Credit/Debt Recovery

I can't find a link to the story anywhere online, so I'll post this story from the American Bankruptcy Institute Update newsletter:

GROUP CALLS ON NEW CONGRESS TO ENACT CREDIT CARD ABUSE LEGISLATION

The Center for American Progress, a liberal think tank closely allied with the new Democrat majority in Congress, challenged the 110th Congress to enact legislation that protects consumers from “abusive credit card lending practices” in a press release today outlining the Center’s legislative priorities for the new Congress. Citing that Americans pay about $90 billion annually in interest and penalty payments on credit cards, the group called on Congress to: (1) enact legislation to ban retroactive application of interest rate increases so credit card companies can no longer raise a customers’ interest rate and then apply that higher rate to earlier purchases; (2) ban the practice of universal default to prevent credit card companies from changing the terms of a card based on a customer’s experiences with another issuer; (3) ban what it deems to be abusive and excessive fees (such as unilateral over-the-limit fees when the issuer approved the over-the-limit transaction, and processing fees when consumers pay their bill by phone or online); (4) improve disclosure by fully adopting the recommendations made in the GAO’s Sept. 12 report entitled “Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers;” and (5) crack down on predatory debt-collection companies by updating and strengthening the Fair Debt Collection Practices Act (FDCPA).

I don't often agree with the Center for American Progress--their motto is "progressive ideas for a strong, just, and free America," which sounds okay, except they have very screwy definitions for the words "just" and "free."

I certainly don't want any of my readers to donate any money to these people, but I do have to say that I agree with the basic gist of this initiative. Post-BAPCPA, the creditors have no right to protest this kind of legislation, and as much as I'd prefer Congress do nothing for the next 40 or 50 years, they would be doing their jobs if they protected us from creditor abuses. At the very least, the should force creditors to abide by written contracts; that is, they should make it unlawful for creditors to re-write the terms of a loan agreement without the written consent of the consumer.

Let's look at each plank:
1. Ban retroactive rate increases. This is a no-brainer. If creditors put fine print in their contracts that allow them to raise rates on prior purchases, then the contract is meaningless. Congress should do this.

2. Ban universal default. This will happen; it's already happening in a lot of states, and the lenders with some integrity aren't doing it anyway. A credit card agreement is between two individual parties, the lender and the borrower. The borrower's relationship with some other lender should have no bearing.

3. Ban abusive and excessive fees. Again, I support this idea. It's an act of fraud for a creditor to approve a purchase and then charge the consumer a fee for going over the limit. I'm a little less sure about processing fees. If it's a lot cheaper for the creditor to process payments by mail, I don't see why they shouldn't charge a fee for payments by phone. That is, if the consumer is talking to a live operator.

4. Improve disclosures. I haven't read the relevant GAO report, but I'm generally always in favor of more disclosures. That's because consumers should bear resonposibility for their borrowing behavior, but they can't be expected to do that if they have incomplete information. (Or if the creditor keeps arbitrarily changing the terms of the credit card agreement.)

5. Strengthen the FDCPA. The FDCPA is pretty onerous as it is, but I'm generally unsympathetic to collectors. I hear frequent complaints of FDCPA violations to this day, so I know there are a lot of collectors ignoring the law. I'd also like to see more FDCPA provisions apply to the original creditor and not just third-party collectors.

We'll see if the Democratic congerss will do the bidding of the CAP and get this all done. My hunch/fear is that it will be attached to some sort of amendment/repeal of BAPCPA, in which case I won't support it. Bankruptcy is a separate issue, it's been addressed, and now they should address creditor behavior with completely new legislation.

Money and happiness are linked

In an old post here, I discussed a story in the KC Star that suggested more wealth doesn't necessarily make someone happier. I called that story out as bogus: not only is the "money≠happiness" argument wrong on its face, it makes it more difficult for people like me to convince consumers that it really is important to pay down debt and save for the future.

Now, there's a new story from the AP that agrees with me that there is a relationship between money and happiness. In fact, it says "there is overwhelming evidence that money buys happiness."

Now, I know some people who will never be happy; if they win a million dollars, they'll still be miserable. Some people are like that. The point is, most of us aren't. Not having to worry about bills all the time, or how to eliminate the debt we've accrued, that will increase our happiness.

Think of it like physics. Cold is just the absence of heat. When I say money can increase your happiness, think of money as "the absence of debt." Of course that will improve your life and ultimately make you happier. It's science.

Insure yourself

I've been away due to a serious illness in the family, and I want to pop in with a quick pair of lessons I've learned from this experience:

1. Get disability insurance
2. Read the fine print

In this case, the disability insurance is there, with a caveat in the fine print; benefits are capped at an absurdly low level. The policy says something like 80% of the regular salary, but when the fine print kicks in, it's closer to 80% of minimum wage.

This is another case where I can recommend a competitor. Suze Orman's background is in the insurance industry, and most of her books contain pretty good info on insurance. I think she did an entire book on the subject. I'm not urging anyone with budget problems to run out and buy a book, but swing by the library and flip through her chapters on insurance. Then make sure you have adequate coverage.

Correcting credit report errors

Here's an article from KMBC-TV about credit report errors. The facts of the article definitely conform to my experience, in particular the frequency of errors.

In fact, I see serious errors on credit reports way more than 25% of the time, but I'm sure the people I'm helping are just more likely to have those problems.

One area where my experience has been different from what's in the article is getting errors corrected. I've usually had a pretty easy time of it, and the credit bureaus usually cooperate without too much fuss. My impression is that with the growing importance of credit reports, the bureaus either have to get better at compiling an accurate report in the first place or get better at correcting errors faster. From what I've seen, they seem to be doing the latter. Of course, your experience may vary, and lots of people end up suing the credit bureaus,s like the woman quoted in the article.

