Great News! Protection from Credit Card Abuses May Be on the Way

Today, Senator Chris Dodd introduced the Credit Card Accountability, Responsibility and Disclosure Act (aka CARD), which would institute sweeping reforms and has received widespread support from Senate leaders as well as from key consumer advocates. The bill calls for:

1. The end of universal default and similar “any-time, any reason” increases in interest rates. Any interest rate increases will apply only to future credit card debt.
2. Fairness in how card payments are applied. If the bill becomes law, payments will have to be credited against the credit card balance with the highest interest rate.
3. A ban on double-cycle billing, which would prohibit interest to be charged on debts that are paid on time.
4. The prohibition of exorbitant rates and fees. For example, lenders would no longer be able to charge interest on late fees and over-the-limit fees. And once a penalty rate has been instituted, the issuer will have to lower it after six months of “good behavior.”
5. Fairer disclosures of card terms and conditions. Lenders will have to tell cardholders how much time it will take and how much interest it will cost if they only send in the minimum required payments.
6. More time. Credit card statements will have to be mailed 21 days before the bill is due rather than the current 14 days. Also, issuers will have to give 45 days’ notice of a rate increase.

The bill institutes some safeguards for young adults, requires the GAO to study the impact of the interchange fee on consumers and merchants, and empowers the Feds to develop further regulations governing unfair or deceptive practices by banks and savings and loan institutions.

If It’s Good Enough for Them
I could go on and on about other important aspects of the CARD Act, but thought you might prefer hearing what some of the best minds on credit card reform have to say about this legislation:

• Linda Sherry of Consumer Action calls it a strong consumer protection bill that “carries a number of landmark protections, including a much needed ban on unilateral changes to card agreements – a brutally unfair practice which no cardholder, no matter how responsible, can avoid.”

• “The Consumer Federation of America commends Chairman Dodd for offering comprehensive legislation to stop credit card companies from hitting consumers with unwarranted interest rate hikes and outrageous fees,” says Travis Plunkett. "As the economy worsens, these traps and tricks are pushing more families closer to the financial brink.”

• “For everyone who has been tricked or trapped by a credit card agreement that is impossible to understand, this is powerful news,” explains Elizabeth Warren. “The CARD Act could save families more than a billion dollars each year by cutting out the most unfair of the penalty fees and sky-high interest rates. Families need this help, and I am proud to stand behind Senator Dodd’s efforts to provide it.” 

• “Fundamentally, this bill stands for a very simple proposition that every American expects credit card companies to abide by - a deal is a deal," says Consumers Union’s Jeannine Kenney. "The Credit CARD Act prevents card companies from changing the rules in the middle of the game – by jacking up interest rates for card holders in perfectly good standing for any reason, or no reason at all, and applying that rate to their existing balances."

• “For too long, the bank regulators’ ‘anything goes’ deregulatory philosophy has given credit card companies a license to steal," says Ed Mierzwinski of US PIRG. “Senator Dodd’s CARD Act will grant students and others critical new protections against these unfair practices in the credit card marketplace.”

Please join with me and let your Senators know that it’s time to put an end to credit card abuses.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

It is a Great Time to Buy a Car

The Federal Reserve board decided to cut rates after all today. That means the prime rate is now a low 2%. Auto rates should be falling soon with the new, they're already below 7% for a new car.

So you can get a good rate on an auto loan, why else is it a good time to buy a car?

• Auto dealers are facing slumping sales. Analysts predict a million fewer new car sales this year.
• Gas is expensive. You can reduce your commute costs by switching to a more fuel efficient vehicle.
• The internet makes it easy. Compare cars online to find the best deal.
• Cash strapped consumers may be extremely motivated sellers.
• There are some great used car options. A lot of cool low-MPG cars have been on the market for a few years. The Toyota Prius and BMW Mini have both been sold in the US since 2001.
• Your tax refund and economic stimulus rebate are coming in the mail soon and would make for a good downpayment.

If you are shopping for a car, here are some tips for saving money:

• Research first. Spend some time reading online and comparing prices to narrow down your list of options. Do some test drives to see if you really like the choices.
• Wheel and deal online. Most auto dealers have specialized internet sales departments that you can play against each other from the comfort of your computer. Keep negotiating until you get a great deal.
• Buy used.  Unless you plan to keep the car for a long time, you can save a bundle by buying a car that has been gently used instead.
• Wait until the last weekend of the month or the quarter if buying from a dealership. This is when car sales teams are racing to make their numbers.
• Finance your purchase online. Online auto loans offer very low rates and fees. And the best part is that a dealership will often try to undercut the rates and give you a better deal.
• Use a downpayment to lower your auto loan rate and save money on interest.

We've got more tips to help you save $3,000 on your car purchase online. 

