The Consumer Financial Protection Bureau is proposing that banks adopt a simplified credit card agreement that consumers can read and understand. Currently, no one reads the dense, fine print multi-page credit card agreements banks send to customers. The Bureau is endeavoring to change that. The Bureau has separated the key terms from the legalese, leaving a clear, readable document. Check it the proposed agreement here.
Surveys by the Consumer Financial Protection Bureau have found that the nine largest credit credit card banks represeenting 90% of the market have stopped hiking interest rates on customers’ existing balances, reduced penalty fees and all but eliminated overlimit charges as a result of the CARD Act enacted last year.
The CARD Act was passed to prevent vulnerable consumers from paying exorbitant interest rates and fees.
The Act allows banks to raise rates for new purchases and one bank periodically reviews accounts to do just that, according to the report. Five others raise rates on delinquent customers, and another bank is testing the practice.
The CARD Act sets new restrictions on late fees capping them at $25 for the first violation and $35 for the second not to exceed the minimum payment due. That has reduced late fees by 50%.
The law forbids issuers from charging over-limit fees to customers unless consumers opted in to the service. That has virtually eliminated the practice. Six of the largest card issuers never charge over-limit fees, even if they the process the transaction.
CFPB chief Prof Elizabeth Warren said that “much of the industry has gone farther than the law requires in curbing re-pricing and over-limit fees.”
Equifax has a judgment against it for more than a million dollars to a Bay Area man whose identity was stolen. While the consumer was hospitalized, an impostor used his identity to open fraudulent accounts. He found the fraudulent accounts on his credit reports from Experian, Equifax and TransUnion and disputed them. (See my blog on why to dispute in writing, Certified Mail, Return Receipt..
Equifax went to trial. The identity theft victim told the jury about trying to get Equifax to correct his report. Other witnesses testified about his damages. His expert explained why Equifax’s procedures fail to meet the requirements of the Fair Credit Reporting Act.
The jury agreed with the identity theft victim. It awarded him over $6,000 for economic damages, $315,000 for non-economic compensatory damages and $700,000 for punitive damages. The consumer does not have to worry about paying his attorney either. The Fair Credit Reporting Act makes Equifax liable for all his attorney’s fees and court costs.
Equifax made post-trial motions to get out from under this verdict, but the trial court denied them all.
As I said before, mixed file and identity theft cases can be great cases. The verdict here proves that. If you have such a claim, give me a call.
Frequently people ask me how they can get the credit bureaus to correct inaccurate information on their credit reports. I always tell them to dispute inaccurate credit reports via letter sent Certified Mail, Return Receipt. Why do that, you ask, when I can dispute on-line or by phone? If you look at their websites, you know the credit bureaus encourage consumers to phone or email. It is almost impossible to find an address to mail a written dispute letter to.
There are COMPELLING REASONS to do your disputes in WRITING, Certified Mail, Return Receipt. If you have put it in writing and kept a copy and obtained a receipt you can prove exactly what information you provided and that they received it.
You want to provide the credit bureau with as much information as possible so it can conduct a thorough investigation. If you have names and phone numbers of people they should contact, provide them. If you have documents that prove your claims, enclose copies..
Sending a written dispute letter does not guarantee that they will fix your report, but if they don’t you at least have solid evidence to support your lawsuit. Phone conversations and emails are hard to prove. You don’t have as good a record and the credit bureaus can dispute what you said. Emails get lost. You don’t get any proof that they received them.
Please keep copies of everything you sent with the dispute letter, including all enclosures and a copy of your signed letter. (Sometimes it is important for them to have your signature so they can compare it to the signature on the fraudulent account you are disputing.) Your file copy of the dispute letter should be an exact duplicate of what you placed in the envelope to the credit reporting agency.
If Experian, Equifax or TransUnion are reporting accounts that are not yours — either mixed files or fraudulent accounts — and they will not correct it, give me a call. Those are good cases.
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (“CARD” Act) goes fully into effect in February 2010. If you want to find out which credit card issuers are complying with CARD at this time, go to www.billshrink.com. You can write in the name of your bank and find out to what extent the bank is in compliance. The major credit card banks are in compliance on some, but not all of the CARD requirements.
The site neatly summarizes the ten major protections afforded cardholders. They are protection from arbitrary rate increases through early notification, the right to have interest rates reviewed to see if they should be lowered, payments must be applied to the most expensive balances first, a ban on universal default, a ban on “double-billing,” no extra fees for paying by mail, by phone or online, payments received by 5 PM must be credited that day, cardholders must get 21 days from the date the statement is mailed to pay, banks are to provide warnings against paying only the minimum payments, and no marketing to kids without parents’ OK.
The Minnesota Attorney General sued the National Arbitration Forum alleging it was essentially a front for various large banks and collection agencies. NAF falsely held itself it out to be a neutral forum for processing creditors’ claims against consumers.
