Debit Card Traps - Part II

Susan, a good friend of mine, recently called me in tears. She and her family had planned a getaway to Disney World for a long holiday weekend - the first "vacation" they had taken in years. The kids had already planned out which rides they were going to go on, and Susan and her husband were eager to get away from it all for a few days.

Always the conscientious one, Susan made it a point to pay her bills online the evening before heading off for vacation. She booked her hotel online as well, using her debit card. But on the second day of the vacation, she was shocked to learn that her checking account was overdrawn, and that overdraft fees were piling up daily.

Susan learned that the hotel had put a "hold" on her debit card for the entire amount of the hotel bill - effectively blocking all of her available funds in her bank account. This caused her other bill payments to be returned for insufficient funds, adding more fees to the total. And, she had no access to the money in her bank account for purchases until the hold was lifted - after her stay was over.

Whether reserving a hotel room, renting a car, starting a tab at a bar or even purchasing gas, many retailers are using holds to ensure patrons pay their bills. While these holds are usually lifted within five business days or less, being unable to access the funds in your account due to these types of blocks can be stressful and expensive.

The lesson? If you are traveling, use a credit card to reserve hotel rooms, rent cars or make dinner reservations at restaurants. If you must use your debit card at places such as a gas station pump, enter in your PIN number - doing so eliminates the hold.

Debit Card Traps - Part I

According to a recent article in Reader's Digest, debit cards have replaced credit cards as the "plastic of choice," with debit cards used for 33 percent of in-store transactions compared to 19 percent with credit cards. That number is expected to jump to more than 50 percent in the next three years.

The increase in the use of debit cards has translated into an increase in debit card fraud. In 2007, hundreds of visitors to a national chain restaurant in Sioux City, Iowa, learned that thieves had stolen their debit card numbers by swiping them through a "skimmer" device, and made cloned cards. These cloned cards were then used to make purchases in California and Mexico. This came on the heels of the massive data breach reported by TJX Companies.

One of the biggest misconceptions about debit cards is that they offer the same protection against fraud as credit cards... probably because they both have the familiar Visa or Mastercard logo stamped on the front of the card.

When you make a purchase with a credit card, and the service or product is not delivered or is not what was promised, you can dispute the charge with your credit card company. Under the terms of the federal Fair Credit Billing Act, the credit card company must remove the charge while it investigates your dispute.

There is no such grace period with debit cards. Once the money is pulled out of your account, it's gone - and under the terms of the Electronic Fund Transfer Act, the issuer of your debit card is not legally required to investigate or help you with your dispute.

While federal law generally limits your liability on both credit and debit cards to $50 provided you report the crime within two days of receiving your statement, recouping your cash is not a sure thing. And if you fail to notice the suspicious activity right away, you may be liable for up to $500 or more.

How to Protect Yourself

• Don't ever hand over your debit card at a place where they process the card out of your sight, such as a restaurant.
• Don't use debit cards for online purchases or big-ticket items.
• If a store's card reader prompts for your PIN, override the sale by pressing Credit/Other or ask the cashier to process the transaction as credit.
• Gas stations are notorious for being "hot spots" for skimming. If you must use a debit card at a gas station, use your PIN and don't let the card out of your hand.
• Take advantage of your bank's online banking system and check your statements frequently.

Help! The Collectors Won't Stop Calling Me!

Not that long ago, collection tactics were horrifyingly sleazy. Collection agencies would focus on collecting money by humilating the debtor, from sending postcards in the mail or printing information on the outside of envelopes regarding the debt, to printing names of debtors in large publications, to harassing employers, friends, neighbors and family members about the debtor. Abusive practices also included calling at all hours of the day and night, threats of lawsuit or bodily harm, depositing of post-dated checks, and threatening to report a financed vehicle as "stolen" because of a few missed payments.

The passage of the Fair Debt Collection Practices Act (FDCPA) has put regulations in place to govern the behavior of debt collectors. But harassment is still part of debt collection. Collectors assume that most people don't know their rights, and persist in harassing and making false threats.

One Pittsburgh woman reported that a collector called her 5-year-old daughter and told her that she'd better get her "deadbeat mommy to pay her credit card bills." Another woman's young daughter was tricked into giving the collector her mother's work number. One man's supervisor was constantly called out of important meetings to deal with collectors calling to let her know of his debt and demand payment.

You CAN stop the harassing calls. Under the FDCPA, you are allowed to tell the debt collector to stop calling you or contacting you. There is no law that says you must communicate with a debt collector on the phone. If you hang up on them, and they continue to call you, they are in violation of the FDCPA.

What to do:

1. In any phone conversation with a debt collector, ask for and write down the name of the agency, the caller and the phone number. Keep a log of contacts, recording the date and time of the call, the collector's name and agency, and a summary of the conversation.

