the case claim that the guarantee is misleading because it only covers a defect in LifeLock's service.

The question that remains unanswered: when will tighter mechanisms be put in place to deter and report fraud?

Senate Passes "Common Sense Legislation" Regarding Credit Card Receipts

The Credit and Debit Receipt Clarification Act – a bill that says a business that printed an expiration date on a receipt over the past 18 months cannot be found in violation of the Fair Credit Reporting Act as long as the merchant truncated the customer's credit card to no more than the last five digits (and complied with other FCRA requirements) – has passed in the U.S. Senate.

The bill was sponsored as H.R. 4008 in the House by Financial Services Committee member Representative Tim Mahoney, D-Fla., and as S. 2978 in the Senate by Banking, Housing and Urban Affairs Committee member Senator Charles Schumer, D-N.Y.

The decision was hailed by businesses and restaurants and is expected to nullify the more than 300 class action lawsuits that contended that FACTA required merchants to both truncate the credit card number and leave off the expiration date. The lawsuits sought fines as high as $1,000 for each non-compliant receipt and were so potentially damaging that a number of retailers threatened to file bankruptcy. Plaintiffs did not need to demonstrate any real or actual damage caused by the violation or even that the companies had willful intent to cause harm.

Merchants said their interpretation of the law was that they needed to do one or the other, but were not mandated to do both. Most reasoned (and some experts concurred) that the expiration date was of little value without a full credit card number.

According to a release issued by the National Retail Federation and the National Council of Chain Restaurants, the new legislation would protect merchants from lawsuits for expiration dates printed between the time the FACTA rule went into effect and the time the measure is signed into law. But merchants will still be required to both truncate card numbers and leave off expiration dates going forward.

“The continued proliferation of these lawsuits is an unnecessary drain on resources during a time of financial uncertainty in the nation’s economy,” NCCR Vice President Scott Vinson said. “Experts have said truncation of credit card numbers by itself is sufficient to prevent credit card fraud or identity theft regardless of whether the expiration date is printed on a receipt. Retailers and restaurant owners nationwide are delighted that Congress has passed this common sense legislation and look forward to seeing it signed into law as soon as possible.”

President Bush is expected to sign the measure shortly.

Your Turn: FTC Seeks Comments on Credit-Based Insurance Scores

As part of its efforts to fulfill its obligations under the Fair and Accurate Credit Transactions Act of 2003 (FACTA), the Federal Trade Commission and the Federal Reserve Board have been conducting ongoing studies on the effects of credit-based insurance scores on the availability and affordability of financial products such as credit cards, auto loans, mortgages and property insurance.

With the completion of its study on the effects of credit-based insurance scores on consumers of auto insurance, the Federal Trade Commission now is focusing its attention on the effects of credit-based insurance scores on homeowners insurance. A press release issued today seeks public comment on any evidence the FTC and Board should consider in conducting the study.

It's no secret that credit scores have long been used by the insurance industry to calculate what your premiums are for auto or property insurance. Consumer advocates have argued that basing premium costs on credit scores disproportionately affects minorities in a negative way. According to the FTC, the results of their investigation into the use of credit scores in underwriting auto insurance policies showed a correlation between insurance scores and the likelihood of filing an insurance claim. The FTC also stated that the use of credit information did not result in racial or ethnic discrimination. Insurers claim that more than 50 percent of policyholders have a lower premium because of good credit.

A number of states, however, have introduced legislation to ban the use of credit in homeowners and auto insurance underwriting. Rep. Luis Gutierrez (D- IL) introduced a bill in Congress (H.B. 5633) that would amend the Fair Credit Reporting Act (FCRA) to prohibit auto and homeowners insurance companies from using credit information for underwriting if the FTC concludes insurers’ use of credit information results in racial or ethnic discrimination or represents a proxy for race or ethnicity.

If you would like to comment, click here for instructions. The deadline for comment is June 18, 2008.

Capital One Under Fire in California

The credit card giant Capital One, which has been in the crosshairs of consumer advocates for years, is mired in more lawsuits.

Lawsuit #1:

California Attorney General Jerry Brown has been eyeing Capital One for nearly two years, investigating the company for possible violations of the state's unfair business practices and false advertising laws. In November 2006, Brown first requested "books and records… and interviews with employees" due to "substantial concerns about the credit card practices of Capital One," including solicitations for credit card applications mentioning balance transfers and accounting closing practices.