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

18.6 Million U.S. Homes are Vacant

Here's a scary statistic for your Tuesday morning: 18.6 million homes in the US were vacant in the first three months of 2008. That's almost 6% higher than the same time last year and the highest rate since since the census bureau started keeping track in 1956.

San Francisco, which is supposed to be immune from real estate downturns, reflects this statistic from the curb. I pass at least four empty apartments each day that have been on the market for more than 6 months. How does it look in your neighborhood?

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Are You Ready for Another Rate Cut?

Experts are divided as to whether or not the Federal Reserve Board will cut rates again this Wednesday. Another quarter point cut would leave the Fed Rate at 2.00%. This would be the lowest fed rate since November 2004, around the same time when the U.S. homeownership rate peaked at 69.2 percent.

What would another rate drop mean to you? Well for one thing, your high-yield savings account is going to take another APY hit. Currently, an ING savings account earns a pretty lowly 3%. If you're a saver, like me, this isn't happy news.

On the positive side: You should be able to get a great low rate on an auto loan. Plus, auto dealers are struggling with a slowdown in new car sales, meaning that they could be eager to make you a deal.  And home equity loan rates would be stellar if you could find someone to give you one. The stock market would also probably benefit from a rate cut and you could see your credit card APR drop a bit.

On the negative side: Another rate drop could play a role in an even weaker dollar and even more inflation on food and gas prices. And mortgage rates? They're not playing along with the Fed. Rates for a 30-year mortgage have been pretty steady and didn't drop with the Fed cut in March.

Do you think the Federal Reserve Board is going to cut rates again? Do you think they should cut rates or leave them alone? Share your feedback in the comments section below.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Another $7 Fee

In the grand scheme of things, adding $7 to the cost of getting a mortgage is not a big deal. After all, loan closing costs already include fees for processing, underwriting, document drawing, appraisal, settlement, and title insurance that total something like $2,500. So what's the $7 for?

It's for what is called Secondary Use of the credit report. When we meet clients and take their application, we get a credit report that typically costs about $20.  Normally that would be the end of it. But every lender we deal with relies upon some kind of Automated Underwriting system. The most frequently used are those of FannieMae and FreddieMac. But many lenders have their own "engines," as they refer to them.

In the process of uploading a file to these systems to get our approval, we enter in the credit report number assigned to it by the provider. Then the Automated Underwriting System goes to the agency that issued the report and has it reissued. That would be in lieu of ordering a new report which would cost another $20 and result in a "hard" inquiry that can result in lowering your FICO scores.

Re-issuing the old report does not add an inquiry. The lender ends up getting the same one we got but they can also be assured that the report is genuine. That eliminates one opportunity for fraud although being able to get inside a report to delete negative items would be exceedingly difficult. 

Up until recently, there was no charge for this service, although everyone realized that the computers at the bureaus really do have to turn on again to reissue a report.  The difficulty was in the agencies through which the reports were ordered. Apparently there was a lot of programming that need to be done. Frankly, I think that the biggest problem was how to take the fee on the reissue and pass it through to a company like mine. But that's just a guess.

Now when a lender re-issues the old report, it will be added to the bill and passed on to the customer.  That's no big deal, but imagine someone who has a really difficult loan. If his mortgage broker submits it to five different lenders, guess what? He and you are going to incur a $7 charge for each of those re-issues.

Now perhaps my industry will accommodate this change and lenders will agree not to re-issue the credit report again until they have looked at it and are virtually sure that the loan will be approved. That's the way it ought to be anyway.

Just be aware of this change and be sure to mention it to your loan officer. He will be surprised that you are so knowledgeable and it will improve your relationship.

Funny Money Friday: Are You an Angry Renter?

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

There was a time around 2005-2006 that anyone who wasn't buying a home was called a "chump." I remember being harangued by friends with newly acquired real estate licenses and 28 year olds with four investment properties: "Housing prices will never fall!" and "You're throwing your money away by renting."

Now, a couple of years and one credit crunch later, I feel somewhat smug about my decision not to invest in a $700,000 1 bedroom apartment.  That particular bubble wasn't too hard to spot.

The bailout of homeowners with my tax money, while I understand it from a save-the-economy perspective, does irk me a bit. And it turns out I'm not alone. A website called AngryRenter.com is leading the revolt with a YouTube video and a petition:

AngryRenter.com is sponsored by Freedom Works, a group that campaigns for smaller government, deregulation and tax cuts. It's not an organization I regularly support - I kind of like the fire department and the FDA -  but I do have to give them props for a clever campaign that cuts straight to the bone.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

How to Combat Rising Food Prices

Going to the grocery store has gotten a lot more expensive lately. The cost of basic foods like rice and wheat have surged around the world. Stores like Costco have even started rationing bags of rice. And the falling value of the dollar has made imports more expensive.  If you're not careful, your weekly grocery bill could be increasing.

