The Secret History of the Credit Card

In "Secret History of the Credit Card," Frontline and The New York Times collaborate to investigate the complex history of the credit card industry. In this 60 minute report, correspondent Lowell Bergman investigates the techniques used by credit card companies to earn record profits and get consumers to take on more debt.

The video reveals some disconcerting facts about American's relationship to plastic and the hidden motivations of credit card companies.

• Customers who pay their debts in full each month are called "deadbeats" in the credit card industry - they are the least profitable type of customers for credit card issuers;

• Customers who carry monthly credit card debt are called "revolvers" and are considered dream customers by creditors;

• The average family owes roughly $8,000 on their credit cards. This debt has helped generate record profits for the credit card industry;

• Critics say that a growing share of the industry's revenues come from what they call deceptive tactics, such as "default" terms spelled out in the fine print of cardholder agreements -- the terms and conditions of which can be changed at any time for any reason with 15 days' notice.

This report is a must-see for people in debt. Watch the full report online at PBS.org >

First Premier Gold MasterCard - Good Deal for Borrowers with Bad Credit

The First Premier Gold card was specifically designed for borrowers with bad or no credit. There are a lot of cards like this on the market, and many of them leave the borrower with the short of the stick with excessive annual fees and high interest rates.

However, the First Premier Gold Mastercard sets itself apart by offering a very low APR rate on purchases. For borrowers who are re-building their credit, the First Premier card is an affordable option.

Visit the First Premier Bank website -->

Providian's High Interest Rates

Providian, which is owned by Washington Mutual, has received a flurry of complaints regarding excessive interest rates hikes. Customers cite that their rates increased dramatically shortly after WAMU acquired Providian in 2007. [my3cents.com]

A number of consumers claim that the interest rates on their Providian credit cards were increased by more than 10% despite the fact that they had not missed any payments and had overall good credit. In addition, there are a number of reports of Providian luring new customers in with low APR rates and then arbitrarily increasing those rates immediately after the customer signs up. This is quite an ironic turn of events, considering that WAMU presents itself as a bank that strives to help consumers save money by not charging excessive fees.

If you are considering a Providian credit card, read customer reviews at www.consumeraffairs.com before applying for the card.

Do you curenntly have a Providian card? What has your experience been?

USAA Scores High Ratings with Customers

Consumer Reports National Research Center did a study of credit card companies to determine which ones provide consumers with the best experiences. They interviewed more than 36,000 people about more than 61,000 credit cards. The winner across all of their studies was USAA Federal Savings.

USAA, which issues both the American Express and Mastercard brands, is a credit union for military, retired military personnel, and their families. The company earned a medium 95 out of a 100 possible points from consumers. USAA typically offers interest rates between 9 and 11 percent, which is significantly lower than the 17%+ interest rates charged by many of its competitors.

While the USAA card is limited to members of the military, there are a number of very good credit unions that are open to anyone. Credit unions tend to have lower interest rates and better customer relationships.

"Credit unions are run by members, so they have a vested interest in providing credit at very low rates," says George Overstreet, a University of Virginia finance professor who studies credit union operations. "And they are more focused on keeping their members happy, while banks have to worry more about keeping their investors happy." [Money @ Aol.com]

Credit unions such as 1st Advantage Credit Union and Financial Center Federal Credit Union were rated at the top of the Top 100 CU.com list.

What has your experience been with USAA?

Do you prefer working with Credit Unions or Banks?

Capital One Increases Rates by 7%

Capital One, a credit card company that primarily targets low-income borrowers, has increased its interest rates by a whopping 7%.

This will result in some cardholders paying 26.01% on purchases and 29.94% on cash advances, depending on their credit rating.

Capital One defends the rate increase by saying:

“Changes in the credit and lending environment mean that it is now costing us more to lend, and so we are increasing the standard interest rates for some of our customers."

This does not seem like a logical rationale, to further punish customers that are already struggling to make payments and are likely facing a host of other issues, such as unemployment and foreclosures.