The attorney general made subsequent requests for information as part of its ongoing investigation – to no avail. Capital One's response? They filed a lawsuit this month claiming that as a national bank, only the U.S. Office of the Comptroller of the Currency can examine its records or take any enforcement actions. Never mind the fact that when Brown made his requests, Capital One was NOT a national bank. In fact, according to Reuters, it wasn't until March 2008 – 18 months after the attorney general made his first request - that Capital One converted its Virginia charter to that of a national banking association.

Lawsuit #2:

Former Capital One cardholder James Krider has filed suit in the U.S. District Court, Central District in downtown Los Angeles, against Capital One and the three major credit bureaus over post-bankruptcy false credit reporting. Seems that Capital One continued to report three credit cards that had been discharged in his bankruptcy filings. After months of disputes, Capital One insisted it had the right to continue to report his discharged accounts as "delinquent" on his credit reports even though the debts had been discharged through the bankruptcy.

According to Krider's attorney, Robert Brennan (Brennan, Wiener & Assoc.), "a growing number of banks and credit card companies have quietly been 'pushing the envelope' on credit reporting of bankruptcy-discharged debt, hoping to pressure consumers who have recently been through bankruptcy to pay these debts.

"I admit, I am not proud of having to declare bankruptcy, but the bankruptcy notation on my credit reports is bad enough and that will be there for 10 years," Krider said in a press release issued by his attorney. "Having the credit card companies continue to report my old credit cards as still delinquent is doubly bad and makes it that much tougher for me to get back on my feet."

Krider is seeking money damages as well as a permanent deletion from his credit reports of any delinquent reporting of any accounts included in his bankruptcies.

The case is expected to go to trial in February 2009.

Banks Are Putting Credit Cards on Ice, Too

If you've got a credit card "just for emergencies" that hasn't been used for an extended period of time, you may find that when that emergency does come, your card is no longer good.

According to a report by Smart Money, the soaring number of credit card delinquencies has banks trying to reduce their exposure to risky or unprofitable accounts. And it's been suggested that the Fed's proposed new rules restricting the banks' ability to arbitrarily raise interest rates and give consumers more time to make payments may be triggering an increasing number of credit card closures.

Even if you don't rely financially on your credit cards, closing credit lines can hurt your credit score. That's because your FICO score depends in part on your credit history and the amount of available credit you have compared to the amount of debt. If the card that is closed is the one you have had the longest, your score will certainly drop. And reducing the amount of available credit you have will have a negative impact on your debt-to-available credit ratio, which will decrease your score.

So... use your backup credit cards occasionally. If you've had a card issuer close your account, and you want to keep it open, contact the company and ask them to reconsider.

Warning: Frozen HELOCs Ahead

I recently read about a Hollywood Hills homeowner who had a $60,000 home equity line of credit (HELOC) that he was going to use to remodel his kitchen. He had already begun ripping out the cabinets and appliances when he discovered that his bank had frozen access to his HELOC, citing falling home prices in California. Not only was the remodel work delayed until the homeowner found other bank financing, but he was dismayed that the new interest rate was higher than his approved HELOC rate by more than three percentage points.

Thousands of consumers are receiving notice that their HELOCs are being cancelled. According to Bankrate.com, Countrywide, Bank of America, Washington Mutual and IndyMac Bancorp have frozen about 600,000 equity credit lines nationwide since January. Countrywide alone has already suspended an estimated 122,000 lines of credit where homes fell below appraised values; USAA has frozen or reduced 15,000 accounts. Other big lenders, including Chase and Citibank, are doing the same in an effort to quell the rising number of delinquencies on HELOCs. Economy.com pointed to a 47 percent increase in delinquencies on HELOCs as of September 2007, and predicted that the numbers would be even worse in 2008.

Areas of the country where home values have plummeted by 10 percent or more are at greatest risk for HELOC cancellations, especially affecting those who purchased homes in the past few years with little money down. These cities include Los Angeles, Chicago and Las Vegas. Homeowners in Las Vegas are being hit especially hard - it is estimated that 15,000 people (5 percent of the total homeowner population) have had credit lines suspended.

Missed payments or a decrease in credit score can also trigger a HELOC freeze, although homeowners with credit scores in the upper 700s and lower 800s - considered a very good score - are being affected as well.

