The Responsible Choice Plan: A "Win-Win" for Lenders and Borrowers with Excessive Credit Card Debt

While detailing and exposing the problems are certainly important contributions, what Dr. Manning is working on now has the potential to dramatically change the way people with substantial debts can get back on their feet. His timing couldn't be better, given how universal default, the subprime mortgage mess, the credit crunch, the resetting of adjustable mortgage rates, and the recession are wreaking havoc with so many of our wallets.

Far too many hard-working families are in very serious financial trouble. Although most want to do the responsible thing and pay all their bills, many are $20,000 to $60,000 in credit card debt and can no longer make ends meet. If Dr. Manning has his way, far fewer of these folks will go into bankruptcy, and many more will be able to keep their homes.

Math Like You Wouldn't Believe

Manning has developed an algorithm, a very complex formula, known as the "Responsible Debt Relief Grading System (RDR)" that calculates how much of their outstanding debts people can realistically afford to pay back – depending on:

· What their total household income is.
· Whether they rent or own, live alone, have dependents, etc.
· Where they live and what their local tax liabilities are.
· What their employment status is.
· What they're left with after taxes, based on how many dependents they have and whether they itemize their taxes or not.
· What the US Bankruptcy Court mandates for household budgets/cost of living expenses in their specific locality.
· How the current bankruptcy rules and regulations would apply to them.
· What they owe – and more!

(If you're wondering how Manning could possibly figure all of this out, he's a professor at the Rochester Institute of Technology (RIT) and Director of its Center for Consumer Financial Services.)

Now, he's in the process of applying this grading system across the country to help both borrowers and creditors move forward realistically, by identifying who will benefit from consumer credit counseling services, who can only repay a small fraction of what they owe and unfortunately, will be best off filing for bankruptcy – and who is "near bankrupt" or only able to pay back between 20% and 60% of what they owe.

As Manning puts it, people can "get a free assessment and they don't have to worry about rip-offs." More technically, he explains:

"Based on the score and their cash flow/debt situation, consumers are referred to: (1)  our national CCCS partner InCharge (over 80% net repayment), (2) our Hope Financial "Responsible Choice" program (if consumers can repay 20% to 60% of their unsecured debt), and (3) our Debtor Attorney Network (if they cannot repay at least 20% of their unsecured debts). As a result, anyone with a debt problem will be able to find a debt management/resolution program that best suits their situation."

While CCCS programs typically take five years to complete, the Responsible Choice program is expected to last for three years, with Hope Financial managing the payments to creditors at a 40% to 80% discount. Manning adds:

"This is a win-win situation for all – people strapped financially can avoid bankruptcy; creditors will receive regular payments to offset their losses, and thousands of households will retain their homes."

In a Nutshell

Here's the way the Hope Financial site explains how the program works:

1. We objectively figure out what you can pay.
2. We fairly document why that is all you can pay.
3. We assist you through your payment plan over 36 months.

Sure sounds good to me! As of now, Hope Financial is taking on clients in Ohio and also in Texas, Florida, New York, Utah, and California, with other states soon to follow. Check it out and let us know what you think.

By the way, in the interest of full transparency, I am proud to say that I serve on the Advisory Board for RIT's Center for Consumer Financial Services. The center is truly one-of-a-kind and is really helping to facilitate positive change for consumers.

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).

Credit Card Late Fees - Can It Happen to You?

You may think you'll never fall into the trap of paying a credit card late but don't get too smug. The odds may be against you.

A couple of examples:

For umpteen years one of my credit cards has been due on the 21st. Abruptly the due date changed to the 18th. I happen to be set up for online payment alerts so I caught the change, but if I hadn't I could have easily missed it.

In December, I made an online payment -- entered it into my checkbook and everything -- but I must have forgotten to hit the submit button because several days after the due date my card issuer told me I was late with my payment, and informed me of a late fee plus an interest rate hike to 30%!

Harsh? You bet. (After some back and forth, I negotiated to have both reversed).

If you think credit card fees and interest rate policies are unfair, now is your chance to speak up! Make your views known on the FTC Act proposal that would protect consumers by giving them a reasonable amount of time to make payments, and stop issuers from raising rates on existing balances except under limited circumstances, among other things. You can bet the card issuers will be weighing in. Those of us who use plastic need to do the same!

Go to Consumer Action's website to share your thoughts with regulators or visit Consumer Union's website, Credit Card Reform where you can send a letter to your legislators. It will only take a few minutes to make your views known.