Control Your Money Now! Launches

Hot on the heels of my blogging about using a computer to control a personal budget, Tom Blumer of Bizzyblog has launched Control Your Money Now (CYMNow.com), an online budgeting tool. Looks very promising.

I'm out of town visiting someone in the hospital this week, but next week I plan to sign up for CYMNow.com and give it a spin. Full review to follow...

Using computers for budgeting

This month's MacAddict magazine has an article on using Microsoft Excel to track your spending and build a budget. It's good stuff; it's easy enough to follow while helping to create a comprehensive spreadsheet to set a budget and track its effectiveness.

The problem I've been having for a while now is whether computerized budgeting really helps, and if it's worth it to actively promote it. I've long supported using whatever software tools are available (Quicken, Microsoft Money) to control one's personal finances. I just have this suspicion, though, that the sort of person who can put together a comprehensive budget spreadsheet, update it every day, and use that information wisely is probably the sort of person who's going to be okay no matter what they do. But people who are clueless about budgeting, too busy for daily updates & tracking, and hopelessly frazzled about their finances... can a computer program help them?

If you think it might benefit you, I urge you to give it a try. But realize from the start that it's going to be an ongoing practice, not a one-time session at the computer keyboard.

Credit Freeze Law struck down

In California, notorious tenant blacklisting service U.D. Registry sued to strike down a consumer credit freeze law on first amendment grounds. They won. Credit & collections world quotes lawyer (and son of the founder of U.D. Registry) Michael Saltz predicting that the case will serve as a precedent to strike down other state credit freeze laws.

I don't personally buy the legal interpretations here, but the courts have ruled and it looks like the end of consumer credit freezes, which are only just being rolled out in many states. (It just went into effect in New York on Nov. 1st.) There's been resistance to credit freezes from credit bureaus all along, and this new ruling shifts things squarely in their favor.

I don't like this development one bit. Particularly troubling is this paragraph:

“If you are reporting facts on file, and they are true and accurate, the state cannot touch you. The credit reporting industry cannot be singled out” under law, he adds, especially as they don’t issue credit. The onus to prevent identity theft and fraud lies with credit grantors, he says.

This isn't about "the state." It's about our right to protect ourselves from fraud. If the onus is on credit grantors, and we are that much more powerless to protect our identities from thieves, then how do we avoid becoming victims? With a credit freeze, we could force them not to grant instant credit, but that's being struck down. So where does this leave us? At the mercy of credit bureaus, credit grantors, and identity theives.

For Dummies, by Dummies

I try to avoid criticizing books that compete with my own, because I think it's tacky to do so. However, I'm reading "Personal Finance for Dummies," and it's so awful I feel like I must blog about it.

The author gets facts wrong, misrepresents current events, and offers completely impractical advice. He does know his stuff when it comes to retirement accounts and the like, but his material on debt management is so awful and useless that I have to advise readers to steer clear of it.

Like I said, I don't normally criitcize competitors, and in fact I've recommended competitors on this blog before. I'll do it again right now; if you are looking for a "Dummies"-style book, pick up "The Complete Idiot's Guide to Beating Debt," instead of the Dummies book. If you're looking for financial planning/investment advice, read Andrew Tobias' The Only Investment Guide You'll Ever Need.

Anything but "Personal Finance for Dummies."

"Bonne & Clyde" of mortgage fraud

Here's a story from Fortune, reprinted on CNNMoney.com, that profiles a man who is on the FBI's most wanted list for serial mortgage fraud.

I was surprised to read recently that cases of ID theft had actually decliend a bit over the past few years (Javelin Strategy and Research conducted the study).

At the same time, reported losses have gone up. That means thieves are stealing more from each victim. I think this kind of mortgage fraud is part of that equation, and I won't be surprised if we see more coverage of this sort of crime.

Here's a link to the cache of a Red Herring story about the issue. The only problem is, it cites $56.6 billion in ID theft losses figure, which we know is completely unrealistic.

CU's campaign for credit card reform

I'm not generally a big supporter of Consumers Union; I've seen Consumer Reports get it dead wrong more than once, and no one wants to challenge them because the wield a fair amount of power.

In this case, I'm willing to support Consumers Union's campaign for credit card reforms. In particular, I think the credit card companies' practice of revising their credit card agreements with their customers is a genuine act of fraud and should not be enforceable.

If I signed a contract with the credit card company, then that contract should be honored until I sign a new one. If the contract says my interest rate will increase if I miss a payment, fine. But to change rates and add fees simply because of some internal change in the creditor's company policy is not something a credit card company should have the right to do.

To that end, here's the link to Consumer's Union's advocacy page that will allow you to email your representative urging reforms including the end of universal default, no over-limit fees if the creditor pre-approves a charge, banning retroactive interest raises, and so on. The main thing I'd delete from the form email is the stuff about "protecting young consumers from marketing practices that place them at risk of crushing debt..." That's nonsense.

Also, be warned that if you use this form, you're giving your contact info to Consumers Union; don't assume they won't use it. You'll get emails, "action alerts," etc. (Any true "consumer advocate" would understand that everybody hates spam.) You may want to use their campaign only as an inspiration and write your own old-fashioned letter to your congressional representative.

I know I seem pretty tentative in my endorsement here; I do support an effort to bring creditors to heel. (I had my own issues with sudden changes to a credit card agreement, and I always said Bankruptcy Reform should be followed by creditor reforms.) I'm just wary about jumping in bed with a bunch of snakes just because we happen to agree for the moment.