If you are in the middle of renovations or are counting on having access to the funds for bills, college tuition, or as an emergency account and you think your line of credit may be at risk because you are in a troubled market, you may want to draw a lump sum and put it into a high-yield savings account. While you will be decreasing your equity and will have to begin paying interest, you will guarantee that the money will be there when you need it.

If your HELOC has already been cancelled, you can try to fight it. A realtor or appraiser can help you bolster your case by showing what houses have been selling for in your neighborhood. Be aware of how the tighter lending standards may affect you – in the hardest hit markets, homeowners can only borrow 60 percent of a home's value. If a drop in credit score is the reason for the cancellation, be sure to pull a copy of your credit reports and review them carefully.

Banks may be willing to compromise by giving you a lower credit line rather than cutting off your funds completely. And you can always shop around with other lenders if you have at least 10 percent equity.

The Fed Proposes Aggressive Restrictions on Abusive Credit Card Practices

In a move that is stunningly pro-consumer, the Federal Reserve Board has proposed tough new policies to curtail the types of abusive credit card practices that have been the subject of recent Congressional hearings.

These practices, which include arbitrary increases in credit card interest rates for existing balances, applying payments only to balances with the lowest interest rate rather than the highest rates and double-cycle billing (charging interest on debt that has already been paid), would be changed under the new, stricter policies. In addition, banks may also be required to give customers advance notices as well as the ability to opt out of overdraft programs.

The rules could go into effect by the end of this year.

The banks are already in an uproar over the proposed rules, which could affect more than 10,000 financial institutions. Industry representatives have begun threatening exhorbitant annual fees, elimination of balance transfers and increased interest rates. According to lobbyists, the restrictions would eliminate credit or make it more expensive to get credit.

The biggest source of angst for banks is the issue of universal default, which allows banks to increase a customer's interest rate for any reason, including defaults on other credit cards or loans, slight drops in credit scores or an increase in banks' cost of funds.

Eliminating universal default, known in bank lingo as "risk-based repricing," is a key component of a number of bills on Capitol Hill. The Fed's proposal would allow banks to raise rates when a consumer defaults on that account, and to consider "outside factors" to raise rates for new transactions. However, banks would not be allowed to use such factors to raise rates on existing balances.

According to On Wall Street, Citigroup and JPMorgan Chase & Co. announced they would no longer do universal default; however, Bank of America still uses risk-based repricing, and Capital One reprices its customers when their cost of funds rate increases.

Consumer advocates are applauding the Fed's aggressive stance. A vote is expected today.

"Arbitration Coalition" Heads Back to Court

Last Friday, the U.S. Court of Appeals in New York breathed new life into a class action lawsuit that has been languishing since 2005. At issue: alleged anti-competitive practices involving mandatory arbitration clauses in credit card agreements.

The lawsuit claims that banking giants Bank of America Corp. Capital One, Discover, Citigroup and Washington Mutual worked together to draft and institute mandatory arbitration clauses, which would ensure that customers that have a dispute with them could not take them to court to resolve their issues – they would have to file claims with an arbitration board instead.

The suit alleges that this "Arbitration Coalition" successfully eliminated all non-arbitration credit cards from the market, and as a result, hurt consumers by limiting their rights. The plaintiffs tried to show that the banks colluded by sharing tips on how to write enforceable agreements and agreeing to impose the same terms in each of their credit card contracts… all of which deprived "the cardholders of meaningful choice in the area of credit card services, and [diminished] the overall quality of credit services offered to consumers."

The case seemed to die in the U.S. District Court for the Southern District of New York when the court ruled that because the plaintiffs could not prove they had suffered actual harm, there was no case.

But the U.S. Court of Appeals in New York agreed that cardholders could have been harmed through a lack of competition and sent the case back to the lower court. After all, if all credit cards require mandatory arbitration, then consumers do not have a choice of using a credit card that does not mandate it – they only have the choice not to use credit cards at all.

While this matter is likely to be debated for a while, it is just one more credit card-related issue that is raising the ire of consumers and capturing the attention of legislators.

Fannie and Freddie are Looking at Your Credit Score

The latest numbers released by RealtyTrac, a realty research group, show that more than twice as many homes were headed into foreclosure in the first quarter of 2008 – that's one in every 194 households nationwide. In some states, the numbers are even higher – for example, in Nevada, one in 54 homes received a foreclosure notice.