2. Insist on specific information about the debt. Tell the collector you will not discuss the debt until you receive the documents and review them. That is the law -- within five days after you are first contacted, the collector must send you a written notice detailing the amount of money you owe, the name of the creditor and what action you should take if you believe you do not owe the money. If after a validation request under the FDCPA, the creditor refuses to cooperate, then the creditor may not legally collect the debt.

3. Do not give out any personal information, such as Social Security Number, the name of your employer, or banking information.

4. There is no reason you need to acknowledge that you owe the money! This is very important if the debt is old. By acknowledging the debt, you may actually extend the time the creditor can sue on it. All states have statutes of limitations on debt collecting. Few states are more than six years. Many are less. You can extend this limitation by acknowledge the debt or even by making a partial payment!

4. Tell the debt collector that you prefer to communicate with them in writing. Debt collectors would rather call because they are hoping that you are ignorant of the laws, and they can say whatever they want without any record of what was said. Do not put up with harassment or verbal abuse.

5. If they are calling you at work, advise the collector that your employer does not permit you to receive these calls.

6. Follow up with a cease-and-desist letter to the debt collector, stating that the debt collector is to cease further communication with you. Send it certified mail, return receipt requested.

7. The debt collector may contact you one more time, but only by mail, to tell you that further efforts to collect the debt are terminated, that certain actions may be taken by the debt collector, or that the debt collector is definitely going to take certain actions.

8. Debt collectors may NOT contact you at unreasonable times; harass, oppress or abuse you; threaten violence or harm; use obscene language; or repeatedly annoy you by phone. They cannot make false statements, such as implying they are attorneys or government representatives, or claim that you will be arrested if you don't pay your debt. They also cannot collect an amount greater than your debt, unless state law permits.

9. If you believe you don't owe the money - the collector is in error, the debt is so old that the statute of limitations has run out, or you have been a victim of identity theft - send the collection agency a letter stating that you do not owe the debt. You must do so within 30 days after receiving written notice. But if the collector sends you proof that you owe the money, he can resume contacting you.

10. If you believe a debt collector has violated the law, you have the right to sue him in state or federal court within one year of the date of the violation.

11. Report problems with debt collectors to your state attorney general's office and the Federal Trade Commission.

CapOne and BOA Credit Card Ripoff

If you have a Capital One or Bank of America credit card, you may be in for a surprise when your monthly bill arrives.

Hundreds of thousands of credit card holders - many of whom have never missed a credit card payment and were in good standing - have been informed that their interest rates will be doubled - some to as much as 28 percent - without any explanation of the increase.

The big banks have been sending notices to consumers advising them of this change over the past month. In fine print, Bank of America has offered customers the option of not using their cards any longer and paying off their existing debt at the current interest rate - but in order to take advantage of this option, customers must "opt out" of the change by writing to Bank of America. There is no opt-out telephone number, nor does Bank of America provide a form or a return envelope. And consumers don't have much time to respond. Letters received in late January had deadline dates of Feb. 19 or Feb. 29. Those who threw away the notice thinking it was junk mail or who fail to respond by the due dates will see their rates automatically rise on existing and new balances.

It's a legal - but sneaky - trick, as many of the big credit card issuers have provisions in the fine print that they can raise rates for any reason at any time. And with losses piling up in the subprime mortgage sector and increasing credit card chargeoffs, it's an easy way for banks to generate revenue.

But most people don't have a secret stockpile of money laying around that they can use to pay off their credit card balances - which means that once again, the credit card companies will win big at their customers' expense.

All this is happening despite the continued cuts in the Federal funds rate, which influences the interest that consumers pay for credit cards, home equity lines and car loans. The rate was reduced this year by 1.25 percentage points and currently stands at 3 percent.

Look for continued legislative efforts this year by Congress to curb these unfriendly practices.

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."

How to Choose a Credit Repair Company

Dear Credit Mama,

I've been trying for several years now to fix my credit. I have tried contacting the three credit bureaus over and over about inaccuracies on my credit report, but they keep telling me that they have "verified" the information and then do nothing to correct it. This has cost me the ability to refinance my home (which has just adjusted up by 2%) and has made my credit card interest rates jump, too. At this point, there are so many mistakes on my report that I am afraid to even apply for any credit because I don't want to be embarrassed when the clerk tells me I don't qualify for a store credit card.

I have been looking into having a professional company repair my credit, but there seems to be a lot of conflicting information online. Can you give me some advice on how to choose a credit repair company?

Sincerely, Sue


Dear Sue,

As you've already experienced, trying to fix the errors on your credit report can be a daunting and frustrating task. While there have been changes in legislation that should provide greater protection for consumers, the credit system does not operate the same way as our criminal system... that is, with credit, you are guilty until you find a way to prove your innocence.