And if you still wonder how the credit card industry got so out of control, you'll want to watch The Secret History of the Credit Card, a program produced by PBS Frontline that's available online. Just be prepared for your jaw to drop and your blood pressure to rise!

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

Counting Our Financial Industry Blessings in the Midst of the Credit Crunch

I was on a radio show this morning with two other industry experts. The conversation pretty quickly turned to bankruptcy, foreclosure, horrible credit card rates, predatory lenders, debt and the general idea that the financial services industry really wants to see consumers fail. It was pretty depressing.

I'm can be a big pessimist but honestly I don't feel that things aren't quite that bad out there. Yes, there are major problems with the mortgage world, debt levels are high, and the government has been siding with the industry for the past decade or so. But there are also some really good things happening when it comes to personal finance. It's time for another "count-our-blessings" session:

• Online companies are empowering consumers. Free services like Mint.com make it easy for anyone to manage their money like a pro. Sites like Credit.com and CardRatings.com let you compare credit card offers in detail. ING Direct gives you a really high savings rate. Prosper.com facilitates peer-to-peer lending. Fool.com, FannieMae.com, FTC.org, etc. all have huge libraries of free educational tools you can use to learn how the systems work.
• You can borrow money inexpensively. Credit cards, even high rate cards, are an affordable way to borrow money on a short term basis. Borrowing $1,000 for a month on a 13% APR card would cost you a measly $10 bucks, you can't even get lunch for that anymore. And thanks to the fed rate, you can still find historically low rates on auto and home loans. 
• Banks are scrambling to be the "good guy." Some of the giant banks have made it clear that they don't care. But this leaves an opportunity for smaller banks to compete to be different. Washington Mutual has been pursuing this and Wachovia is solidly in place as a consumer friendly bank.
• Regulations are coming. Finally! Hopefully, the new credit card rules are going to be just the tip of the iceberg. The mortgage fall out has created an atmosphere where regulators are finally returning that setting rules is good for consumers and the industry.
• The financial service industry does not want you to fail. Honestly. Consumers are much more profitable to banks and lenders when they are paying their bills and managing their money. This is the reason why it is so hard for someone with a low credit score or a low income to get approved for a loan or credit card. Banks don't want you to foreclose, file for bankruptcy or go into collections, it's as simple as they lose money when this happens.
• Free annual credit reports. That this actually passed is a miracle in itself. Consumers can get a free credit report from each of the credit bureaus every 12 months through www.annualcreditreport.com.
• Consumers are smarter about credit than ever before. When I started in this industry 7 years ago, you were lucky if you could find someone who had even heard of a credit score. Now, pretty much everyone knows the basics of credit reporting and scoring. People are blogging about personal finance and talking about credit, it's amazing!

What are you thankful for in the middle of this credit crunch?

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.

Debunking Credit Scoring Myths- Go Ahead, Pay Off that Credit Card!

Lurking among many other credit related myths is the belief that paying off credit cards may cause your credit score to decline. I continue to hear this and other related credit scoring myths from consumers that I interact with on a daily basis. In reality, when you pay off credit cards you decrease your overall utilization - your total balances vs. your total available credit - which improves your score.

In fact, utilization accounts for approximately 30% of your credit score. It is best that you keep your overall utilization below 10%. For example, if your total available credit on all credit cards is $25,000, then you want to keep your collective balance at less than $2,500. And, the lower your utilization is the better your credit score. So, the idea that paying off balances will negatively affect your score is simply not true!

However, the above scenario should not be confused with closing credit card accounts, which could have an adverse affect on your score for two important reasons. First, as discussed above, you have to consider how it will affect your utilization. Typically, closing an account will cause your utilization to increase and, as a result, your credit score to decrease. So, it is important to do the math before making a final decision. (Keep in mind how it could affect your utilization in the future as well!)

Additionally, you have to consider the age of the account. If it is one of your older credit cards, then it could also adversely affect the length of your credit history which makes up 15% of your FICO Score. Most of the time it is better to just "sock drawer" the card if you do not plan to use it anymore. That way having an account in good standing and the available credit is continuing to help your credit score.

Just be sure to remember to use the card about once per year for a small purchase, then pay in full when you get your statement. Doing so will help the account stay active and reporting as such to the three major credit bureaus. Reporting your on-time payments (preferably to all three major credit bureaus) is an effective way to boost your credit score. On a related note, it's also a good idea to check with your creditor to find out which bureaus they are reporting to.

