Another Victim of the Housing Market Meltdown: Your Privacy

During the recent housing bubble, millions of Americans purchased or refinanced their homes with mortgage lenders throughout the country. With the implosion of the housing market, many of these mortgage shops closed their doors permanently.

It probably occurred to very few applicants that their files -- loaded with all kinds of personal data, from Social Security numbers and bank statements to tax returns, retirement accounts and credit reports -- would ever be in danger. Yet the records of thousands have been compromised - and not from a gang of thieves breaking into these offices. It seems that once the business is shut down, some mortgage lenders are simply disposing of all these paper records in public dumpsters. According to MSNBC:

• First Magnus Financial Corp., one of the nation’s largest mortgage lenders whose headquarters was one of the biggest employers in Tucson, Ariz., threw away thousands of mortgage loan records in an unlocked trash dumpster in Ft. Lauderdale, Fla.


• The records of hundreds of former customers of the defunct Alpha Mortgage Services were left in a recycling bin behind a grocery store in Toledo.


• After Union Mortgage Services of Ohio shut down last month, confidential files on hundreds of people were thrown out in a dumpster behind a pizza shop in Cleveland.


• American United Mortgage Co. of Northbrook, Ill., left hundreds of borrowers’ financial documents in an unlocked dumpster, many of them in open trash bags.


• Sheriff’s deputies in DeKalb County, Ga., outside Atlanta, found the mortgage records of at least 1,200 former customers of Ameriquest Mortgage Co. in a dumpster behind an apartment complex in October, two years after the company, once one of the nation’s biggest subprime lenders, went out of business.


• In Honolulu last year, a handyman hired by the former president of the defunct Fidelity Escrow Services dumped 39 boxes of financial records in a recycling bin.

While the Fair and Accurate Credit Transactions Act, or FACTA, requires businesses to dispose of sensitive financial documents in a way that protects against “unauthorized access to or use of the information,” it doesn't actually require the physical destruction of the data. To date, only one case has been brought against a company by the FTC (American United Mortgage was fined $50,000 after continuing to violate FACTA after receiving a warning). The challenge is pursuing action against companies that no longer exist.

The breaches leave thousands of consumers at risk for identity theft. For former customers of now-defunct lenders, there isn't much recourse. The best safeguard is vigilant monitoring of your credit report.

Rep. Maloney Introduces Credit Cardholders' Bill of Rights

The wave of legislation designed to protect consumers from unfair credit practices continues in the House of Representatives. Yesterday, Rep. Carolyn Maloney (D-NY) introduced the "Credit Cardholders' Bill of Rights Act of 2008" (H.R. 5244), which aims to amend the Truth in Lending Act and abolish predatory lending practices and abuses.

The Bill of Rights includes provisions that:

• protect cardholders against arbitrary interest rate increases (such as universal default and "any time any reason" price hikes) and require a 45-day notice of any interest rate increases
• prevent cardholders who pay on time from being unfairly penalized (eliminating double-cycle billing and fees on interest-only balances)
• protect cardholders from due date gimmicks (requiring card companies to mail statements 25 days before the due date - 14 days is the current minimum - and prohibits charging late fees if provided with proof of mailing the bill within 7 days of the due date)
• shield cardholders from misleading terms (such as "fixed rate" vs. "prime rate")
• empower cardholders to set limits on their credit (creating a self-selected credit limit that cannot be exceeded, thereby eliminating over-the-limit fees)
• require card companies to fairly credit and allocate payments (many card companies require that payments be allocated to lower interest rate balances first)
• prohibit card companies from imposing excessive fees on cardholders (limits the number of over-the-limit fees to 3)
• prevent card companies from giving subprime credit cards to people who can't afford them (requiring that fees for subprime cards whose total fixed fees over a year exceed 25% of the credit limit be paid upfront before the card is issued)
• require Congress to provide better oversight of the credit card industry (improves data collection on industry profits and fees, and provide an annual accounting to Congress)
• contain NO rate caps, fee setting or price controls (a concession to the card companies)

Maloney, who chairs the House Financial Institutions and Consumer Credit Subcommittee, said, "A credit card agreement is supposed to be a contract, but in recent years cardholders have lost the ability to say no to unfair interest rates hikes and fees." The bill "levels the playing field between card companies and cardholders while fostering fair competition and free market values. It sets no rate caps, fees or price controls, nor does it dictate any business models to card companies."

Beware of Predatory Credit Cards

So let's say you're one of the millions of Americans with weak or non-existent credit. You're desperate to rebuild your credit history, since you know that poor credit leads to higher rates for mortgages, auto loans, insurance and can even affect whether or not you land that job you want. You've heard that one way to rebuild a weak or non-existent credit history is by signing up for a credit card and making small purchases, repaying the debt on time every month.

Somehow these banks seem to know that you want credit - you've received e-mails and offers in the mail. Lured in by promises of credit lines up to $2,000, you apply for a credit card. Congratulations- you're approved! You're a little disappointed that the limit they give you is just $250. It wasn't as much as you'd hoped for, but it's a start.

What you probably didn't do, though, is ask about the TERMS. And you soon discover that your $250 credit line is actually much less, because by merely signing up for the card, you incurred $178 of instant debt due to all those fees that you didn't know you'd be responsible for. There's a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee. If you didn't realize that your actual buying power was really just $72, you might buy something that causes you to go over your limit - which, of course, generates yet another fee.

This is just one example of "fee harvesting," a practice by which credit card companies pile on junk fees to unsuspecting consumers - typically low-income, fixed-income and minorities. It's a lucrative business, generating millions in fees for companies and billions of dollars of debt for consumers.

A report issued by the National Consumer Law Center details how banks and marketers take advantage of inadequate laws and weak oversight by regulators by selling these predatory cards. The biggest offenders named in the report include CompuCredit, Urban Trust Bank, South Dakota-based First Premier and First National of Pierre, and Delaware-based First Bank of Delaware and Applied Bank (formerly known as Cross Country Bank), Capital One and HSBC.

They'll tell you their mission is bringing affordable banking services to the underserved. But what they are really doing is profiting from the poor and desperate.

The root of the problem lies in regulatory and legal loopholes that allow this practice to continue. I don't advocate cutting off people's access to credit. Rather, we need tougher federal controls. Until Congress acts to protect consumers from fee harvesting and other predatory practices, you must protect yourself.

The smaller the print, the more important it is to read it. Before you agree to anything, ask to read the terms. If you don't understand the terms, ask someone you trust to explain them to you.

Remember, if it seems too good to be true, it probably is.

Listen to NPR's report: Low Wage America - Credit Card Companies Abuse the Unwitting.