Headlines
- Credit CARD Act Takes on Store-Bought Gift Cards
Fox Business 17 Aug 2010
The final portion of financial regulations to take effect under the Credit CARD Act will do so on Aug. 22, bringing gift cards under the same rules as credit and debit accounts in order to better explain fee structures and extend expiration dates. While some gift card issuers previously set short redemption windows and adjusted expiration dates arbitrarily, the new regulations will require that gift cards remain active for at least five years and mandate that stores transfer unredeemed gift card balances to replacement cards. The new rules force issuers to disclose rules on fees in plain language at the time of purchase and forbid any monthly fees within the first year. Still, there are two loopholes: many reloadable debit cards function more like checking accounts and do not follow the same rules on fees and expiration dates as other prepaid cards, and many companies have replaced promotional rebate checks with pre-loaded debit cards that carry their own terms and conditions.
- Payday Loan Companies Cash In as Individuals Struggle with Economy
KENS5.com 17 Aug 2010
Houston payday and car title loan outfits are expanding with more stores and flashy advertising just as more and more of their customers are struggling with the economy. The city has more than 500 payday and car title loan stores, many of which see repeat borrowers trapped in cycles of debt. Martha Macris with the Memorial Assistance Ministries said some payday lenders are taking advantage of bad times and charging the equivalent of 800 percent interest. "I think it's unconscionable," she said. According to Texas State Rep. Ana Hernandez (D-Houston), the lenders are using a loophole in Texas state law to charge exorbitant interest rates. She and several other lawmakers would like to impose a 10 percent interest rate cap that is currently imposed upon short-term loans from banks. Still, lenders say their industry is growing because they are providing a much-needed service, citing studies by the Federal Reserve in Georgia and North Carolina that found people bounced more checks and paid more fees to their banks and credit unions when payday lending was banned. Houston does have other options for the working poor in the form of short-term loan programs funded by many charitable groups, but these are much more difficult to find than the lenders that line the streets.
- Stop The Payday Lending
Daily News Record 16 Aug 2010
According to this Daily-News Record editorial, "Payday lenders are predators who exploit the poor and others suffering financial misfortune." The writers say that it is with good reason that the Harrisonburg City Council wants the Virginia State General Assembly to act and cap the annual interest rate on payday loans at 36 percent. Echoing the concerns of Vice Mayor Richard Baugh and Councilman David Wiens, the article argues that payday lending is exploitative, unhelpful, and usurious -- with accrued interest rates that can reach up to 584 percent annually. Payday lenders do not take the time to complete credit checks to verify that borrowers can pay and instead "trumpet their free-wheeling, no-credit-check loan policies and expect that borrower can't repay," says the piece. The payday lending process "opens the door to one more loan written against a bum check, and then another, which astronomically increases the interest rate." The writers conclude, "The General Assembly should cap the interest rate for payday loans at 36 percent, with no other fees allowed. This predatory practice must stop."
- Supervisors Want Crackdown on Loans
Sun Herald 16 Aug 2010
Jackson County, Miss., supervisors have declared their support of state laws to stop payday lending practices that exploit the area's low-income and desperate people. According to Jackson County Supervisor Melton Harris, the legislation is aimed at loans with payback terms as short as two weeks and interest rates that translate into an annual rate in the triple digits. There is a need for short-term loans with lower interest rates, but the existing predatory loans are hurting "people looking for a quick solution to their problems," said Harris. County supervisors in Jackson and Harrison County are urging state legislators to let the laws allowing high-interest loans to expire in 2012 and then cap annual interest rates across the state at 36 percent. In data compiled by the Mississippi Center for Justice and the Mississippi Economic Policy Center, Mississippi in 2007 had one of the nation's highest concentrations of payday lenders in the nation. Supervisors are also asking that the state prohibit the use of a personal check and set the minimum repayment period to 90 days. They are also requesting a statewide database to track the loans.
- Banks to Benefit Most from White House Program to Help Fight Foreclosures
The Hill 15 Aug 2010
According to some housing experts, banks may get the biggest benefit from the Obama administration's $3 billion funding infusion designed to help jobless homeowners avoid foreclosure. The fund allots $2 billion from the Treasury Department and $1 billion from the Housing and Urban Development Department for the states hit hardest by the housing market crash and unemployment. According to Dean Baker, co-founder of the Center for Economic and Policy Research, "Giving money to the banks isn't what the government should be doing right now" because new funding it unlikely to do too much good for the multitudes of people who are underwater on their mortgages. He suggests that the funds be used to cover any of the struggling homeowners' needs, not just mortgage payments. Baker also proposes a program that would allow homeowners to rent their home back from the bank at a lower payment for five years, providing security for those struggling to make payments and incentive for banks to negotiate with homeowners. The federal program plans to direct $2 billion to the "Hardest Hit Fund" and $1 billion to the "Emergency Homeowners Loan Program," which will provide zero-interest loans of up to $50,000 for two years and be divided between 17 states and the District of Columbia. The Obama administration's Making Home Affordable program has helped far fewer people than its proponents had hoped it would; and some lawmakers, including Rep. Darrell Issa (R-Calif.) question the validity of "committing even more money in a failed program that ultimately isn't helping those who need it the most."