Here are some tips for keeping your food costs under control:

• Read your receipts. After you shop, audit your grocery receipt to see what might be more expensive than you thought. I once had a co-worker who was unknowingly paying $9 for small bags of marcona almonds for three months before noticing it on his receipt.
• Use by-the-ounce prices to get the best deal. Most grocery stores post per ounce prices that make it easy to compare. That 2-for-1 deal on olives might not compare to the value of a bigger sized can.
• Shop for in-season produce. Don't buy peaches in December. Seasonal produce is usually cheaper. You can also find really good deals at a local farmer's market.
• Get creative. Beans and potatoes can be used as a very inexpensive base for tasty meals. And frozen juice concentrate is cheaper than bottled options.
• Don't waste. Only buy fresh foods that you know you'll eat before they go bad. Or start freezing extra supplies.
• Remember that a "2 for $5" deal doesn't mean that you have to buy two of the items. The $2.50 price is usually available if you just buy one.
• Cook from scratch. Processed foods are often more expensive than their homemade alternatives.
• Find coupons online. These direct coupons offer really good deals - not just a few pennies off.
• Use a credit card to earn rewards or cash back on your grocery purchases. Some credit cards offer special rewards for grocery store charges.

How are you combating rising food prices?

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

What a Way to Run a Direct Mail Campaign

My friend Marc recently had a moving experience. That is, he bought a new home, and went through the usual gymnastics of dealing with brokers, lawyers, utility companies, and movers, to name but a few. His new mailbox was full of "welcome to your new home" offers for various services and discounts, including a free oil change, and a 10% off coupon for one of the big box stores.

On closer examination, Marc realized that the coupon wasn't really a coupon. It was an offer for a coupon. To receive the coupon, he had to go online and fill out a form, which he did. Time went by, but the coupon never arrived. So he went back online, looked up the company's customer service email address, and sent a note explaining that he had never received his 10% off coupon. Not long afterwards, Marc received an automated response telling him that his problem couldn't be helped by the computer-based customer service people, he would have to make a phone call.

Ring. Ring.
The customer service rep listened patiently to Marc's story, put him on hold for a while, apologized, and promised to send out the coupon, "which should arrive in about six to eight weeks." (How difficult, he wondered, would it be to put the thing in an envelope, and mail it out? Or, better yet, since the original requirement was to submit an electronic form, how difficult would it have been to simply email the blasted thing?)

Perhaps reading his mind, the customer service rep went a step further, and offered to send a gift card in the amount of $35, to be used while waiting for the coupon. The gift card was delivered by UPS a few days later, but long after the 8 week waiting period had ended . . . Marc still had no coupon. So, he made another call, and this time was given a different number to call, with a specific extension to punch in.

The person who answered this call had no idea why Marc was given her number, and he was eventually switched to a very polite representative, who sincerely apologized, and said a coupon would be sent right out. He should receive it in a week to 10 days. To make it clear that this time it would indeed arrive, he was given a confirmation number.

It never arrived. Not in 6 to 8 weeks. Not ever. Marc happily used his gift card, and decided it just wasn't worth any more of his time and energy to pursue the coupon. And because of the hassles, any further shopping would be done in a different Big Box store, one that made no offer, and lived up to it.

End of story? Not quite.
All of a sudden, emails started flooding Marc's inbox with "helpful" tips, sale opportunities, and miscellaneous benefits to shopping at the store that offered the coupon but never sent it. Not a big fan of spam, Marc attempted to unsubscribe, only to get a screen asking for all sorts of information, other than the email address to remove from their "subscriber" list. Unable to break through the information barrier, and unwilling to give out his address and phone number in fear of yet more intrusions, he returned to the phone.

If you were hoping for a happy ending, guess what? There is one! This time, after repeating much of what you just read to a very patient representative, he was offered another gift card, this time for $200, and most amazing of all, the card arrived just a few days later. Marc has still not received the coupon, but it doesn't bother him nearly as much.

Moral: Persistence pays off!
For your own happy endings with corporate America, get yourself a free copy of the 2008 edition of the Consumer Action Handbook, which offers the best advice on how to lodge winning complaints. It includes the names, headquarters, addresses, phone numbers, Web sites, and email addresses of virtually every top flak-catcher at hundreds of corporations, as well as key federal, state, and local government agencies and nonprofits that might help solve consumer problems. There are also plenty of detailed tips about shopping from home, identity theft, telemarketing, credit, privacy, product safety, scams, cars, insurance, banking, phone service – you name it.

You can access the handbook online, but I think the printed copy belongs in every house. Uncle Sam must agree. He'll send you up to five copies for free. Makes a great housewarming gift.

Let us know of your recent experiences in trying to get your complaints resolved. If you haven't already succeeded, maybe we can help!

