Posts Tagged ‘Credit CARD Act’

Flaws in Credit CARD Act Allow Young Adults to Apply for Credit

September 29, 2010, by FreeScore

Credit card issuers used to be able to inundate young adults with freebies ranging from pizza to T-shirts to persuade them to apply for cards. Now, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that went into full effect on August 22 has prohibited issuers from soliciting young adults. The law prohibits credit card companies from offering freebies to college students, in particular, directly on campus.

However, new reports show that young adults are still finding ways around the Credit CARD Act, and issuers are continuing to profit off of these applicants. More college students are having their friends who are 21 or older sign them up for credit, according to Public Radio International. The Credit CARD Act specifically notes that young adults must be at least 21 years old to apply for credit without an adult co-signer, or they must be able to prove that they have the financial means to repay debt in the future.

Credit CARD Act and young adultsNew restrictive legislation was developed to keep young adults out of credit card debt, which can help them avoid credit score damage as well. A report released by New York Attorney General Andrew Cuomo’s office stated that the average student graduates with $4,100 in credit card debt on top of what they already owe in student loans. Americans collectively have $825 billion in credit card debt, according to the Federal Reserve, and many are still working on rebuilding their savings from the 2008 recession.

Experts say it is a growing problem that young adults are still finding ways to obtain credit, but the Credit CARD Act is not flawless. Beth Kobliner, a contributor to PRI, believes that giving parents the permission to sign their kids up for credit is a threat in itself. The Baby Boomer generation is primarily responsible for the economic downturn that led to the recession, PRI reports.

“Who got into this big trouble and led us into this recession in the first place?” Kobliner asked the news source. “The Baby Boomers racked up massive amounts of credit card debt and mortgage debt they couldn’t afford.”

Many parents who have tried to co-sign for cards for their children don’t meet the credit score requirements themselves, PRI notes. Parents who do qualify may end up tarnishing their own payment histories by co-signing if their children fail to make monthly payments on their credit cards.

Although there are a number of risks for young adults who are able to obtain credit, not everything about having a card is negative. Using plastic can help build a credit history over time. There are also positives to the Credit CARD Act that give consumers more protection against credit card companies.

Cardholders now have the option of having their purchases declined if they threaten to go over a set limit, as opposed to paying an overdraft fee. Late fees have also been capped at $25, but experts warn that consumers may be subject to an increase after six months if the cardholder is consistently delinquent on payments.

Bills that aren’t paid in a timely manner may also result in credit score damage. Lenders use credit scores to gauge whether a borrower will be able to repay debt in the future.

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Posted in Credit Problems, General Economy, Personal Finances | 1 Comment »

Credit Card Companies on Campus, Investigated by Cuomo

September 7, 2010, by FreeScore

credit card companies on campusReports say that New York Attorney General Andrew Cuomo wrote letters this week to colleges and universities across the state, requesting that they submit any information on contracts they have with credit card companies. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which went into full effect on August 22, prohibits young adults from applying for credit without an adult co-signer or the financial means to repay the debt.

Cuomo’s goal is to identify issuers that may still be luring young adults into applying for credit cards, Bloomberg reports. The industry has been criticized in the past for soliciting students on campus and offering freebies to those who sign up for credit.

“Today’s students are facing a growing mountain of debt that can burden them long after graduation,” Cuomo told Bloomberg. “As the new school year begins, we want to make sure that colleges and universities are doing all that they can to help students avoid financial dangers.”

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Consumers may be better off letting old debts die

September 2, 2010, by FreeScore

The Credit CARD Act was developed to level the credit card industry playing field for consumers, but analysts say responsibly using a credit card is as simple as thoroughly reading through the terms and conditions.

Industry lingo has been regarded as a problem throughout the years for consumers, many of whom have no prior knowledge of personal finance terms. The Credit CARD Act was created to provide Americans with more transparency and insight into the credit card industry, and in order for consumers to avoid debt, analysts say it’s more crucial than ever to read the fine print.

credit card debtBankrate reports that the average interest rate on credit cards across the country soared to 14.7 percent in the second quarter of 2010, the last quarter before the Credit CARD Act went into full effect on August 22. According to Synovate, a market research firm, this is the highest average since 2001. As credit card issuers grow more desperate for profitable revenue streams, rates and fees are predicted to increase in the coming months.

High interest rates can quickly result in mounting debt for card holders. In turn, this can result in credit score damage that may not be easily reversible by just paying off delinquent balances. As MSN Money reports, paying down an old balance can even hurt a credit score.