On July 19, 2009, the AG announced that NAF has entered into a settlement of the lawsuit under which NAF will immediately stop accepting consumer arbitrations of any sort. This is wonderful news for consumers and a major step towards getting rid of all mandatory arbitration clauses in consumer contracts.
Charging too much on your credit cards is a good way to get into financial trouble. So, in this economic climate, it’s best to keep those cards in your wallet, right? According to an article in MSN Money, not necessarily so.
Banks are apparently taking a hard look at customers who don’t use their credit cards — or who don’t use them anough — and simply canceling those cards. The banks reason that closing rarely-used accounts lowers their risk profile, because getting rid of unused accounts limits the bank’s liabilities (potential available credit) compared to the bank’s assets. Also, simply maintaining those accounts is an expense. But closing an account also means that the customer’s available credit is reduced. You may not need that credit, but your credit score can take a big hit when an account is closed.
Credit scores are based on a complex formula. According to Craig Watts, spokesperson for Fair, Isaac, about 30% of your score is based on your credit utilization ratio — the amount of your debt in relation to the amount of your available credit. Watts says a person with a solid credit score of 720, for example, whose utilization ratio increases from 35% to 75% after a bank closes an account is likely to see her credit score plummet by several dozen points. The resulting score would be far less than the 760 (or higher) consumers now need to get the best rates from lenders. (See Mark Anderson’s January 6 post.)
The ironic conclusion is that credit may become more expensive for the consumer who thought she was being responsible by not using her credit card!
Capital One Bank and the credit reporting agencies (Equifax, Experian and TransUnion) recently settled with our client who was the victim of identity theft. It took years for the identity theft victim to get Capital One to stop trying to collect on the account it opened for an imposter.
The story began when Capital One sent a pre-approved credit card application to our client at her former college apartment. Someone in the building got the application from the mail and used it to get a VISA card from Capital One in our client’s name. The imposter took $500 from the account, but Capital One quickly learned the account was fraudulent–a law enforcement agency told it that professional identity thieves had opened the account–so it closed the account and charged off the account balance.
That should have ended the matter, but it didn’t. A year later, Capital One sent another credit card application to our client at the same old address. The imposter again used the application to apply for credit in our client’s name and again Capital One issued the imposter a VISA card. This time it gave the imposter a $20,000 credit line and sent “convenience” checks that the imposter used to withdraw almost $18,000. When the imposter failed to make the payments, Capital One located and began to dun our client. She disputed the account, retained a different lawyer, wrote lots of letters. Nothing worked. Capital One sued her to collect on the account.
Then she contacted us.
In an interview on NPR’s Fresh Air with Terry Gross, Prof Elizabeth Warren warns consumers that banks are increasing interest rates and fees on credit cards for no other reason other than that they need revenue to make up for losses in other lines of their business. The banks reason that in a climate in which credit is harder to obtain, consumers are less likely to close their accounts when hit with these increases and switch to different credit cards. Banks are also adding such “trips and traps” as double cycle billing (you pay interest on recent charges).
Banks are also pushing credit related products that Prof Warren calls lousy. An example is credit insurance on your credit card, which kicks in if you lose your job. Many buyers will be misled into believing the insurance pays off their balances, but instead the insurance merely pays the interest for six months. At $20 per month on, say a $5,000 balance, this is a bad deal for the consumer.
Prof Warren is a law professor at the Harvard Law School and a leading critic of banks’ predatory lending practices. The interview is available as a podcast on NPR’s website, www.npr.org.
Credit card companies love to market cards to college students. That point was eloquently and tragically made in the superb recent film Maxed Out. In the film, two mothers of college students describe how their bright and high-achieving children applied for credit cards as college freshmen. But they soon found themselves in serious credit card debt. Feeling profoundly depressed and overwhelmed, each of them committed suicide. These two moms have since made it their mission to stop credit card solicitation at college campuses.
A new BusinessWeek article tells the tragedy from a student’s perspective. Ryan Rhoades, a freshman at the University of Pittsburgh, needed spending money. Citibank was offering jobs to college students to sign up new credit card users for $5 to $10 per application. Rhoades took the job. Citibank didn’t tell Rhoades that the school had barred marketers from dormitories by then. So Rhoades marched right through the dorms and signed up about 30 of his fellow students.
Many college campuses have realized how dangerous on-campus credit card solicitation can be, and have accordingly banned solicitation on campus. But according to the article, “despite colleges’ best intentions, the companies just set up shop across the street,” says Linda Sherry, the director of national priorities for Consumer Action, a San Francisco consumer-education and advocacy group. “Students are constantly under attack.”.
The tragedy Rhoades tells isn’t just that he “pushed” credit cards to unsophisticated students who had no idea how to handle credit–which Citibank said would be easily handled because students could easily pay off the balance once they graduated and got a great job. Five years later, Rhoades is still struggling with $13,000 of credit card debt–the “pusher” fell victim to the come-on himself .