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Reader Question: What to do With Old Collections?

Alecia wrote in earlier this week with the following question:

My husband and I had about $3,000-$5,000 in past credit card/misc debt that went to collections after he lost his job a year into our marriage.  Now we have been married for over 6 years, and he is in the Army.  He just reenlisted and got a decent size bonus, and we were planning on paying off our collections debt. 

Because it has been so long, will a lot of those collections will be falling off our record in the next couple years?  Is it better to pay everything off, or pick and choose base on the size of debt and how recent?   I have been doing as much research as I can on what to do, but it all seems so overwhelming, and I don't know where to start.  Does making a payment start the 7 years over again?  I am quite confused over the statute of limitations.  Any advise would be much appreciated.

Let's break this down to a few different questions:

1. When do collection accounts expire? Collection records come off your credit history seven years after the last 180-day late payment that led to the account sale. For example, if you had a gym fee that was 180-days late in June 2002 and it was sold in August 2002, the record would expire in June 2009.

2. Should I pay off an old collection? This is a tricky one because there aren't a lot of visible benefits to working with the collector. Those records will come off in a year whether you pay them or not. It is a good idea to repay collections though. It will mark the record as paid and get the collectors off your back.

3. What's the best way to repay a collection?  Print out a copy of your credit report to see where you stand now. Keep a copy of this report in case the collector tries any funny business with the credit bureaus. It doesn't really matter which account you pay off first. I would start with the youngest account just because it will be reported on your credit the longest.

Contact the collector and negotiate a deal for a lump sum payment. Remember, the collector bought your debt for pennies on the dollar. If they get any money from you at all, they should be happy. Get the agreement in writing that your payment will settle the account in full from the collector before you send the funds.

Follow up after the payment is received to make sure the account is reporting correctly. The account's expiration date shouldn't change. The last reported date may be updated and the account should be marked as paid. If the collector tries anything weird, use that old copy of your report to dispute.

4. What happens if you don't pay a collection? After seven years, the collection records will come off your credit reports. But that doesn't mean the collector will forget about you. Collectors maintain a right to sue for the debt long after the credit report record and statute of limitations expire. If your collection accounts have large balances, this risk is increased.

5. What if I have other debts, too? If you have credit card debts or other high interest debts that are currently active, you might want to pay those off first. Those collection accounts should be repaid, but it isn't urgent.

6. Will my credit score improve by paying off collections? Unfortunately, no. Payment doesn't impact the way that collection accounts impact your credit score. You have to wait for the accounts to expire before you see the score improvement. However, having the accounts marked as paid can improve your chances of getting a home loan and will make your credit look a little better to landlords and employers.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Hey Comcast -- Give Me Back My Rights!

If you received a little black book titled "Comcast Agreement for Residential Services" as I did recently, don't just toss it in the round file. It's a mind-numbing 29 pages of legalese, but it describes your "agreement" with Comcast for their services. And buried almost in the middle is a gem: How to opt-out of mandatory binding arbitration in case of a dispute.

Mandatory arbitration takes disagreements out of the courtroom and into an alternative forum that some consumer advocates and attorneys (myself included) believe is skewed in favor of the industry. You can learn why by going to GiveMeBackMyRights.org.

The Comcast agreement gives you the opportunity to say no to mandatory arbitration. You can go to www.comcast.com/arbitrationoptout or mail a statement to Comcast at 1500 Market Street, Philadelphia PA 19102 Attn: Legal Department/Arbitration. Opting out won't affect your service, but can help preserve your legal rights.

Act quickly. You have only thirty days from the date you receive the notice to tell Comcast you don't agree to binding arbitration.

Hopefully you'll never have a dispute against Comcast that warrants a lawsuit, but if you do, you'll want to make sure you have the right to have your day in court. Throw away this notice, and you're throwing away your rights.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Funny Money Friday: Recession-Proof Credit Cards

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

During an economic downturn, many investment experts tell you to put your money into stable metals and other precious commodities. Why chance it with the stock market when you could have cold hard gold instead? But all that bouillon can get heavy...

Enter Rosan, a Russian Visa and MasterCard certified credit card manufacturer.  They've invented a way that you can use plastic and still get that luxurious metal investment. Gold and jewel encrusted credit cards!

Why settle for a gold or platinum account when you could have an actual gold or platinum credit card?

According to the March issue of The Nilson Report, the company is marketing credit cards encrusted with gems and semiprecious stores. Their hope is that card issuers will use them to reward wealthy customers. The individual cards will sell for $10,000 to $75,000.

The example above features a dragonfly with pearl eyes and diamond tipped wings...seriously.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

The Interchange Fee: The Most Expensive Credit Card Fee of All

While you've perhaps never heard of it before, chances are, you pay at least one interchange fee every day – certainly every time you use a credit card. It's what merchants have to pay for the privilege of accepting credit cards, and on average, it amounts to 2% of every charge, including sales tax.