Charge-offs are accounts with past-due balances that lenders never expect to be repaid, typically 90 days after the last late payment. By attempting to repay an old debt, MSN Money says that borrowers can be subject to credit score damage and even potential lawsuits.

Digging up a late payment can provoke a credit card company to sue the consumer at hand in various states across the country. Reviving a past-due account may also encourage a lender to try to collect interest on the outstanding balance. MSN Money specifically tells consumers to beware of debt collection agencies. These agencies may try to make an old debt seem more recent than it really is. When this is reported to one of the national credit bureaus, it can result in further credit score damage.

MSN Money reports that credit card holders should attempt to repay their debt in a timely manner. Charge-offs are reported to collection agencies by credit card companies, which eventually takes its toll on the consumer’s credit history.

The financial site says, however, that Fair Isaac has worked hard to make sure that old debts have little effect on credit scores. Together with the three national credit bureaus, the new FICO score formula can decipher old debts from new ones. This results in greater transparency for consumers who choose to try to repay debt from the past.

The financial site recommends that all credit card holders with outstanding debt educate themselves on the statutes in their specific states. Each state has a set limit on the amount of time in which a lender can sue the borrower once an account has become delinquent. Old debt can cause credit score damage, but being taken to court for it can cause even more.

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Swipe Fees Lowered Under Credit CARD Act Provision

August 31, 2010, by FreeScore

credit card swipe feesTired of having to meet a $10 purchase minimum at a convenience store or getting an extra buck or two tagged onto your purchases, just for using a credit card?  Well, under a provision of the Credit CARD Act, swipe fees and other charges have been lowered, to the relief of consumers and merchants alike. However, it’s not good news for everyone, including Visa and MasterCard. The two credit card giants are expected to see a sharp decrease in revenue due to the lower swipe fees over the next year.

In 2009, merchants paid nearly $20 million to Visa and MasterCard members’ banks as a result of consumers swiping their cards. The San Francisco Chronicle notes that while the issuers didn’t directly profit from small businesses, they were the ones who originally set the fees.

“We’ll be delighted to see the fees go down,” hardware store owner Rick Karp told the paper. “Banks have been getting away with murder for some time now. About three cents of every dollar spent in our stores goes to banks for the use of the cards.”

Lower swipe fees may give vendors an incentive to offer more discounts and encourage spending. As the economy continues to struggle with lower consumer spending levels, merchants are looking for new ways to induce shoppers to open their wallets and purses.

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When Credit Cards Work for Teens

August 25, 2010, by FreeScore

credit cards for teensThis weekend, under new credit CARD legislation, consumers were given more transparency and protection against issuers. Furthermore, the CARD Act provided parents with greater peace of mind, prohibiting teens under the age of 21 from applying for credit without a co-signer or the financial means to repay the debt.

But, as Technorati reports, cards may not be all that bad for kids heading off to college.

A co-signer with a good credit history can provide a teen with a card they can to use to learn how to manage their finances in the future. Owning a card can also teach a young adult money management skills and responsibility. The more opportunities young adults have to build a credit history, the more likely they are to be approved for loans and other lines of credit later down the road.

Co-signers still maintain a certain amount of control over the joint account. Parents who sign for their children have the opportunity — and an incentive — to monitor their children’s transactions. Active monitoring can reduce the risk of their children accumulating large debt levels, which can damage their parents’ credit scores because co-signers share responsibility for paying off any such debt.

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Credit Card Issuers Spike Interest Rates Under New Legislation

August 24, 2010, by FreeScore

The last leg of the Credit CARD Act went into effect on August 22, 2010, limiting the interest rates and fees that companies can charge card members, but analysts are warning consumers that they aren’t completely safe from credit card debt.

Credit card interest rates have officially hit a nine-year high, the Wall Street Journal reports, as issuers attempt to maintain their recent profit margins with new tactics. The penalty-fee restrictions the Credit CARD Act placed on companies was expected to draw backlash, but analysts say that the effort to maintain profits could have detrimental consequences for the economy, which is already struggling to recover. Rates are only expected to climb higher, according to the Journal.

The U.S. Treasury Department says that interest rates are continuing to drop for business owners and home buyers alike, but the same can’t be said for the 381 million credit card holders across the country. In the second quarter of 2010, the average interest rate on credit cards reached 14.7 percent, up from 13.1 percent from a year ago, according to research firm Synovate. The Journal reports that this is the highest level for interest rates since 2001.

credit card interest rates riseSynovate research also shows that the difference between the prime rate (the benchmark against which card rates are set) and average credit card rates is 11.45 percentage points. This is the largest gap in at least 22 years, Synovate notes.