That trend is expected to continue throughout the year as mortgages continue to adjust throughout the summer and fall. The continued pressure has Fannie Mae and Freddie Mac – who purchase mortgages and bundle them into securities to sell to investors – looking for ways to mitigate their risk.

Once upon a time, just about anyone with a 620 score or better could get a loan with minimal down payment. But new fees are now being imposed on buyers – fees that directly correlate with the buyers' credit score and the amount of money being put down.

These "Loan Level Price Adjustments" (LLPAs) are upfront penalties that cannot be negotiated away by your lender. (They do not impact FHA or VA loans.)

In order to escape these additional upfront costs, your credit score will need to be 720 or better if you are putting down less than a 30 percent deposit on the home.

Here's an example:

If you buy a $250,000 house, putting down $50,000 and borrowing $200,000:

• If your credit score is 720 or higher, there's no fee.
• If your credit score is 680 to 719, you pay 0.5 percent, or $1,000.
• If your credit score is 660 to 679, you pay 1.25 percent, or $2,500.
• If your credit score is 619 or lower, you pay 2.75 percent, or $5,500.

The FICO credit score used by Fannie and Freddie is the middle score generated by the three national credit bureaus. If there is more than one borrower, they will look at the middle score of the borrower that earns the highest income.

The stricter requirements have mortgage lenders calling this the new "predatory lending" formula that will escalate the number of deals that fall through in today's shaky market. Sal Bernadas, president of the Louisiana Mortgage Lenders Association, told the New Orleans Business Journal, "The fact that they're charging new fees to people with 20 percent down and a 680 credit score – there is no statistical reason they need to do that to protect that particular loan from losses."

Bankrate.com says that lenders have the option of converting the fees into higher rates for customers who don't want to pay the cash upfront; however, the end result could mean significantly higher monthly payments.

If you are thinking about getting a mortgage in the upcoming year, you will want to order your FICO credit report and review it carefully. Even small changes can make a big impact on the amount of mandatory fees you will be required to pay. And whether you decide to repair your credit yourself or use a professional agency to optimize your credit, keep in mind that it may take six months or more to get your credit score to the point where you don't have to pay the expensive fees.

View the LLPAs for loans issued after June 1, 2008 with terms of more than 15 years (based on loan-to-value and credit score)

LendingTree.com: "When Banks Compete, Your Identity May Be at Risk…"

LendingTree, an online leads company that purports to help consumers shop around for the best mortgage deals, recently admitted in a letter to customers that some of their former employees helped unauthorized mortgage lenders hack into their databases. Customer information collected between 2006 and 2008 – including personal data often used to conduct identity theft, such as name, address, Social Security number, income and employment information – was stolen.

While they say the information was merely used to market mortgage loans, not to commit identity theft, the fact remains that LendingTree's lax security measures contributed to a significant data breach that may very well increase the likelihood that their customers will become identity theft victims.

According to the letter, LendingTree did not disable the passwords of their former employees, some of whom shared the confidential login information with unauthorized lenders who then tapped into the databases to "access LendingTree's customer loan request forms."

LendingTree's Response

LendingTree would not confirm the number of customers affected, and is not offering much in the way of compensation or solutions. They recommended that their customers use their "free annual credit report" benefit to check their credit report for any suspicious activity and monitor their credit reports for the next 24 months.

LendingTree also has filed lawsuits against three small home loan companies based in California in connection with the data breach.

Criticism of LendingTree Practices

Much criticism has been leveled against the leads company for the way it conducts business. Some customers claim that when they selected to have four lenders review their application, LendingTree actually sent it to 10… or more.

Other consumers reported that they started the application process, but changed their minds mid-way. Yet LendingTree sold their incomplete applications – and they started getting bombarded with calls.

"I have worked for 2 big mortgage companies and a broker," wrote one mortgage broker. "I've learned that LendingTree not only sells your information to 2 or 3 lenders, they sell it to other small lenders and broker shops. And then after a while, they resell your information again so they can have continuous profit. If you ever applied with LendingTree, make sure that you have read the Terms & Agreement. They sell it to anyone that can possibly help you."

Some complained that they had so many inquiries generated on their credit reports that their credit score dropped by 60-100 points. Hard inquiries are inquiries where a potential lender is reviewing your credit because you've applied for credit with them. These include credit checks when you've applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single inquiry. One exception occurs when you are "rate shopping". That's a smart thing to do, and your FICO score considers all inquiries within a 2 week period for an auto or mortgage as a single inquiry.