You know what happens to a charge like that – it gets passed on to us. According to R. K. Hammer Investment Bankers, we paid $33 billion in interchange fees in 2007. That's more than we paid in penalty fees (18.1 billion), cash advance fees ($8.2 billion), annual fees ($3 billion), and miscellaneous fees ($.7 billion) – combined!

Surprised you haven't heard more about this costly fee? The National Retail Federation says that's because "Visa and MasterCard do not disclose the charge on monthly statements and prohibit retailers from showing it on receipts." It estimates that we spend about $350 per household each year on interchange fees.

"Visa and MasterCard work with banks that issue their cards to unilaterally set the rates, a process that retailers see as illegal price-fixing," explains AP business writer, Christopher S. Rugaber, in an excellent article on this subject. He reports that the credit card companies have recently decided to leave their interchange fees where they are, which disappoints the retailers, who think the fees should be lowered. 

Enter Congress
Representatives John Conyers, D-Michigan, and Chris Cannon, R-Utah, have introduced the Credit Card Fair Fee Act of 2008 to "help level the playing field for merchants and retailers negotiating with banks for the cost of certain fees, and ultimately reduce the costs of everyday goods for consumers." If it passes, issuers would have to negotiate fees with merchants. If they can't agree, a three-judge panel would decide what the interchange fees should be.

Both sides have been lobbying heavily. Rugaber dug through the public disclosure forms and discovered that the Merchants Payments Coalition spent $500,000 last year to lobby Congress on the interchange fee issue, while the Electronic Payments Coalition, which includes Visa and MasterCard as well as American Express and major banks, spent $320,000.

I'm not sure this legislation is the way to go, but I'd sure like to see the interchange fee lowered. I'll be looking into this issue on all of our behalf in the coming weeks, and welcome your thoughts on this hidden cost of using credit cards.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Happy Tax Day!

I hope your filing went well! I don't know about you, but looking at my tax returns each year gets me motivated to save. You should capitalize on that that motivation while it is around to establish some automatic savings programs. I recommend a blend of the following:

• High Yield Savings Account - Set-up an automatic withdrawal from each of your paychecks into an online savings account. Find one that has no fees and no minimums. Even if you're just putting away $25 from each paycheck, it is good start. Or you can divvy it up like we do in my house, my fiance (the spender) pays all the major bills - rent, utilities, cell phones, etc - out of his account each month. I (the saver) match that amount with deposits into the savings account each month.
• 401(k) - The easiest and smartest way to save for retirement. If you don't already have this set up at work, talk to your HR manager today. You can take a big chunk out of next year's taxes by investing in your 401(k).
• IRA - Already doing pretty well with your 401(k)? Then it is time to max out your annual IRA contributions too. You can contribute up to $5,000 a year if you're under 50, $6,000 if you're over 50. This is another one that will make you happy next April.

It's a particularly good time to get into the business of stashing away funds for a couple reasons:

• It's a buyer's market when it comes to stocks. Talk about getting a good sale price!
• You can leverage your tax refund to set up an account.
• You can use April 15th as a reminder each year to track your progress.
• If you are one of the many who are holding off on buying a home, you can use the extra time to build up a better downpayment.

Are you feeling motivated to save?

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.       

Your Credit Card: Help from an Unlikely Source in the Event of an Airline Bankruptcy

With the cancellation of numerous American Airline flights and several other airlines filing bankruptcy, you might be feeling a little leery about purchasing airline tickets these days. And if you have already purchased tickets you may be worried about not being able to use the tickets and/or being out the money you paid for them. However, if you purchased those tickets with your credit card you may be in luck!

We contacted public relations representatives from Chase, Citi, Discover, and American Express to find out what assistance, if any, they offer their customers in this type of situation. We found out that airline tickets purchased from airlines that subsequently went bankrupt are eligible to be disputed via their normal dispute resolution process with two notable caveats:

1. You will probably need to try rebooking your ticket through another airline first. Some airlines, as well as credit card issuers, are offering to assist with the rebooking process.

2. Some credit card issuers will want to see the unused ticket.

According to Discover's public relations department:

"We are providing information to facilitate re-booking of their tickets with other airlines. If they are unable to re-book their ticket, we are initiating disputes and issuing credits to the accounts."

Overall it seems like a fairly painless process to get your money refunded. All the issuers we talked to said that they would do everything possible to support their customers. Gotta love the free benefits that cards offer!

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com, a website that provides credit card ratings and reviews of over 20,000 offers. He is also the author of How to Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line (FT Press, 2008).