While credit card issuers may still seem like the bad guys in this situation, many industry analysts believe that consumers may just be unaware of all the benefits they’re receiving under the Credit CARD Act, which is doing more harm than good for credit card companies. Representative Carolyn Maloney (D-NY-14), a sponsor of the new legislation, said that Americans should be more appreciative of the Credit CARD Act.

“Better that consumers should know up-front what the interest rate is, even if it’s higher, than to be soaked on the back-end by tricks and hidden fees,” Maloney told the paper.

Consumers who read correspondence are less likely to fall into debt and suffer from credit score damage, according to U.S. News and World Report. Under the Credit CARD Act, issuers must mail out notices to all members informing them of any changes they plan on making at least 45 days before those changes are scheduled to go into effect. Consumers who pay attention to such notices stay up-to-date on their card’s terms and conditions; by factoring such changes into their financial management efforts, they can reduce their risk of acquiring additional debt due to a rise in interest rates and fees.

The Wall Street Journal warns consumers that if they’ve used a majority of their credit leading up to applying for a new card, they’ll have a smaller chance of being approved, as issuers continue to tighten their credit standards.

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New Credit Card Legislation Protects Consumers but Not Business Owners

August 19, 2010, by FreeScore

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act puts new restrictions on issuers across the country. Credit card companies, which previously had been allowed to raise interest rates at their discretion and charge members for hidden fees, can no longer do so.

The goal of the Credit CARD Act is to provide credit card holders with more transparency and protection from credit card issuers, which previously profited from withholding important information. While consumers may benefit from the new law, WalletPop, a finance news website, says that the same isn’t necessarily true for business owners.

Entrepreneurs, independent contractors, and small corporations that use business credit cards may still be subject to the ambiguous money-making tactics of credit card issuers, WalletPop reports. Because companies can no longer raise fees and hide fees for consumers, they’re also more likely to become aggressive in the charges they assess to businesses in the future.

credit CARD Act and business ownersSynovate, a data research company, found that the number of small-business credit card offers mailed out grew from 26 million in the first quarter of 2010 to 40.5 million in the second quarter. Issuers have steered more toward mailing rewards program offers to consumers and actual credit card offers to businesses in hopes of generating revenue elsewhere.

Small businesses and entrepreneurs typically rely on the money from loans and credit to start up their companies. WalletPop notes that, without protection from the Credit CARD Act, these businesses are likely to find themselves subject to spiking interest rates and over-the-top fees that can cause immediate debt.

The Chicago Tribune recently reported that Bank of America and Capital One are the credit card issuers with the clearest terms and conditions. Independent contractors and small business owners may want to consider issuers such as these for the revenue they need to jump start their companies.

WalletPop says that entrepreneurs may be better off signing up for consumer credit cards for their company needs, as opposed to actual business cards. By doing so, owners can benefit from all of the protections under the new legislation without having to worry about card issuers raising interest rates and assessing unexpected fees.

For owners who still want to sign up for the perks of business credit cards, the San Francisco Chronicle recommends that card holders read all of their credit card issuers’ correspondence. Credit card issuers are authorized to institute changes to interest rates and fees as long as they send out notices to card holders at least 45 days in advance. It’s assumed that consumers read these changes, and the Credit CARD Act recognizes that as a reasonable practice. To avoid falling into debt, credit card holders should hold onto any notices that come in the mail and take the changes into account when calculating their expenses.

Unpaid credit card debt can cause credit score damage for the card holder. This may prevent the consumer from being approved for loans and credit in the future. Lenders typically favor applicants with high credit scores, which indicates that they have the ability to repay debt.

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Credit CARD Act Misconceptions Can Hurt Consumers

August 12, 2010, by FreeScore

credit card misconceptionsWhile the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 was signed with the intention of bringing relief to American consumers, The Coloradoan found that some consumers misunderstood the new legislation and, as a result, now find themselves in debt.

The act, which is aimed at restricting abusive practices by credit card issuers, took effect on February 1, 2010. Because companies can no longer hike interest rates and penalty fees on a whim, some consumers have been under the assumption that their interest rates can’t be raised at all. The Coloradoan notes that while the bill provides new protections, it doesn’t guarantee that consumers will be immune to new credit card company gimmicks.