Capitol One's decision is yet another reason for consumers with large amounts of debt to consider entering a debt negotiation program and avoid paying unfair and excessive interest rates.

Thanks to The Times UK for the update.

American owe $970 billion in Credit Card Debt

The credit crunch saga continues to unfold as borrowers fall behind on payments, defaults continue to rise, and investors continue to be hammered.

Historically, the credit-card industry has been able to weather economic downturns because of its pricing flexibility. As the economy slows and payments are late, card companies have been able to boost earnings through late fees and higher interest rates, much to the chagrin of consumers like you and me.

These days, however, consumers are finding it difficult to repay any of their debts and are just not paying at all. Now charge-offs, which represents the amount which is still owed but the creditor writes off the account balance as a bad debt, are increasing at a fast pace and beyond what was expected. The losses are estimated to far surpass what companies were hoping to make with extra card fees and higher interest rates.

The net charge-off rate on credit-card defaults might escalate to 10 per cent in 2009; double the average of 5 per cent over the past 10 years, reaching $18.6 billion in the first quarter and US$96 billion by the end of next year, according to Innovest.

As horrible as this is for the national economy, it's actually good news for consumers, because credit card companies are now more willing than ever to re-negotiate debts. Thus, if you're willing to take on the stress of trying to re-negotiate your debt without the help of an intermediary, you are more likely than ever to be able to convince your creditors to significantly cut your balances in half.

This is definitely one of those cup half empty / half full kind of situations. Thanks to Trinidad Express for the update.

All Hail the Chief

In the spirit of today's Presidential Inauguration, I've been reading up on how our new president and his vice president plan on dealing with the credit card industry.

Barack Obama has attempted to champion for the rights of the everyday "Joe" (occupation left intentionally unspecified), and has supported increased regulation of the credit card industry. He proposed in June 2008 that the government restore regulation of credit card interest rates. (Undernews)

Joe Biden, however, is a defenders of the credit card industry, and will go to the ends of the Earth - figuratively speaking - to protect the interest of behemoths like MBNA and Citigroup.

Biden's position on dealing with the credit card industry is directly opposite that of Obama. As the senator of Delaware, one of the largest hubs for financial services companies in the world, he has had a very intimate relationship with the largest credit card issuers, namely MBNA. In fact, MBNA was the largest contributor to Biden's senatorial campaigns.

According to ProPublica.com "The senator [Biden] was a key supporter of an industry-favorite bill -- the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" -- that actually made it harder for consumers to get protection under bankruptcy." (ProPublica)

The Times reported, "[Biden] was one of five Democrats in March 2005 who voted against a proposal to require credit card companies to provide more effective warnings to consumers about the consequences of paying only the minimum amount due each month. Mr. Obama voted for it...

Mr. Biden also went against Mr. Obama to help defeat amendments aimed at strengthening protections for people forced into bankruptcy who have large medical debts or are in the military; Mr. Biden argued that the amendments were unnecessary because the legislation already carved out exemptions for those debtors. And he was one of four Democrats who sided with Republicans to defeat an effort, supported by Mr. Obama, to shift responsibility in certain cases from debtors to the predatory lenders who helped push them into bankruptcy." (Times)

It seems that Biden and Obama are on completely different sides of the fence when it comes to regulating the credit card industry. It will be interesting to see how these two compromise on this issue over the next four years.

The passage of the new OTS legislation will make dramatic changes within the credit card industry, primarily in the ways in which these companies are allowed to determine interest rates. However, this law will not take effect until Jan 2010, so consumers will have to perserve through until then.

Credit Card Bill of Rights

I ran across this awesome tool today on Billshrink.com. It's called the "Credit Card Bill of Rights" and identifies which credit card companies are already in compliance with the Office of Thrift Supervision's recent legislation. It's a great way to find out which credit card companies operate fairly and are mindful of consumer rights.

Is Your Credit Report Correct?

It’s estimated that over 90% of the reports maintained by the 4 major bureaus, Tran Union, Equifax, Experian and Innovis contain inaccurate information.