Do you have a credit score related question or what you feel might be a myth that you'd like debunked? Please share your questions and comments below!

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).

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.

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).

Credit Card Industry Feels the Pinch

Credit cards were assumed to be doing pretty well in this credit crunch. Consumers were defaulting on their mortgages but still keeping those credit card payments on track. But the latest issue of industry journal, The Nilson Report, paints a different picture:

Credit Card Profits Decline at Most Top U.S. Issuers in 2007 vs. 2006

It's a 15.6% net income decline for the top 10 most profitable credit card companies, in fact. A pretty major drop.  Only Capital One, US Bancorp and Target had profit increases. At the same time, the contribution of credit cards to their parent banks increased. The article cites Citigroup, where the net income for card business fell 26% and still contributed 79% of the company's total (up from 18% the previous year).

It's not clear exactly where the decline comes from. The article cites increased credit card loan losses. There is also tightening in the secondary markets for credit card balances in the same way there has been for mortgages.

What does this mean for you? Watch out for rising fees and rates. All those APR hikes, credit limit reductions and fee increases make sense when you see these credit card industry numbers. As the credit crunch gets worse your credit card could get a lot more expensive.

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.

Share Your Story: Burned by Convenience Checks or Credit Card Marketing?

Have you been burned by accepting an unsolicited credit card or loan offer through the mail?  Or have you used a credit card convenience check only to be shocked by the rates?  Annoyed by receiving phone calls from mortgage lenders as soon as you applied for a refinance?

If so, contact us right away. We're working on a story about the intrusive and sometimes damaging ways that financial services companies market to consumers. Email your story, post it in the comments below or give us a call at 415-901-1559. We want to hear from you!

PS: If you're still having this problem, remember that you can dramatically reduce the number of unsolicited credit card and loan offers you receive by opting-out from the bureau marketing lists here.

Is Paying Taxes with your Credit Card Really Rewarding?

Thinking of getting a little something back on this year’s taxes by paying with a rewards card? There are ads seemingly everywhere touting how you can quickly rack up some great rebates by doing so.

But before you jump on the bandwagon, be sure to crunch the numbers first. As tempting as it is to pile on the rewards points and air miles by charging your taxes, it is rarely as rewarding as you might think.

First off, you’ll pay for the ease of paying your taxes by credit card with a 2.49% convenience fee. This fee isn’t charged by the Internal Revenue Service. It’s charged by credit card service providers such as Pay1040.com and Official Payments.

These companies act as intermediaries between taxpayers and the IRS. They validate credit card numbers and expiration dates, obtain the authorization from card issuers and issue confirmation numbers to taxpayers.

They then forward the payment to the IRS. And a tax payment listed as “United States Treasury Tax Payment” is charged to the taxpayer’s credit card account, along with a convenience fee.

Let’s look at some examples:

If you pay a $2,000 tax bill on your favorite cash back rewards credit card, you’d wind up paying a $49.80 convenience fee. Let’s say your card pays you 1% cash rebate for every dollar you spend with the card. By charging your $2,000 tax bill, you’d earn $20 cash back, but that’s more than offset by the $49.80 convenience fee.

Paying an extra $49.80 to earn $20 doesn’t make a lot of sense does it?

And while you may earn about 50 cents cash back on the convenience fee, you’re still shelling out an almost $50 fee for roughly $20.50 in rewards. That’s a difference of $29.30. And that’s not so rewarding, is it?

What about paying your tax bill with your favorite air miles credit card?

Let’s say you have a $3,000 tax bill and you’ll earn one air mile for every dollar you charge on your taxes. Earning those 3,000 air miles might be nice, but you’ll also be charged a $74.70 convenience fee. Are you so desperate for a few thousand air miles that you would be willing to pay an almost $75 fee?

The heftier your tax payment the higher the convenience fee you’ll wind up paying.

If you’ve got a $5,000 tax bill, you’d be charged $124.50 for the convenience of paying your taxes by credit card. Use a cash back card with 1 percent rebate and you’d earn roughly $50 in rewards, $51.25, if you count cash back earned on the $124.50 convenience fee.

Once again, the rewards just don’t add up. Paying a $124.50 fee to earn $51.25 in rewards isn’t much of a deal.

Even an avid traveler eager to rack up air miles by charging a hefty tax bill may want to think twice.