Funny Money Friday: Suze Orman on SNL

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

Us "real" financial experts have been known to occasionally have fun teasing those "celebrity" financial experts. Sure, they're vastly more famous than we are...but at least we don't have staffers feeding us information, right?  Out of the lot (Dave Ramsey, Rich Dad Poor Dad, etc) Suze is my favorite. What a character!

I've been looking for a clip of the Saturday Night Live Suze Orman kit since it first aired and finally tracked it down. Enjoy!

SNL - Suze Orman Show
Uploaded by stephen2417

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.                            

Suspension of Home Equity Line of Credit Leads to Major Credit Score Damage

Barbara wrote in earlier this week with a shocking story:

The recent "suspension" of our home equity loan is showing up a "major derogatory" on my and my husband's credit reports. Our lender was Citibank.  Our payment record is perfect. I am not disputing Citi's right to suspend the loans (we all know there was some vague fine print in there some where) but their right to trash my credit.  After my complaint to Citi, they changed to loan to zero dollars available which lowered our scores even more.  This started with a "major derogatory" on Trans Union only.  As I have continued my husband has major derogatories on two credit bureaus.

It is WRONG, WRONG, WRONG to trash people's credit score over this.  We are hostages to this system yet there is no reporting accountability.  We are at the end of the long process of building a home and looking for financing.  We have our 20% down and can afford the house... this is making this really hard.

Barbara sent over copies of her credit reports and called with more details. She's been in discussion with representatives at Citibank and TransUnion for days. John Ulzheimer, our FICO expert, and I talked it over yesterday and are continuing the investigation.

Basically, there is no precedence for this home equity account to be reported as a "derogatory" record to the credit bureaus. The account should probably be marked as "suspended," "non-performing" or "closed." These accurate statuses may have a small negative credits score impact, but nothing close to a derogatory.

If the record were to stay marked as a derogatory, the credit score damage (which could be as severe as 200 points) will continue for 7 years. Barbara is in the process of applying for a construction loan and her damaged credit is becoming a major hurdle. With lenders tightening their credit score standards, this inaccurate reporting is particularly damaging. 

This report comes at a point where large banks across the country are suspending HELOCs due to falling home values. CaveatEmptor has a copy of the letter borrowers received from Citibank. Countrywide has shut down 122,000 home equity loans and other banks are following suit.

Is this an isolated incident or a widespread credit reporting error? If your HELOC has been suspended, please share your story with us by email or in the comments section below.

4/11/08 Update: We had Barbara check her FICO scores and it appears that the damage is contained to just her TransUnion report and TransRisk score. It looks like there is a "tagging" problem with the way that bureaus is reading the suspended record. Her FICO scores are undamaged, meaning that the accounts aren't being marked as derogatory on the base credit file.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

I am Not a Communist – Part 2

As I previously noted, I believe that there is an important role for government in helping to clean up the credit crisis and restore order to the mortgage market. For those who complain about government intervention, may I remind you that most likely you get the biggest tax deductions most people qualify for:those for mortgage interest and property taxes. So if you want to deny someone else's benefits, you should be willing to give up yours. Not ready to do that? I thought so.

Borrowers who acted stupidly, who are in over their heads, will have to suffer the consequences. But there are some very decent citizens who do deserve to be helped.

The big problem area in this whole foreclosure mess is with the folks who find that their home is worth less than the loan balance. Their credit is OK. Perhaps it wasn't when they bought – which was why they got a subprime loan - but let's assume that they have cleaned up their credit.

They have adequate income and they can prove it with paycheck stubs and the like. The final important ingredients are that it is their primary residence and they intend to stay in the home for a long period of time. In a normal market they would now be able to refinance out of their toxic loans into normal loans at a reasonable rate with payments that they can afford. But no one is doing 110% LTV loans.

My own plan, which exactly no one offered in Congress, would be to have their current lender offer them a loan equal to their current loan even if it was greater than the value of the home. It would be at a market rate for A-paper loans, say 6%. The current lender does not take a hit and he ends up with a loan that is less likely to end up in foreclosure. 

The borrower gets a loan that is no larger or smaller than his current loan – i.e.- he is not being bailed out either - except that the new loan is not toxic. It is affordable. Yes, his home ultimately has to appreciate back above his loan balance before he gets any equity, but time will cure that.

The plan bouncing around Congress is different. And it includes help for this type of borrower. They would be offered a new loan at 85% of the current appraised value of the home. Does that mean they have instant equity? I guess so. The current lender, assuming it goes along with it, will be offered a payoff of 80% of the appraised value. That may be only 60% or 70% of the initial loan but more than the lender might get in a foreclosure. We'll see how that Bill proceeds.

The other thing I am in favor of is a tax credit for home purchase. The current plan includes such a credit for people buying a home out of foreclosure, but I think we need to do more. The fastest way out of this problem will be to increase the rate of sales. That will slow or eliminate the price decline and it will certainly slow the foreclosure rate.

