The Survive and Thrive Boomer Guide

Credit card reform law ushers in new era of protection for consumers

President Obama signed a credit law on Friday that will help consumers battered by tough economic times by limiting fee increases and interest rate hikes.

The Credit Card Accountability, Responsibility, and Disclosure Act bans unfair rate increases, prevents unfair fees, requires plain language for disclosures, increases accountability, and institutes protections for students and young people.

The Federal Reserve has adopted similar protections but its provisions won’t become effective until mid-2010.

At the signing of the bill in the White House Rose Garden, President Obama recounted stories of hard-working people who had problems with credit card issuers, and a number of ways credit card companies take advantage of consumers. Obama described the new rules:

So we’re here to put a change to all that. With this bill, we’re putting in place some common-sense reforms designed to protect consumers like Janet. I want to be clear about this: Credit card companies provide a valuable service; we don’t begrudge them turning a profit. We just want to make sure that they do so while upholding basic standards of fairness, transparency, and accountability. Just as we demand credit card users to act responsibly, we demand that credit card companies act responsibly, too. And that’s not too much to ask.

And that's why, because of this new law, statements will be required to tell credit card holders how long it will take to pay off a balance and what it will cost in interest if they only make the minimum monthly payments. We also put a stop to retroactive rate hikes that appear on a bill suddenly with no rhyme or reason.

Every card company will have to post its credit card agreements online, and we'll monitor those agreements to see if new protections are needed. Consumers will have more time to understand their statements as well: Companies will have to mail them 21 days before payment is due, not 14. And this law ends the practice of shifting payment dates. This always used to bug me… suddenly it was due on the 19th when it had been the 31st.

Lastly, among many other provisions, there will be no more sudden charges – changes to terms and conditions. We require at least 45 days notice if the credit card company is going to change terms and conditions.

So we're not going to give people a free pass; we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.

See "A New Era for Credit Cards" on The White House Blog for a clip of President Obama’s remarks at the signing.

The bulk of the credit card requirements in the new law will go into effect in nine months, which will be February 2010.

The bill calls for phasing in credit card protections, with the earliest provision – giving consumers 45-day advance notice of significant changes in credit card terms – starting 90 days after enactment of the law, which is this fall.

Consumer groups warn consumers to be wary because banks and other credit card issuers may increase fees and interest rates before the law's new requirements take effect.

Copyright 2009, Rita R. Robison, Consumer Specialist

Badly need credit card reforms pass the Senate today

Credit card companies are raking in billions of dollars from consumers in raised interest rates and fees.

A bill passed by the Senate today, HR 627, would provide more disclosures and restrict how fees and interest rates could be changed after consumers have obtained credit cards.

Consumer Reports Money blog offers the following summary of the bill’s provisions in the post “Senate Passed Credit Card Reform: What’s in It for Consumers”:

• Interest rates can’t be raised during the first year of an account. Customers will be notified 45 days in advance of any change in interest rates.

• Bills can be paid online or over the phone without incurring a processing fee.

• Customers must be over 60 days late on payments before their interest rate can be raised on balances; if the rate is raised, it will go back to the lower rate if customers make the minimum payment on time for six months in a row.

• Overlimit fees can’t be charged unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway.

• If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first.

• Gift cards can’t expire for five years, and issuers can’t charge dormancy fees for unused amounts left on the card.

• Credit card statements must be mailed out 21 days before they’re due.

• Individuals under 21 will need a co-signer on their cards unless they can prove that they have the means to make payments on their own.

• Credit card agreements will have to be posted on the internet.

The American Banking Association doesn’t like some parts of HR 627.

“The goal in the legislation should be to obtain the right balance: providing protections, while maintaining the important role of credit cards in providing loans to consumers and small businesses,” said the association in a statement on the bill. “Unfortunately, we believe the bill does not achieve that balance and will therefore cause an unnecessary decrease in credit availability.

“Most importantly, this bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk. What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky…"

Senator Christopher Dodd, D-Conn., said on his blog that consumers have the right not to be deceived, misled, or ripped off by unfair and arbitrary credit card industry practices that have become commonplace.

"Unfortunately, as the use of credit cards has soared, so too has the list of predatory practices, hidden fees and sudden interest rate hikes to which the industry has increasingly resorted – 'any time any reason' interest rate increases, 'double cycle billing' that charges interest on balances that the consumer has already paid, deceptive marketing to young people, and skyrocketing penalty interest rates, some as high as 32 percent.
 
"The industry has profited handsomely; between 2007 and 2008, credit card companies raised interest rates on nearly one out of every four accounts – 70 million cardholders in all who were charged $10 billion in extra interest.
 