Let’s say you’ve got a $10,000 tax bill, and you really like the idea of earning 10,000 air miles by charging your taxes on your favorite air mile credit card. How do you feel about paying a $249 fee? That’s the convenience fee you’ll be charged for paying a $10,000 tax bill on a credit card. For that much money, why not just book a domestic airfare yourself?

Another thing to consider when charging a tax bill with a rewards card is how quickly you’ll be able to pay the balance in full.

If you’re planning on revolving the balance from month to month, you’ll be hit with finance charges, further eroding any rewards you gain by charging your taxes.

Your best bet is to charge your taxes to a rewards card with a zero percent introductory rate for new purchases. The longer this teaser rate lasts the better – a zero percent offer for a year or more would be ideal.

Of course, the absolute best strategy is to pay off your card balance straightaway and avoid all finance charges. Also, bear in mind the IRS does offer various other payment options that may be more appealing.

This year’s tax returns are already pretty rewarding, with many Americans set to receive tax rebate checks this spring. So you may want to pass on using a not-so-rewarding rewards card to pay your taxes!

Granted, your tax rebate check could be used to offset the convenience fee and any finance charges you may pay for charging your taxes on a rewards card. But is that really how you want to spend your tax rebate money?!? I don't know about you, but I can think of a few thousand other ways that I'd rather use my check! :)

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com, a website that provides credit card ratings and reviews of over 20,000 offers. Lucy Lazarony, a freelance personal finance writer based in Florida, assisted with this article.

Mad About a Credit Card APR Increase? Where to Send Complaints

Dramatic credit card rate increases have expanded beyond just Bank of America customers. In the past few days, we've received APR complaints from Washington Mutual, Barclay's, 5/3rds and Chase credit card customers.  Going from 9% to 27% APR isn't unheard of right now.

If you've received a letter stating that your APR is jumping 10 or 20%, I'd imagine you're fairly upset. We've shown you how you can reject the rate increase and warned you about the credit score damage that could come from closing the account.  Instead of closure, your best move is to pay off the balance or transfer it to a different account.

Your next step might be to voice your unhappiness about the rate increase to the proper authorities. We've compiled a short list of agencies that can take your credit card complaints online:

Federal Trade Commission
Federal Deposit Insurance Commission
Federal Reserve
Senate Banking Committee
House Financial Services Committee
Your State Attorney General

Sharing your complaint won't likely get your credit card rate reduced, but it could help push for larger reforms.

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 moderator. 

How to Reject Your Credit Card Rate Increase

Those of you who received rate increase notices from Bank of America or other banks recently, may have noticed something about being able to reject the rate change in the fine print. How does a rate increase rejection work? What do you have to do to reject the APR change? What's the catch? Let's break it down:

What does it say? In the Bank of America rate increase letter it states the following,

You do not have to accept this amendment. The steps you must take to reject this amendment are described below. You must act promptly to reject this amendment.
...
We must receive your written response by February 19, 2008.

What does this mean? You can write the bank within a certain amount of time to reject the increase in your credit card rates. This will not close your account or cause a negative record to appear on your credit report.

What's the catch? Rejecting the rate increase is only good until you use the card. Using the card after the stated date (in my example, Feb 19th) for a purchase is considered an "acceptance" of the new rate. Beware of automated charges or subscriptions services that could undo your rejection.

Where do you send the rejection? Rejections have to be received by the bank in writing at a specific address (not where you send your bill) before a specified date (not according to the postmark but the date they say they get the letter). For Bank of America customers, the address is

FIA Card Services, N.A.
P.O. Box 15565
Wilmington, DE 19850

Include your credit card number and full name along with your rejection request. You can't choose which term changes to reject. If you want to reject one, you have to reject them all.

If you have the rejection address for a different credit card issuer, please share it in the comments section below.

Also, we are looking for consumers in the Northeast who had their APR increase dramatically to appear on a network news program today. If you're interested, please call 415-901-1559 right away.

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Variable Rate Credit Cards Expected to Fall in Light of Recent Fed Rate Cuts

The Federal Open Market Committee cut short term interest rates again yesterday by one-half of a percentage point to 3.0%. The Fed's rate cut was in response to the economy's current financial state.

According to the Fed,

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

The good news for cardholders is that this means that the Prime Rate will fall by half of a point as well to 6%. Over the coming weeks and months, interest rates will fall .50% on variable rate credit cards. About 90% of all cards issued today have variable rates that typically move up and down in response to the Prime Rate.

Jessica Austin of CardRatings.com, notes:

"Given the recent rate cuts, if you are paying over 10% on your current credit card and you have a credit score above 700, then I would strongly suggest that you search for a new low rate credit card. Simmons Bank, for example, offers a 7.25% fixed rate card."