However, because LendingTree doesn't just sell information to a handful of lenders one time – they sell them repeatedly over a long period of time – this can, in fact, contribute to a decreased credit score.

Jackie Story – Are You Out There?

For four years, your Credit Mama has fielded phone calls from mortgage brokers and call centers all over the world looking for "Jackie Story." Apparently Jackie Story used to have my cell phone number. It didn't take long for me to figure out that she used LendingTree to apply for a mortgage or refinance. What did surprise me, though, was the sheer number of phone calls I received long after the first few rolled in.

At some point I finally started telling the callers that they had wasted their money by purchasing very old, very useless leads. I still wonder, though, if Jackie Story ever got that low interest rate she was looking for, and if her credit has been negatively impacted by all of the people who received her original application and tried to process it.

It's Not Just LendingTree

What many people don't know is that your information can also be purchased from the credit bureaus. "Trigger leads" – leads generated when you apply for a mortgage – plague mortgage brokers. When you apply for a mortgage, your phone number and address are sold by the credit bureaus to other mortgage companies. That's why many applicants begin receiving volumes of solicitations from companies they have never heard of.

Be wary of any lead company, such as LendingTree.com or LowerMyBills.com. And if you do not wish to receive pre-approved or pre-screened offers for credit or insurance, the Fair Credit Reporting Act allows you to "opt out" of receiving them. To opt-out, call toll free to 1-888-567-8688 or visit optoutprescreen.com.

Beware of Advance Fee Loan Scams

The increasing number of unsolicited e-mails ("spam") advertising mortgage refinancing, debt consolidation and limitation, small business loans, and special loan programs for veterans and minorities has caught the watchful eye of the Federal Deposit Insurance Corporation (FDIC), which has issued a special alert about advance fee loan scams.

While some of these e-mails may advertise legitimate loan programs and lenders, advance fee loan scams are becoming more prevalent as the credit crunch squeezes consumers.

According to the FDIC, advance fee loan scams prey on consumers who may be under financial duress and may be seeking quick and easy loan approval and funding. The scam typically involves the lender making false promises to arrange for a loan in return for fees paid upfront by the loan applicant. Scam artists may even design Web sites and online loan applications giving the appearance that the company is legitimate.

Fraudulent logos and letterhead of legitimate financial institutions or government agencies may also appear on documents that are faxed to the loan applicant. Potential borrowers may be asked to provide information through a Web site or be contacted by phone or e-mail by a "representative" who guarantees loan approval as soon as the borrower pays a required fee. The loan applicant may be told that the fees will be used to pay a third party for loan insurance or application processing, or to make the first month's loan payment. The loan applicant may also be told to send or wire transfer money to an individual overseas before receiving the loan proceeds.

In some cases, the loan applicant has been falsely directed to a legitimate financial institution with no knowledge of the transaction. In other cases, the loan applicant is told that the loan request was declined and is asked to forward additional money to qualify for a different loan program.

Warning Signs
The following are warning signs that may indicate a loan offer is not legitimate:

• The loan approval is "guaranteed." Lenders do not typically guarantee loans before analyzing the applicant's financial condition, credit history and ability to repay. Ads that say “Bad credit? No problem” or “We don’t care about your past. You deserve a loan” or “Get money fast” or even “No hassle — guaranteed” often indicate a scam.
• The loan applicant is required to pay upfront fees to a third party or individual. Loan fees are normally paid to a business after the loan has been approved. Any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, especially if you’re told it’s for “insurance,” “processing,” or just “paperwork.” Legitimate lenders often charge application, appraisal, or credit report fees. The difference is that they disclose their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.
• They don't want to check your credit history, but they ask for personal information. It’s a warning sign if a lender asks for your personal information, such as your Social Security number or bank account number, especially if they aren't checking your credit history. They may use your information to debit your bank account to pay a fee they’re hiding.
• The lender or loan processor may be located outside of the United States.
• Fees are requested using a retail wire transfer system. A password is sometimes used by the overseas receiver to pick up the funds in an attempt to hide the true identity of the criminals and make funds more difficult to trace.

Victims of online advance loan fee scams should report the crimes to the Internet Crime Complaint Center at http://www.ic3.gov/.