"Put simply, this is an industry that has thrived in part on misleading its customers. Consumers should not have to live in fear that a clause buried in the fine print of their credit card contract might someday be their financial undoing."

In the next step, a compromise bill will be developed with the House, which passed a slightly different bill in April.

Then the compromise bill will go to President Obama for signature. The provisions could go into effect nine months after the president signs it.

Copyright 2009, Rita R. Robison, Consumer Specialist

Bank of America joins other banks in increasing interest rates

Millions of Bank of America customers are being notified that the interest rates on their credit cards are going up.

Citigroup, Chase, and America Express have already taken similar action.

These banks are penalizing customers who carry balances on their credit cards rather than paying them off monthly, a reversal of the usual policy in which banks prefer customers with balances.

The increases fees are being accessed regardless of a customer’s credit score or payment history, reports the article “Easter Surprise: Bank of America Raises Credit Card Interest Rates” on Consumer Affairs.com.

Customers with interest rates below 10 percent will see large increases beginning with June statements.

About four million of Bank of America’s 70 million credit card customers will be affected, the Consumer article estimates.

Meanwhile, Congress is debating new credit card restrictions, with bills moving through the House and Senate.

Although federal rules were adopted in December to restrict credit card interest rate increases, the regulations won’t be in place until June 2010.

It’s ironic that credit card issuers, who are being bailed out by taxpayer funds, are making it harder for consumers to borrow money in these tough economic times by assessing them billions of dollars in fees and penalties.

Copyright 2009, Rita R. Robison, Consumer Specialist

What President Obama and Congress need to do for American consumers

In my last post, I looked at what President Obama said in his Inaugural address about consumer issues and discussed the challenges he faces in corralling the country’s strong special interests.

Here’s what I think Obama, working with Congress, needs to accomplish for American consumers:

• Find a solution to the country’s massive financial problems.

• Help consumers who are facing foreclosure of their homes.

• Find effective ways to create jobs.

• Establish a health care system that works and provides coverage for all Americans.

• Curb the excesses of the pharmaceutical industry by putting a lid on their profits, investigating the harmful side effects of prescription drugs that are injuring and killing people, and fostering the use of less harmful alternative medicine techniques.

• Act quickly to halt the excessive fees and interest rates being charged by banks and credit card companies.

• Stop poor lending practices by banks and mortgage companies.

• Establish better regulation of financial services.

• Fund nonindustry-sponsored research on approaches for clean energy and implement programs based on the research.

• Reestablish the White House Special assistant for consumer affairs and/or create a federal consumer protection agency.

• Restore the budgets of federal regulatory agencies including the Federal Trade Commission, Consumer Product Safety Commission, Food and Drug Administration, and U.S. Department of Agriculture.

• Enhance the regulatory functions of these agencies so that our food, consumer products, and drugs are safe.

• Develop creative and effective ways for citizens to be involved in the decision-making of these agencies.

• Restore trust in the work of the federal government and its processes.

• Insist on transparency in all the work of the federal government including the regulatory agencies and White House staff.

• Ban the direct-to-consumer advertising of prescription drugs on television, in magazines, and on the Internet.

• Ban, establish a moratorium, or least require the labeling of genetically modified food.

• Require irradiated food to be labeled.

• Work with Congress to develop regulatory processes that will prevent the excesses under the George W. Bush administration that caused the collapse of the housing market and the stock market.

• Enhance environmental protections.

• Adequately fund programs for seniors including Social Security, Medicare, and Medicaid.

• Assist local and state governments in preparing for the needs of baby boomers as they age.

• Work to eliminate poverty and homelessness.

• End the wars in Iraq and Afghanistan so that money will be available for domestic programs.

• Support a congressional investigation of the crimes of the George W. Bush administration that will lead to the filing of charges against those who broke the law.

• Review recent telecommunication laws in terms of how they meet the needs of consumers.

• Figure out whether cell phones are safe to use and, if they’re found to be harmful, mandate that they be safe.

• Improve mass transportation throughout the nation.

• Work with local governments and the states to create compact, walkable communities so that Americans can walk to work and shopping areas.

I know this is a huge agenda, but American consumers are in need of drastic assistance after the gutting of consumer and environmental protections during the George W. Bush administrations.

Copyright 2009, Rita R. Robison, Consumer Specialist

Baby boomers hit hard by economic crisis

Losses in the stock market, plunging home values, and the weakening economy are devastating the retirement plans and options of baby boomers.
 