The rate cut should have an immediate impact on consumers that are revolving credit card debt. The current average rate based on all the cards listed in our comprehensive database is 12.82%. Those applying for a credit card with a variable rate should benefit as well.

Finally, it is also worth noting that the Federal Open Market Committee also cut rates unexpectedly earlier this month by .75% or 75 basis points. Bottom line is that we've had two rate cuts this month that total 1.25%. Can't wait from my own card to reflect these cuts!

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com, a website that provides credit card ratings and reviews of over 20,000 offers.

It's Baaack! Bank of America Credit Card Rate Increases Strike Again

At the start of 2007, we posted an alert on the blog about Bank of America customers receiving significant rate increases. Usually, these were customers who had a low 9% fixed rate for years and were carrying balances on the accounts when their rates shot up above 20%. We received over 20 comments from readers at the time reporting the same increase had happened to them.

Now, at the beginning of 2008, it looks like the Bank of America rate increases have returned. Apparently BofA makes a New Year's resolution each year to scrub out customers with low rates. One reader reported that Bank of America said they've just sent 1.5 million of these rate increase letters.

Here are some of the reports from consumers we've received today:

I just received the letter wanting to jack me from 11.99% to 19.99% - My minimum payment is $143 a month and I pay $702 every month! Way over my minimum. I have never been late. My balance is a little high, but not that high. Barely over 1/2, which I guess is why they "only" want to raise mine to 19.99% instead of 25%, like others. I too am writing to reject the terms and if anyone starts a class action suit, I would be happy to add my name to the list. They also told me not to use my card after February 29th, if I reject the terms or they will automatically go into effect. This thing is getting paid off and then they can pay to send me a paper statement each month on a $0 balance!
- Mary Lee - 1/22/08

Just had the same letter up from 14% to 27.99%, over 6 years of no late payments and because my balance went up they are screwing me!!!
- Matt - 1/22/08
 
Just got info today. Mine was going up to 27.99%. No lates, I am even getting other b of a offers on platinum business. See ya later b of a
- Paul - 1/22/08

Same thing happened to me with Bank of America. 9.9% to 24.9%, but am sending a letter rejecting it. Screw all the credit card companies. Beware of Chase/JP Morgan, they will take your intro rate of 5% or so and put it to 29.99% then claim you sent one payment in late.
- TS - 1/22/08

This just happened to me. I had a MBNA card that was purchased by BofA and today received an amendment letter stating my rate would increase from 14% to 27.99%!! Doubling. I haven't been late on this card in over 5 years and the customer service rep said it was due to a high balance. How the hell can they do this? I can choose to reject, but then lose the use of the card and a 10 year history with them. I am going to transfer the balance to god knows where I guess. One thing he said was that I was not alone and that over 1.5 million customers were sent these letters today.
- Saluki - 1/22/08

Same here. 9.9 to 23.99%. Getting screwed like everyone else. I'm onboard with signing a class action lawsuit.
- HK - 1/22/08

Wow, I'm not alone. I thought I was a good, responsible customer of BoA who made their payment on time. I guess that's just not enough for BoA. Same as everyone else, I recieved one of these letters today, saying that my 9.99% APR was going to be changed to 23.99% (if you're reading this you probably have the letter). This is highway robbery. Either you close your account (and still pay off the balance at 9.99%, boa wins) or you transfer the account (BoA still get the balance and makes money of past interest) or you pay the outrageous APR and continue to get screwed. I wonder if this has something to do with the laws trying to be passed stating that banks can no longer raise interest rates for missed payments, and too many people filing bankruptcy due to credit card debt. Sounds like this is BoA's last effort to suck money out of their customers. Sad, really. Wish I had known!
- Mark - 1/22/08

Have you received a rate increase notice from your credit card issuer? If so, think twice before retaliating and closing your account. Credit card account closure can have a major negative impact on your credit scores. It is better to leave the account open and unused if you can.

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Capital One Says, "Create Your Own Credit Card"

Capital One just came out with Card Lab, a do-it-yourself site, where you can design a credit card that floats your boat. For starters, you have to indicate what your "credit level" is. Then you can pick and choose among basic and additional rewards, interest rates on new purchases and balance transfers, as well as whether or not you want an annual fee.