In conclusion, I believe that an important function of the government is to maintain the public confidence in our markets and in our economy. That was what the Bear Stearns action was all about. Restoring a sense of trust to investments such as mortgage backed securities will be important in how our financial markets and our currency are perceived.

Remember that in the earliest days of our Country, one of the Federal government's first actions was to assume the debt obligations that had been incurred by the 13 States during the Revolutionary War. It became our National debt. That was an important step in creating world confidence in our new nation's creditworthiness. Government should play a similar role now.

I am Not a Communist – Part 1

When someone proposes something that can be viewed as political, people holding other opinions often start name calling. I think there is a role for government in the credit crisis, but I don't want to be labeled a Communist. Actually, my views tend more to the Libertarian end of the political spectrum. I believe in free-will, free markets, self-reliance, self-improvement, education, and that government ought to get out of the way.

Of course, government getting out of the way is simply not been what has been going on in my lifetime. Even in the era of deregulation that started under Reagan, government is at every party, not always as an invited guest.

Today we are experiencing the worst credit crisis in a couple of generations, a crisis that has happened in spite of a great deal government regulations. It has happened in part because of a appalling lack of enforcement of those regulations. Government regulators were asleep at the switch. The question now is, "What is the proper role for government in getting out of this mess?"

First, it is really easy to decry bailing out people who acted irresponsibly. Yes, people should have not bought homes they couldn't afford. Yes, they should have understood the loans they were getting. Yes, they should have done a lot of things. I have heard a lot of that but saying it doesn't help. It is really important to separate those subprime and other borrowers into smaller groups that have common characteristics. They become easier to understand.

Let's remember that the great majority of homeowners who got subprime loans are not going into foreclosure. They may have been talked into buying a home by some smooth-talking real estate agent whose co-conspirator was a subprime mortgage guy. Their toxic loan may be a huge burden to them, but they are in their homes and have achieved their part of the American dream, and they will be better citizens.

Ones in trouble still have solutions other than walking away. They can get second jobs or they can have a brother-in-law move in and pay rent. I don't think that we ought to worry about these folks. Maybe the ones most deeply hurt will be able to work out better loan terms with their lenders. But eventually, without help from the government, most will find a reasonable solution and become stable members of their communities

There are others that do not deserve sympathy or help. Many "investors" didn’t think that the risks inherent in real estate applied to them. Those who bought homes on speculation, hoping to turn them for a quick profit, are going to lose money, and properly so. The bad news is that foreclosing on them will add another home onto a saturated market. That hurts the neighborhood, and the affected neighbors didn't do anything wrong.

In the next installment I will discuss a plan that is under consideration in Washington. What will ultimately be enacted is unclear and what the effect will be on the real estate market is fuzzy as well. But what is clear is that we have one heck of a mess on our hands and we need to take bolder steps to fix it.

 

Teach Your High Schoolers about Money NOW!

When Will They Ever Learn?

The financial literacy scores of the 2008 high school graduating class is actually lower than it was for seniors in 2006, 2004, 2002, and 2000. That's the key finding from a large biennial national survey released today by The Jump$tart Coalition for Personal Financial Literacy. In past years, the students had correctly answered over 50% of the questions, but this year, their average score was 48.3%.

Take a look at some of the specific findings:

• Only 48% knew that cardholders who only pay the minimum amount on their credit card bills  will pay more in interest that people who pay their balance in full.

• Only 40% knew they could lose their health insurance if their parents become unemployed.

• Only 36% think a house financed with a fixed-rate mortgage is a good hedge against a sudden increase in inflation, compared with 45 percent in 2006.

The extent to which they don't know the basics really shocked me. They totally flunked! Here are two fairly typical questions from the survey, which you can see in full, with the correct answers:

1. "Sara and Joshua just had a baby. They received money as baby gifts and want to put it away for the baby's education. Which of the following tends to have the highest growth over periods of time as long as 18 years?”

Percent
4.7                 a.) A checking account
16.8               b.) Stocks.*
37.3               c.) US savings bond
41.3               d.) A savings account

2. "If your credit card is stolen and the thief runs up a total debt of $1,000, but you notify the issuer of the card as soon as you discover it is missing, what is the maximum amount that you can be forced to pay according to Federal law?"

Percent
17.3             a.) $500
16.9             b.) $1000
52.8             c.) Nothing
13.0             d.) $50*

Yikes! Kids really don't know the basics. If yours don't, now is the time to get on the case! Of course, setting a good example is the most important thing you can do, but if you haven't been talking with your children about money, it's high time that you did, no matter what their age. They love the stuff – at least all the kids in my life do – so getting into conversations about it should be no problem, assuming you carefully pick your moment.