The article “Baby Boomers Scramble to Reassess Future: What to Do When Your Retirement Disappears Before Your Eyes” on ConsumerAffairs.com does a good job in laying out how the country’s economic woes are impacting boomers. It offers these facts and figures:

• The stock market lost 27 percent of its value between September 30, 2007 and September 30, 2008, a roughly $7 trillion drop. Many [baby boomers] have their retirement savings in stock portfolios, which in some cases have lost nearly 50 percent of their value in the last few months – much of it in the last few weeks.

• The average home value fell 3.9 percent in just a little over a year. Boomers who happen to live in one of 20 metro areas that enjoyed the highest price appreciation have been even harder hit, with prices declining more than 16 percent over the same period.

• A significant [economic] downturn could lead to downsizing, or of firms going out of business altogether. New York City is bracing for the loss of as many as 160,000 because of the collapse of many banks, brokerage firms, and hedge funds.

What does the article advise boomers to do?
 
Stay in the labor force longer to boost retirement income. However, ConsumerAffairs.com points out that this may be tough with layoffs mounting and companies shutting down their operations.

Copyright 2008, Rita R. Robison, Consumer Specialist

Baby boomers need to get real about their spending to survive the financial crisis

Financial adviser Suze Orman has said it before, adamantly. Stop spending and get out of debt.

Today, on The Oprah Winfrey Show, Orman said it again, even more emphatically, and she gave her opinions on how consumer spending and corporate greed have led to our current financial crisis.

Financial institutions are collapsing because of greed “at the top,” Orman told Winfrey’s audience.

Corporate leaders in individual companies wanted to make more money, so more and more stocks were sold.

The lack of regulations also contributed to the downfall. There weren't more rules established because they would cut into the bottom line, Orman said.

Consumers contributed by buying homes they couldn’t afford, piling up credit card debt, taking out home equity loans to buy things, leasing cars, taking vacations, and buying clothes and other items.

People leveraged themselves just the way the U.S.A. leveraged itself, Orman said.

The financial crisis is “more serious than ever it has ever been,” she said.

Corporations and banks didn’t care about people, Orman said. If they’d followed her priorities of people first, and then money, we wouldn’t have a problem today.

“The more money companies made, the better the economy was,” she said. If the economy is great the administration looks great.

Credit will become harder to get now, Orman predicts. That’s for houses, cars, and student loans. 

“It will be years before people recover their loses,” she said. Some 401(k)s that people have saved for retirement are down 40 to 50 percent.

Orman advises people to stop living the financial lies they’ve been living. Pay off your credit cards, keep your car for 10 years, and downsize. If you can’t buy it with cash, don’t buy it.

Click on the link above to see what advice Orman had for two couples who appeared on the show to ask for advice.

Copyright 2008, Rita R. Robison, Consumer Specialist

What happened to regulations on investment banks?

It’s going to take time for any bailout of the financial markets to have an effect, Nomi Prins, former investment banker and author of “Other People’s Money: The Corporate Mugging of America,” said today on National Public Radio.
 
That’s not good news. We’d all like this financial crisis to be over and behind us so we could move to a brighter financial future.

In recent news reports, the lack of the willingness of the Bush administration to regulate the banking industry has been covered.
 
Prins also talks about the Glass-Steagall Act of 1933, which separated riskier, speculative investment banks from the more consumer-oriented commercial banks. And, it provided safeguards to the entire financial system.

Glass-Steagall was repealed in 1999, in a bill signed into law by President Bill Clinton. The new law was called the Gramm-Leach-Bliley Financial Services Modernization Act. U.S. Senator Phil Graham, R-Texas, introduced the bill in the Senate. The banking industry had been seeking the repeal of Glass-Steagall since at the 1980s.

Does Prins think the proposed bailout, with provisions similar to the savings and loan bailout, will solve the financial crisis?
 
Not really, she said in an article on the Mother Jones Web site, “Will the Government Bailout Work?”

The packaged mortgage assets today are much more complicated than they were 20 years ago, and the entangled credit default products less transparent. Plus, S&Ls were regulated by the government, whereas the institutions that could benefit from such a fund today, like investment banks and hedge funds and insurance companies, are not.

Prins also said in the article that Washington is using the regulations that it didn't destroy to attempt to deal with the financial crisis. "It would be much better if they were discussing how to resurrect the ones they did."

Check out Prins’ article for further details.

Copyright 2008, Rita R. Robison, Consumer Specialist

Most consumers eligible for free credit-monitoring services or maybe cash

The credit bureau TransUnion has agreed to provide free credit-monitoring services to millions of consumers in a class-action settlement. The purpose of the agreement is to settle claims that it illegally passed along private information for marketing purposes, according to Michelle Singletary, personal finance columnist.