Your credit level choices are: excellent, above average, needs improvement, and limited history. Capital One defines these categories more generously than I would, but for purposes of coming up with an example I can share with you, I chose "above average," which Capital One defines as:

• I have had a loan or credit card for three years or more


• I have had a credit card with a limit above $5,000


• I have not been more than 60 days late on any credit card, medical bill, or loan payment in the last year

Once you choose your level, you are given an array of choices. Under Basic Rewards, you have to decide if you want 1% or 1.25% back on all purchases -- or would you prefer points or miles on each dollar you charge? Once you make a choice on the basic rewards, various other options change. For example, if you choose 2 miles per dollar charged, many possible additional features immediately disappear. There’s no longer a choice of an introductory APR on new purchases, and you are no longer entitled to choose among additional rewards. Plus, your only option as far as the interest rate is concerned is 16.9% and you must pay a $39 annual fee.

Not too appealing? Fortunately, it’s really easy to start over and see what happens if you make another choice. Choose one mile per dollar charged instead, and you still have lots of other possible benefits to choose – for example, how about a 25% annual bonus? That would entitle you to receive 25% more miles a year, so if you’ve racked up 4,000 miles, you would get an additional 1,000 miles. The card would come with a 0% APR on new purchases until August, 2008, with no annual fee and your choice of a variable rate of 14.9% or 16.9%. (Who would choose 16.9%?!)

It’s easy to play around with the basic and additional rewards options, and you can quickly see what happens if you choose one or another of them, be it double rewards on gas and groceries, double rewards on travel and entertainment, double rewards on all purchases for a year, bonus rewards with every purchase (10 miles, 10 points, or a dime on every purchase), or the 25% bonus I mentioned earlier.

Once you’ve settled on a rewards card, you can choose how it will look. You can go with the original Capital One logo, or you can choose something different – an eagle, flag, tropical sunset, roses, a mountain scene, and more. Once you make that choice, Capital One shows you all your choices and then makes it easy for you to read the fine print.

The Better Your Credit, the More Choices You Have

Say you have excellent credit, which Capital One describes as:

• I have had a loan or credit card for at least 5 years


• I have a credit card with a limit greater than $10,000


• I have NEVER been more than 60 days late on a credit card, medical bill or loan payment


• I have never declared bankruptcy

In this circumstance, you can choose a 0% APR on balance transfers, with a fee ranging from 0 to 2% or 3%. Or perhaps you’d like 6.9% for life on any balance you transfer now.

There are many choices, and looking at what happens when you make one or two of them is fascinating! Take a spin over to Capital One’s Card Lab, and check it out for yourself. Please let us know what you think.

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com, a website that provides credit card ratings and reviews of over 20,000 offers.

An Inconvenient Truth: Using "Convenience Checks" Is a BIG Mistake

You know those checks that credit card companies send, encouraging us to use them “just as you would any check?” They should be flooding your mailbox any day now, if they haven’t already been pouring in. I think they should be outlawed – certainly, lenders should not be allowed to send these checks out unsolicited.

They make it way too easy for the people to get in serious financial trouble – many without even realizing it. For example, back in the early 90’s, I knew an elderly widow who took her card issuer literally, and did use them “just as you would any check.” She had no idea that she was borrowing money instead of using her own, and was unaware that she was being charged a 3% fee on every check, plus her lender’s high cash advance interest rate.

Unfortunately, by the time the family realized that she needed help handling her financial affairs, she'd already written 29 checks totaling over $16,000, which would be around $25,000 in today’s dollars. Fortunately, Credit.com’s money and credit expert (as well as my co-author and dear friend), Gerri Detweiler, came to her rescue and got higher-ups at the credit card company to agree to waive the finance charges and create a re-payment plan that fit the widow’s tight budget.

More than Money
If you use convenience checks, your credit score may take a hit that costs you a bundle with other lenders – as well as with the one that sent you the checks. While lenders are quite secretive about the risk models that they use, we know they compare your credit card balances to the total amount of credit you have available. Usually, the closer you are to your credit limits, the more likely lenders are to raise your rates.

This point was really brought home to me, as I watched the recent Senate Hearings, “Credit Card Practices: Unfair Interest Rate Increases,” on C-SPAN. A woman described what happened to her with the very lender who sent her convenience checks. As soon as she used some, her rate went way up. While I enjoyed watching the lenders squirm under Senate scrutiny, I don’t think we’ll be seeing any legislation that reins in or outlaws convenience checks passing both houses of Congress and being signed by the President any time soon. So we have to look out for ourselves – and for anyone we know who might fall for the come-ons about convenience checks. 