Because card issuers are now on a tighter leash, they’ve been forced to get creative in finding ways to work around the new restrictions. The law has put general limitations in place, but companies seem to find more loopholes every day. According to The Coloradoan, the most common tactic taking consumers by surprise is the hiking of interest rates after the first year. Bill Hardekopf, CEO of lowcards.com, feels that this is perhaps the biggest misunderstanding of them all.

“There is a misconception out there that interest rates can’t go up because the CARD Act passed, and that is not true,” Hardekopf told the newspaper. “They can go up. What the credit card act did restrict is [companies] from increasing rates on a new card for one year.”

Credit card rates have increased since the act went into effect, but analysts aren’t sure whether this is due to current economic factors or the new legislation. Regardless, misconceptions can result in harm to a consumer’s finances.

Ultimately, consumers have to make responsible decisions regarding their debt before they’ll see any signs of improvement in their finances. While the Credit CARD Act’s actual effect on the credit card industry may not have been clear to some consumers, it’s still the consumer’s responsibility to educate him- or herself on how the new legislation affects credit card holders.

As a credit card holder, you should take a pro-active approach to protect yourself from the loopholes that credit card issuers continue to find. Companies are required to inform you of changes to your lines of credit, interest rates, and other fees. You’re advised to hold on to any and all letters from your credit card companies to keep track of rate fluctuations and to determine how any such changes will affect your finances.

Staying on top of changes to rates, fees, and other credit card clauses can also help you better manage your credit behavior. Reviewing statements and factoring credit card company changes into your budget can help you maintain a responsible, on-time payment pattern. Consumers with a responsible credit history tend to earn higher credit scores and are therefore more likely to qualify for affordable interest rates on loans and lines of credit in the future.

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Credit CARD Act Gives You Greater Control Over Credit Report Disputes as of July 1st

June 30, 2010, by FreeScore

Credit card consumers have always faced a daunting task when it comes to disputing inaccuracies on their credit reports. However, a provision in The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 that takes effect on July 1, 2010, will provide consumers with clearer avenues and further protection for their credit report disputes.

The Credit CARD Act established new rules that offer consumers an easier and more direct approach when disputing inaccuracies in their report. One aim of these rules is to ensure greater accuracy in credit reports.

CARD Act and credit report disputesRules already in place require the three credit bureaus — Equifax, Experian, and TransUnion — to provide consumers with detailed guidelines for disputing inaccuracies on a credit report. The newly-instated rules will give consumers the option to dispute an inaccuracy with the company that provided credit to the consumer and then furnished inaccurate information to a credit reporting bureau.

Simply put, you can now contact the source of the error directly when you’re trying to fix inaccuracies on your credit report, instead of having to work it out through one of the credit bureaus.

Starting on July 1, when you directly dispute an item with a creditor, the creditor is required to investigate the dispute within 30 to 45 days. If the creditor is unable to confirm the item in question, the credit reporting bureau is then required to remove the item from your credit report. If the creditor does not take action within 30 to 45 days of your dispute, the credit reporting bureau is again required to remove the item until further information is provided. If the credit reporting bureau fails or refuses to remove the inaccurate data on your credit report, you then have the right to file a complaint with the Federal Trade Commission and with your state’s Attorney General’s office.

As a result, you’ll now have greater control over disputing inaccurate data on your credit reports in two ways. First, you’ll have detailed guidelines for disputing any errors. Second, instead of having to deal with a middleman, like a credit reporting bureau, as was required in the past, you can now directly dispute errors with the creditor in question. Consequently, you’ll be able to control the accuracy and integrity of your credit report with more ease and efficiency.

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Consumers Will Soon Have to Decide on Opt-In Overdraft Services

April 27, 2010, by FreeScore

New provisions under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 will present consumers with a choice: to opt in or not to opt in.

Opting-in will allow individuals to spend over their debit or credit card limit in return for paying an overdraft fee, which lately has been around $35. If a consumer doesn’t choose this option, any transactions that overextend his or her credit will be denied.

The decision has already been made for debit cardholders. A Federal Reserve Board rule issued in February will prevent consumers from enrolling in overdraft protection without their consent, while Bank of America recently unveiled an overdraft protection program aimed at those with checking accounts.

These rules will be effective this summer, meaning that consumers will soon have to choose whether to opt in. A recent report by Florida-based newspaper The Ledger pointed to high overdraft fees — which are often larger than the original transaction — as a reason to avoid this option.

“Banks argue that overdraft isn’t credit. They say it’s a service. Fine, but there are plenty of other cheaper services available to keep from being overdrawn in the first place,” the report said.

Some of these services include e-mail alerts and allowing one’s checking account to tap into their savings.

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