What most people do not understand is that credit bureaus are NOT government agencies. They are for-profit, multimillion dollar corporations that gather and sell your private personal information to creditors, insurers, employers, landlords, telemarking companies and mailing list companies. Those with lower credit scores statistically apply more frequently for credit, which generates more revenues for credit bureaus. So if you feel they don't have your best interests in mind by refusing to correct credit-score-lowering mistakes, you are probably right.

That said, there are some good credit repair companies with a proven track record of legitimately helping people like you. And they are not all law firms, nor are they required to be (contrary to what some firms are advertising). Here's what you should look for when choosing a credit repair company:

• The company needs to follow the provisions in the Credit Repair Organizations Act, which was implemented by the government to protect consumers from scam artists.

• The company is not allowed to charge you in advance. They must provide a service before billing you. Look for a company that will do an evaluation and audit of your credit report before taking your money.

• The company must tell you upfront what the costs are for its services. Be wary of endless "low monthly payments." In the end, you will usually pay as much or more than a company that charges a fixed fee for a year. Think about it: what is the incentive for a law firm or company to finish your credit restoration as quickly possible if they only charge a small amount each month? And do you really think a lawyer is sitting at a computer spending hours each month to repair your credit for $40? I can't name one legitimate lawyer who charges less than $75/hour for legal services. Also look for hidden add-ons - for example, charging extra for different types of disputes, charging for each dispute individually, or adding fees for sending letters by certified mail.

• The total cost for credit repair services generally ranges between $600-800, even for firms that tout low monthly fees. You may pay a set-up fee and low monthly fee of $50, but in order to take advantage of their money-back guarantee, in most cases you need to be a customer for a minimum of one year. $50/month x 12 months = $600 (not including the set-up fee).

• Any guarantee must be clear and it must be in writing. Many firms will tout a money-back guarantee but hide how they will reimburse you if they don't perform as expected. Most require that you remain a customer for a minimum of one year before you can apply for any refund. Because credit repair can be difficult and time-consuming, this is a fair policy... but the company should say so upfront.

• Avoid companies that advise you to dispute all of the information in your report. Disputing all of the information in your report may cause the bureaus to tag your disputes as frivolous. You want a company that understands how to interpret credit reports and provides a strong strategy for what items to dispute and how best to do it.

• It goes without saying that creating a new credit identity by obtaining a federal employer identification number to use instead of a Social Security number is illegal. Run, don't walk, away from a credit repair company that suggests this tactic.

• The credit repair company should tell you what you can and can't do legally for free. You CAN fix your own credit, just like you can fix your own car transmission. If you have the time and knowledge, your Credit Mama encourages you to do so. Credit bureaus are required by law to investigate disputes and remove or correct inaccurate or unverifiable information. However, they are also legally allowed to ignore disputes under a variety of conditions. If you've had difficulty getting the bureaus to respond, or simply want the help of an expert, hiring a credit repair company may be the right decision for you.

Credit & Predatory Lending: Hillary's Plan

Did you know:

• Americans have a record $940 billion in revolving debt, and the average person carries up to nine different credit cards. (Federal Reserve, 2007)
• The average family carries thousands in credit card debt; over 10% of credit card users carry a balance of $10,000 or more. (Fair Isaac, 2007)
• Low-income credit card holders pay (on average) the highest starting interest rates - and are more than twice as likely to pay penalty interest rates than those with the highest incomes. (Demos, 2007)

With the current economic pressures causing rising foreclosure rates due to resetting mortgages and increasing costs for essentials - food, health care, education and energy- credit health is becoming a hot election issue.

On the heels of Barack Obama's Five Star Plan, Hillary Clinton unveiled a Fair Credit for Families Agenda, which seeks to address predatory lending and expand access to fair credit. The plan includes measures to:

• Impose a 30% cap on annual interest rates for credit cards and work toward a lower cap. (A GAO survey found that up to 25% of credit cards issued by banks charged penalty rates over 30%.)
• Prevent credit card companies from unfairly increasing interest rates or charging interest in unfair or unreasonable ways, such as universal default clauses, applying new interest rates to old transactions, and collecting interest on late penalties. Credit card companies would have to apply payments to the portion of the outstanding balance with the highest interest rate, and only be allowed to collect interest on the unpaid portion of the previous month's bill (for example, if you pay off a $500 balance, you should not have to pay interest on that $500 balance the following month).
• Require that credit card companies provide clear, easy-to-understand information about credit card terms and fees. In 2006, the credit card industry collected $97 billion in interest charges and $18 billion in penalty fees. (CardTrak, 2008)
• Create a new Financial Product Safety Commission to police credit products in the wake of declining regulation for credit card companies and banks.
• Crack down on abusive payday lenders and refund anticipation loan providers, many of whom charge excessive fees.

Your Credit Mama is not here to stump for any political candidate. But she does urge you, her family of readers, to look at your own credit situation and hold your elected leaders - whoever they are - accountable for making sure all Americans have fair access to credit on reasonable terms.