Besides high fees and rates as well as a possible hit to your credit score, there are other problems with these checks:

• There’s no grace period, so your interest tab starts growing by leaps and bounds right away at the high cash advance rate.

• Lenders make it as hard as possible to pay the money back. They usually credit payments to any balance that is at a lower interest rate, e.g., for purchases, before they’ll let you tackle the higher-rate balance.

• It’s too easy to go over your credit limit. The same card issuer that will decline a purchase when a merchant calls because you’re at your limit, will be happy to cash your convenience check and charge you plenty for the privilege. Regardless of the fact that the issuer sent you the checks to encourage you to spend more, if you spend too much, you’ll be hit with a penalty rate and fees.

• The risk of an indentity thief getting and using a convenience check is great. Shred any that you get.

• Those convenience checks offering 0% on balance transfer are very tempting ... but watch out ... unless you are good with details, certain that you will make the required payments religiously, and the fees are not too high (see if you can get them waived). Some people actually use them to make money. Read the fine print.

• While issuers may come to your aid in a dispute over a charged purchase, if you use one of their pseudo-checks, you're on your own. Should the product never arrive, disintegrate on first use, or not be what you expected, you're likely to be told, “Tough luck!"

Tip: If you get this response and have other cards, certainly threaten to cancel theirs. Be persistent, talk to supervisors, and so on, but don't be surprised if your threat fails, especially if there's a lot of money at stake. Card issuers know you have no legal recourse.

While we may not have legal recourse, we can let lenders know that we don’t want any more of these checks! Call your card issuers to tell them to stop sending blank checks to you – that you don’t want to take the risk that one might be stolen. They may or may not oblige – believe it or not, there is no law requiring them to let us opt-out of convenience checks. But the more of us who ask, the more likely they are to listen. Please let us know what they say!

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.

Tips for Redeeming Some of That $60 Million in Gift Cards

After a sluggish holiday shopping season, retailers are hoping for a bright New Year in the form of gift card redemptions. An estimated $60 million is waiting to be spent through gift cards in the next seven days. And Americans are expected to spend $26.3 billion on the cards in total.  Here are our tips for cashing in those cards:

• Spend Early - Post holiday sales are a great time to get the most value out of your gift cards. Especially this year, when retailers are especially motivated to move their merchandise.
• Don't Overspend - Retailers love gift cards because they know recipients are likely to spend more than the value of the card when they redeem. It's best to spend just a little more than the card's worth - so you're sure to redeem the full value - and avoid using a gift card as a reason to bust your budget.
• Remember to Redeem - Each year, about $8 billion in gift card value goes unspent. Don't let your gift go to waste in 2008. If there isn't a store or restaurant nearby where you can redeem the card, look to see if you can use it online. You might also give or sell the card to someone who can use it.
• Read the Fine Print - If you don't plan to use your gift card right away, it's worth taking a few minutes to check for hidden fees or expiration dates that could reduce the value of the card or render them useless. Many states have now banned these practices for gift card issuers.
• Don't Lose the Cards - Unlike credit cards, most gift cards don't come with any protections against loss or theft. If you do encounter a problem with your gift card there isn't much you can do to recover the value. Some merchants provide loss/theft protections for consumers who register their card online.

What's your favorite gift card to give? To receive? Share your feedback and tips in the comments section below.

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

CreditBloggers in the News: Fox Business Channel

CreditBloggers.com editor, Emily Davidson, appeared on the Fox Business show Money for Breakfast program this morning to discuss Discover Cards. Click on the screen below to watch the clip:

Overseas Travelers: Does the Credit Card Industry Owe you Money?

Michael is going to get a check for about $90 related to credit card purchases he made between Feb 1996 to Nov 2006 while traveling overseas. I am due to get $25. How much will you get?

If you traveled outside the US  between February 1, 1996 and November 8, 2006 and used a Visa, MasterCard or Diner's Club credit, charge or debit/ATM card, you are eligible to participate in the Currency Conversion Fee (CCF) class action settlement.

The lawsuit is about the price cardholders of Visa, MasterCard, or Diners Club cards were charged to make transactions in a foreign currency, or with a foreign merchant, between February 1, 1996 and November 8, 2006. Among other things, cardholders alleged that the credit card companies and their member banks conspired to conceal "currency conversion fees" -- typically of 1-3% of foreign transactions  -- and that Visa and MasterCard inflated their base exchange rates before applying these fees.