A study released by the U.S. Public Interest Research Group in June 2004 found that 79% of the consumer credit reports surveyed contained some kind of error or mistake. However, in 2007, the Consumer Data Industry Association, which represents the credit bureaus, testified that less than two percent of 52 million credit reports had data deleted because it was in error. (wikipedia) Somehow, it is not surprising that their report would dispute the Public Interest Research Group.

The federal Fair Credit Reporting Act (FCRA) helps consumers protect and restore their credit. The F.C.R.A. states that any information contained in your report must be 100% accurate and verifiable or it must be *deleted*. According to the F.C.R.A., if the bureaus cannot verify an item within 30 days, they must delete it from your file. It's worth every consumer's time to contact their local credit report agency and obtain a free copy of their credit report.

Here is a directory of state credit reporting agencies.

Here is a link to a sample credit card dispute letter.

Thanks to (blog.budgetpulse.com)

New Rules for Credit Card Companies

The FED and the Office of Thrift Supervision (OTS) announced new rules for credit card issuers in December 2008. The rules do not go into effect until July, 2010, which feels like a pretty long ways away.

The key changes that the new legislation will require are:

Elimination of Double Cycle Billing – Double Cycle Billing allows credit card companies to charge interest on both the previous and the current month's balance. If you are a person that occasionally has a balance, but often does not, then you will pay much more in interest charges than you should. Cardholders with revolving balances aren't affected as much, unless their balance fluctuates dramatically from one month to the next.

45-Day Mandatory Notification of Interest Rate Increases – Lenders will no longer be able to increase the interest rate on existing balances except in special situations, like delinquent or default accounts. After the new law passes, any existing balance will have to be billed at the original interest rate. This in itself is a major achievement for consumers and will significantly reduce the amount of interest unfairly paid to creditors.

Fair Payment allocation – Lenders will have to apply any amount paid beyond the minimum balance due to the portion of the balance owed with the highest interest rate. Currently, most lenders apply these payments to the amount owed with the lowest interest rate. Again, this will reduce the total interest consumers pay credit card companies.

Elimination of Universal Default – Currently, credit card companies can increase a consumer's interest rate if she or he defaults or misses a payment on another bill. One of my fellow colleagues had a Bank of America credit card go from 6% to 30% because they were late on an unrelated bill. In my opinion, this has been one of the credit card industry's most unscrupulous tactics and I am overjoyed that legislation will stop this insanity.

The Right for Consumers to Institute Credit Limits - Consumers will be able to set a fixed credit limit, which they cannot exceed. This will prevent credit card companies from being able to charge over-limit fees.

Credit Card Security Breach

Thousands of VISA and Mastercard customers could be in danger of identity fraud after a data breach of Heartlands Payment Systems in Houston, Texas.

Credit card numbers, expiration dates and personal ID numbers, such as social security numbers, could now be in the hands of criminals, investigators warn.

Heartland Systems discovered last week that their systems had been breached sometime in 2008. Their system was used to process 100,000 million transactions per week for 175,000 merchants.

Heartland is not releasing any information except that thousands of restaurants, hotels and retail stores are affected.

This is a really good reason to order your free credit report and check if your information has been compromised. To order, visit annualcreditreport.com, call 1-877-322-8228.

Part Two – How to Know When You Need Debt Settlement

If the symptoms below apply to you, you should consider debt negotiation or bankruptcy.

• Your credit card balances are increasing while your income is decreasing

• You have no savings
  

• You can barely make the minimum payments on your debts

• You are near, at or over your credit limits

• You regularly charge more each month than you make in payments

• You are using your credit to buy necessities like food and gas

• You use one credit card to pay another

• You are already getting calls from collectors because you are late with payments

• You have been denied credit

• You’ve lost track of how much you owe to creditors

• You are charged exceptionally high interest rates

• You have four or more credit cards

• Your credit is negatively affecting your family relationships

Our next post will explain exactly how debt negotiation works.