Consumers Silenced in Testimony on Unfair Credit Card Practices

On March 13, registered Republican Steven Autry had planned to share his experience with Capital One before the House Financial Services Committee's hearings on H.R. 5244, a proposal to ban unfair and deceptive credit card practices:

"My relationship with Capital One goes back to 1999, when I was solicited with an offer for a Visa card with a "fixed" 9.9% rate card. I applied over the phone, and was approved. The card was used for both purchases and balance transfers in a positive relationship with Capital One for eight years until July, 2007. That's when Capital One advised me in a billing insert that my "fixed" rate of 9.9% was being raised to 16.9%. No reason or explanation was given – I was not late on payment, and had not utilized the entire credit limit. This was a unilateral change to the terms of our agreement.

"In August, of 2007, I wrote a letter to Mr. Richard D. Fairbank, Chairman, President, and CEO of Capital One, at the McLean, Virginia home office. My written statement will contain a copy of Capital One's response which includes the line, 'Unfortunately, changes in the interest-rate environment or other business circumstances may require us to increase rates, even for fixed-rate accounts in good standing.'"

Neither Steven nor the other three credit card victims who were invited to testify actually did. Congressman Spencer Bauchus (R-AL) and the credit card companies led the rally to muzzle the consumers by demanding they agree to publicly release all of their private financial records – or not be able to testify. (Bauchus, not surprisingly, has been generously funded by the financial services industry.)

The bully tactic worked. Representatives from Capital One, Chase and Bank of America spoke for hours about how fair and consumer-friendly their practices were, citing "facts" without any supporting data. Yet the consumers who flew in to testify were silenced by the threat of the financial institutions being able to expose anything they wanted about the consumers or smear them after the hearings were over.

Rep. Mark Udall (D-CO) railed on behalf of his constituent Susan Wones, who traveled to D.C. to tell lawmakers about how her credit card company doubled her interest rate to 25 percent without notice and despite her record of paying her bills on time. Susan holds a high credit score rating, pays her bills on time and doesn't exceed her credit card limit.

"None of the consumer witnesses objected to signing releases that would allow the committee to verify the facts concerning their individual stories, and I must say that I found the Financial Services Committee’s insistence on a broad waiver of privacy rights to be both unnecessary and counter-productive," Udall said in a release. "Narrowly drawn waivers could have been drafted by Committee staff weeks ago, instead of waiting until the eleventh hour to prevent consumer testimony. What happened today is emblematic of why so many Americans are fed up with Washington."

Rep. Maloney has promised to hear the voices of these consumers. Time will tell if that does indeed happen.

For now, we have Steven's written testimony, which holds this analogy:

"The NFL does not allow one team, in the midst of the fourth quarter, to unilaterally move their end zone 20 yards in their favor just because they don't like the point spread. The rules are laid out before the kickoff, and the umpires enforce the same rules for both home and visiting teams for the whole contest. It's time for legislation at the federal level that tells the credit card industry, 'Game Over' to unilateral, one-sided, rule changes."

View the archived webcast and read the prepared testimony of the witnesses who appeared before the Subcommittee on Financial Institutions and Consumer Credit.

Should I Pay Off My Car Loan or Credit Cards First?

I had a reader write in to tell me he was going to use his economic stimulous tax rebate check to pay down some of his debt. As a married father of four, he is expecting to receive a fairly sizeable rebate.

"I am so close to paying off my car loan, but I have some debt on my credit cards, too," he wrote. "I was fortunate to get a fairly low interest rate on my credit cards, so I'm torn between trying to pay off my car loan or pay down my credit card debt."

Your Credit Mama recommends paying down your credit card debt first, for a couple of reasons.

1. First, we all know how capricious credit card lenders are. Just look at Bank of America's recent move to increase interest rates on credit cardholders for no apparent reason. Because so many credit card agreements contain clauses such as any time-any reason rate changes and universal default (where a drop in credit score - even if inaccurate and/or unrelated to the account - will trigger a rate increase), carrying balances on credit cards is becoming a dangerous gamble.

2. Paying off credit cards improves your score more than paying off the other loans. The FICO scoring algorithm places a higher importance on your credit card balances. Your score will increase as your debt ratio on your credit cards decreases, while your score may not increase much at all by paying off your car loan, or student loan, or other type of installment loan.

Your goal should be to get your credit card balances to less than 30 percent of your total credit limits. So if you have a $1,000 credit limit, you should charge no more than $300. If you have several credit cards with balances, rather than paying off one card entirely, you may want to pay enough toward each card in order to get all of the balances down to 30 percent or less.