Michael and I first corresponded about this lawsuit more than two years ago, when it looked like the settlement had been finalized. But more legal wrangling led to a long postponement of the final deal. In the meantime, Michael saved his credit card statements from that time period, showing how much he spent on his cards during his foreign travels. With overseas charges totaling $4900, he's eligible for the bigger refund.

I know I have my credit card statements from that time period somewhere in a box, but since my overseas travel wasn't nearly as extensive (and my spending more limited), I am going for the easy refund, which is a flat $25.

Michael and I both received our notices by mail. But if you don't receive one, and you think you should be eligible, you can check out the settlement details and filing instructions online at www.ccfsettlment.com.

Oh, and one more caveat -- the notice says "if the volume of claims is unexpectedly high, it may be necessary to adjust refund amounts." The settlement website warns that getting paid "could take several months, or, if appeals are filed, several years."

Guess we better not spend that money yet Michael!

Disclaimer: The Defendants include Visa, MasterCard, Diners Club, Bank of America, Bank One/First USA, Chase, Citibank, MBNA, HSBC/Household, and Washington Mutual/Providian. They deny the Plaintiffs' claims and say they have done nothing wrong, improper, or unlawful.

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

A True Tale of ATM Card Traveling Woes

I learned an important lesson while in Paris last week. Unfortunately, my friend was the one to learn it the hard way. Like a good credit consumer, she called her credit card issuers before leaving the country. The idea was to prevent the banks from blocking her card when they saw the international purchases.

All was fine for a few days, until her ATM card suddenly stopped working. A nuisance for anyone, but worse in this case because she only had a Discover Card as an alternative and virtual no one accepted it in Paris. Frustrating emailing and calling back and forth reveled the reason her ATM card was blocked:

She had tried to withdraw more (300 Euros) than the cash limit (200 Euros) from an ATM twice the day before. You're charged each time for the withdrawal and she was trying to make the most of it. The transactions were rejected and it triggered her bank to put the card into fraud-alert deep freeze.

If you're traveling abroad this holiday season, keep this story in mind. Don't try to withdraw more than the ATM limit or you could be stuck without cash for a few days. The process of calling internationally to re-activate your card is a huge hassle and can be expensive as well. This is also a good reminder to carry a "back-up" credit card in your suitcase in the event of a financial emergency.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Funny Money Friday: Capital One Sends Out Dear John Letters

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.

In yesterday's mail, I had two letters from Capital One. The first was a "Dear John" letter, quite literally. The card in question hadn't been used recently and Capital One was inquiring why. Here are a few excerpts:

You never write. You never call. You never charge. What did we do? Or (gulp) not do?
...
No holding back. Here it is. This relationship is not working. But it's not you, it's us.

I understand the cheeky tone Capital One's marketers are aiming for here, but it comes across a bit more desperate boyfriend/nagging mother to me. It must be a sign of the credit crunch for a credit card issuer to beg for top-of-wallet placement in this particular fashion.

Here's where it becomes perfect for Funny Money Friday: The other letter from Capital One?  A bill for an annual fee.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

The Chip and Pin Credit Card System: A Field Report from France

I'm just back from a gorgeous 10 days in Paris. Being a credit geek through and through, I had Europe's new "chip and pin" credit card system on my list of must-sees along with the Eiffel Tower and the Arc de Triomphe.

Some background: Back in 2003, the UK instituted a new credit card security program to help reduce fraud. Called chip and pin, the system required all credit cards to be outfitted with a small microchip (many US cards now also have these chips) and for the user to have a pin number. This replaced the traditional swipe and sign system still in use in America.  Controversially, the switch also transfered fraud liability from the credit card issuers to the retailers directly under UK law.

The results of the switch were plain to see. Credit card fraud in the UK dropped by a third in the first year that chip and pin was implemented. Other European countries have followed suit, implementing their own chip and pin systems mirroring the UK model.

To pay with a credit card at a restaurant in Paris, the waiter brings you a wireless handheld credit card reader (pictured). A chip card is inserted in the device and then its passed over to the customer for pin entry. Once the transaction is approved, the reader prints out a receipt. The device also allows for cards using the swipe and sign process.

Paying using swipe and sign garnered a few funny looks from retailers while I was in Paris. For added security, most required me to produce an ID and copied my details on to the receipt. Some weren't even sure how to run a card not using the chip and pin system.

Given the proven effectiveness of the chip and pin system and the relatively easy implementation process, I'm surprised that the US hasn't considered the program.