TransUnion has denied any wrongdoing in the case, but has agreed in the settlement to sign up consumers for either six months or nine months of monitoring, Singletary said in her Washington Post column.

You have until Sept. 24 to register for benefits under the settlement. Any consumer who had an open credit account or an open line of credit from a credit grantor is eligible.

The types of credit might include a car loan, bank credit card, retail store credit card, finance company loan, mortgage, or student loan, Singletary reports. The credit account needed to be opened between Jan. 1, 1987, and May 28, 2008.

To register for the settlement, visit www.ListClassAction.com or call 866-416-3470.

Singletary’s column offers advice on what you should do if you’re a married couple and what options are likely to be available to you.

Copyright 2008, Rita R. Robison, Consumer Specialist

Bank fees for overdrafts continue to climb

When consumers have an overdraft, banks loan money to them by paying or authorizing checks, debit card purchases, ATM withdrawals, and preauthorized electronic payments despite insufficient funds to cover the amount of the transaction.

Banks charge a fee for each overdraft and collect payment out of the next deposit into the account.

Consumers pay at least $17.5 billion a year for unauthorized overdraft loans, many triggered by small debit card purchases that in the past were denied for no fee.

The Consumer Federation of America believes that banks should have to get their customers' affirmative consent before signing them up for their most expensive loans.

The federation surveyed the fee schedules and contracts of the top 10 banks in the United States. Here are the key findings:

• The average highest fee charged for overdrafts is $34.65, up 15 percent from the $30.30 average highest fee charged by the same 10 banks in 2005. The highest fee is $37.50 per overdraft at U.S. Bank after four overdrafts in a year.

• Half of the largest banks use a tiered overdraft fee structure, charging escalating fees for more than one overdraft over a rolling 13 month time period. For example, PNC Bank charges $31 for the first three overdrafts in a year, $34 for four to six loans, and $36 for seven or more overdrafts in a year. Bank of America charges $25 for the first overdraft, then $35 each. In 2005, only three large banks used tiered overdraft fees -- Bank of America, National City Bank, and U.S. Bank.

• Sixty percent of the largest banks add a substantial overdraft fee if an overdraft is not repaid within a few days. These banks add $6 to $8 per day until the overdraft and fees are repaid or charge a flat fee. For example, Chase charges a flat $12.50 if an overdraft isn't repaid after five days while SunTrust adds an additional $35 fee on the seventh day an overdraft is unpaid.

• The total cost of a single overdraft at the bank's highest fee that is unpaid after seven days ranges from $70 at SunTrust to $30 at CitiBank. U.S. Bank's combined fees total $69.50. National City charges $68 and Fifth Third Bank's combined fees total $57.

• Only 30 percent of the largest banks set a maximum number of transactions that can trigger an overdraft fee in a single day. Bank of America permits up to seven in one day, up from five last year, for a maximum of $245 per day in fees. U.S. Bank limits customers to six paid overdrafts and six insufficient funds transactions in one day for a total of $450 per day in fees. WaMu limits overdrafts at five per day or a maximum of $170 per day in fees.

• The largest banks process the largest withdrawals first or disclose they pay withdrawals in any order the bank chooses. This results in additional fees when smaller transactions come in later that overdraw an account.

The federation and other consumer organizations filed comments this week to tell the Federal Reserve and other financial regulators that the proposed Federal Trade Commission Act rules on bank overdraft services fail to protect protect cash-strapped families from high cost and unfair loans.

I belong to a credit union. I pay $2 for an overdraft fee. Then the amount of the overdraft goes on my credit card.

Copyright 2008, Rita R. Robison, Consumer Specialist

How to reduce your spending by $500 each month

In these tough money times, figuring out how to reduce your spending by $500 a month would cause excitement in most households.
 
“Cut Your Spending by $500 Per Month,” an article in the August issue of Consumer Reports, offers six tips to find savings in everyday spending. The tips include:

1. Find cheaper auto insurance – Savings, $65.
2. Optimize your life insurance – Savings, $110.
3. Shop smart for food – Savings, $200.
4. Call up phone savings – Savings, $35.
5. Stop paying bank fees – Savings, $25.
6. Pay off your credit card – Savings, $65.

The article offers details on how to carry out each strategy.
 
What should you do with the savings? Consumer Reports suggests you put more into your 401(k), IRA, or other tax-deferred retirement account.

Copyright 2008, Rita R. Robison, Consumer Specialist