- Life Lessons Can Shape College Students' Money Management Skills
Dallas Morning News 14 Aug 2010
One of the biggest issues facing parents is whether a college-aged child is ready for a credit card and, if they are, the ways in which the account should be used. The Credit CARD Act of 2009 prevents anyone younger than 21 from getting a credit card unless they have a co-signer or can prove they have sufficient income to cover payments, making cards less accessible for many students. Still, many parents are not always comfortable with co-signing because it puts both credit histories on the line. Another option for parents is to add their college student to their own credit card as an authorized user, which would allow them to quickly spot anything the child charges. Managing money in college is also about managing the money in the bank, which means kids really need to understand how an account works. Parents should also seek to be honest about their ability to help their child financially, especially when it comes to creating a budget for the school year.
- Financial Agencies Looking to Modernize Reinvestment Act
The Hill 14 Aug 2010
Financial agencies and federal lawmakers are moving to revamp the 1970s-era Community Reinvestment Act (CRA) in order to reduce racial discrimination in lending and strengthen lending to low- and middle-income communities. Many Republicans believe the act contributed to the housing crisis, while Democrats say it should be widened in scope to better accomplish its mission. It currently requires federal agencies to examine financial institutions so they meet the needs of their communities, including low- and moderate-income areas; and regulators are considering changes to how banks comply with the examinations, the overall community development needs, and ways to better apply the law to the lending industry. Consumer advocacy groups have strongly urged a broadening of the law and regulations, petitioning to extend its influence over non-bank lenders. John Taylor, head of the National Community Reinvestment Coalition, observed that there is not enough lending under the act, placing many of the most egregious lending practices outside of the law. Despite claims that the act played a role in the housing crisis by encouraging loans to low-income borrowers, Federal Reserve researchers in 2009 found that loans made under CRA assessments "helped to ensure responsible lending, even during a period of overall declines in underwriting standards."
- New Credit Card Rules Protect Consumers But at a Cost
South Florida Sun-Sentinel 13 Aug 2010
The final installment of the credit card reform act takes effect on Aug. 22; and it could mean lower credit limits, higher fees, and fewer rewards for many account holders as issuers try to recoup lost revenue. Card companies are expected to see a significant decline in revenue as a result of the law -- which restricts late payment penalty fees, bans inactivity fees, and requires issuers to re-evaluate interest rate hikes periodically. Some issuers may even try to skirt the rules altogether; and Josh Frank, senior researcher at the Center for Responsible Lending, says, "It's up to the regulators to keep the issuers honest." Among the most important changes that have come from the credit card reform are restrictions on interest rate increases, regulation of the application of payments, and a ban on "disproportionate" penalties for minor infractions. Still, new trends have emerged that could cost card holders significantly, including higher fees for cash advances and balance transfers. According to Ed Mierzwinski of the U.S. Public Interest Research Group, "there's still too much leeway granted to banks and credit card companies." Just how uneven the implementation is can be seen in the two loopholes found in the Aug. 22 law: companies can find ways to show that costs justify higher fees, and issuers can raise minimum payments to charge more. Frank of the CRL added, "Regulators need to make sure that there's no funny accounting going on to justify higher costs and fees." Consumers should stay informed and feel free to opt out and shop around for another card if they do not like the significant changes in terms proposed.
- Consumers Still Opting In For Overdraft Protection
Consumer Affairs 13 Aug 2010
The last of a series of overdraft rules went into effect on Aug. 15, officially preventing banks from automatically enrolling new or existing customers in an overdraft protection program that then allows the bank to charge hefty overdraft fees. However, research has shown that a surprising number of consumers have already opted in for the coverage and many indicate that they plan to do so. Consumer advocates were fairly certain most consumers would say not to the coverage, but a new report from Mintel Comperemedia shows that 36 percent of consumers said they had opted in and another 36 percent said they planned to do so in the future. The banking industry engaged in a marketing blitz, implementing direct mail, e-mail, Web, and phone campaigns to encourage customers to opt in to the program. According to the Center for Responsible Lending, the strategies targeted the most vulnerable consumers using scare tactics and incomplete information. Consumers have paid $23.7 billion annually in costly overdraft fees in recent years, and the CRL says there are a number of less costly alternatives to this kind of coverage. "To avoid costly fees under standard overdraft coverage, customers can sign up for lower cost overdraft alternatives at their bank, such as linking a savings account or credit card for back-up funds, or applying for an overdraft line of credit," the group says on its Web site.
- Debit Fees Won't Fly With Most Users
American Banker 13 Aug 2010
An online survey of 1,000 adults by Mercator Advisory Group reveals that many consumers would cease using debit cards and return to paying in cash if a $10 monthly fee was added to the cards. More than three-quarters of respondents with annual incomes of greater than $75,000 said they would make the switch. The poll results also reveal that 33 percent of those queried would seek out decoupled debit cards without fees, and nearly 50 percent would obtain decoupled debit cards with rewards programs. "This study clearly demonstrates just how price-sensitive the consumer market is," according to National Payment Card Association President Joe Randazza notes. "Decoupled debit allows these consumers to avoid fees and obtain rewards, and at the same time help merchants regain control over payment choices."