The time to discuss how credit cards can end up costing a lot more than you think is not when your teen is in a snit because you won't spring for the trendy [ fill in the blank ] at the mall. Spend your "money time" together away from such temptations. For starters, it'd be great if you'd pull out some of your credit card bills, and explain what you did right . . . and wrong. Ditto with your savings accounts. Talk about the consequences you have had to face for some of your spending bloopers and less-than-ideal money management. (Kids love those stories.)

If you're not comfortable with that, how about looking at Jump$start's test together? It'll be real low-key, because the correct answers will be clearly identified. Whether you discuss them or not, your teen will be able to see what other high schoolers know and don't know. (It's nice when peer pressure can work for you, isn't it?)

If your teen is more likely to pay attention to something on a Web site, consider sharing "Sense & Dollars" with them. It's designed with a young, hip audience in mind, and offers lots of real-life examples. You don't have to mention that it was created by Maryland Public Television, do you?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Piggy Banks

I hate paying ATM fees to have access to my own money. So this weekend, as I raced through the grocery store on Saturday afternoon, I said "no" to the cash back option as I swiped my debit card. "I'll go to through the bank's ATM to get some cash later," I thought.

But my day got away from me, and that evening I found myself at Raymond James stadium in Tampa to watch the Budweiser American Invitational Grand Prix series horse riding competition with my daughter and her friends, and had only $2 in my wallet.

That meant I had to break down and get money from the ATM at the stadium to buy dinner and something to drink. (They check your purse as you enter to make sure you don't smuggle in a bottle of water or snacks.)

I nearly gagged when I saw the ATM fee charged by BB&T bank was $3.75! Maybe I just don't use ATMs enough, but I was absolutely flabbergasted. Of course my bank will tack on it's own $1.50 foreign ATM charge. That means I paid $5.25 to withdraw my own cash.

Talk about a piggy bank!

It seems to me these banks are just asking for regulation. And what about the fact that its a financial planning firm that has paid to have its name on the stadium? I hope their planners warn their clients not to use the stadium's ATMs too often -- or they'll quickly wipe out any measly interest they may earn on their bank accounts.

What's the highest ATM fee you've seen? Do you agree with me that there should be a limit on these fees?

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Reader Question: Credit Cards for Rebuilding After Bankruptcy

Jene wrote in with a question over the weekend:

I didn't know when I filed for bankruptcy 5 years ago that it would haunt me like the plague. I have recently begun the journey of improving my credit.  I got several of those unbelievably high fee cards you can't afford to use. I have been paying on time but they are not reporting to credit bureau.  My FICO score is 605. I want an unsecured low fee card with credit limit of $300-$500 dollars. I have hurt myself with inquiries looking for one unsuccessfully. Can you help? 

Bankruptcy records will harm your credit score for 7-10 years, but the amount of damage can be reduced dramatically if you take some steps to rebuild early on.  It is a good idea to open a new account and start using it responsible as soon as you can after your bankruptcy is discharged. The earlier you can add positive records to your credit reports again, the quicker your score will improve. You can read more about rebuilding after a credit problem here.

Unsecured vs. Secured Cards
An unsecured credit card is a "traditional" credit card where the credit limit is granted to the consumer based on their credit score and income. The majority of credit cards in use are unsecured. The problem is that unsecured credit cards for customers with credit problems usually come with expensive fees and rates. That's just the way it works: bad credit = bad terms.

Secured credit cards break the mold though. These cards require the consumer to put a cash deposit into a savings account to "secure" the credit limit. Usually with a minimum starting deposit of $300 and a maximum of $10,000. The amount earns interest while in the savings account and is not touched. A $300 savings deposit would get you a secured credit card with a $300 credit limit. The secured card reports to the credit bureaus each month and works just like a regular credit card. After 6-12 months of responsible use, the secured card can turn into an unsecured account and the savings deposit is returned.

Because the creditor with a secured credit card isn't taking a risk when granting the credit line, the fees and rates are much lower than you'd have with an unsecured subprime credit card.  It is a much better deal for someone who wants to improve their credit.

Pre-Paid Cards
Pre-paid cards or debit cards are often grouped in with secured and unsecured credit cards. But these pre-paid accounts are not credit cards, don't report to the credit bureaus and don't help rebuild credit. They largely serve the unbanked and allow direct deposit onto a debit card in exchange for expensive fees.

Finding a Card
Post-bankruptcy consumers can get bombarded with credit offers in the mail. The majority of these offers aren't worth the paper they're printed on.  You're much better off looking online for a new credit card or loan. Make sure you can compare all the fees and rates. If you have questions, don't be afraid to call the company and ask before applying. You can browse secured card offers online here.

Jene's credit score is already on the road to improvement. Another 70 to 100 points and she should be able to qualify for an unsecured credit card without all those pesky subprime fees.   

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and per