August 2010 Archives

This article first appeared in The Enquirer on July
25, 2010.

In ways large and small, the broad overhaul of
the nation's financial regulatory system that was
signed into law by President Obama last week
will change the relationship between banks and
their customers.

Here are some ways things will change:

HOME MORTGAGES

The Issue: Predatory mortgage lending - much
of the nation's financial and economic meltdown
is traced back to the real estate bubble that was
powered by subprime and otherwise lax home
lending. Unsophisticated borrowers were lured
into loans they couldn't afford, then banks and
other financial companies were left holding the
bag when those debts turned bad.

The Fix: The new law tasks regulators to write a
series of new mortgage regulations: including a
simple federal standard to ensure loans are
repaid; bans on incentives that encourage the
sale of high-cost loans; a prohibition on pre-
payment penalties; penalties for irresponsible
lending; requiring consumer disclosure of the
maximum payment amounts under variable rate
mortgages with a warning that payments
fluctuate under such loans with interest rates.
A newly created Consumer Financial Protection
Bureau will also have authority to set additional
mortgage rules and standards.

The Impact: The law is clearly designed to
prevent future cases like 63-year-old Roger

Conway, who is in foreclosure after falling
behind on his payments. Conway re-financed his
Delhi Township home to consolidate some debts,
but found his monthly payments jumped after
interest payments reset from an initial teaser
rate. It is unclear how much the new law will
help Conway himself, since regulators still must
decide new standards and determine when they
take effect.

AUTO LOANS

The Issue: Complaints of predatory lending
practices by shady auto dealerships have also
cropped up - the loans are often the second-
largest purchase made by consumers. The U.S.
military has complained that unscrupulous used
car dealers have targeted low-income soldiers
by setting up shop outside military bases and
trapping into predatory "yo-yo" deals where a
buyer signs a conditional contract only to be hit
up for more cash in a manner of days. President
Barack Obama lost his battle to get auto loans
brokered by dealerships brought under the
jurisdiction of the new CFPB.

The Fix: However, auto dealers didn't get away
from new rules entirely. The new law granted the
existing regulator Federal Trade Commission
new streamlined rule-writing authority.

The Impact: Not clear yet. Under the FTC's

previous abilities, it took about a decade to
enact new rules. Now, that lag time will be
presumably cut back.

STUDENT LOANS

The Issue: Students racking up tens-of-
thousands of dollars in debt before they enter
the workforce.

The Fix: A newly created Student Loan
Omnibudsman will have the authority to receive,
review and attempt to resolve complaints. The
office will also track complaints and practices for
private student loans. The new CFPB will also
have authority to write rules governing practices.

The Impact: Unclear. It depends on the new
rules regulators come up with. Crystal Allen, a
35-year-old single mother, is struggling with
more than $20,000 worth of student loans she
took out pursuing an associate's degree and a
nurse's aid certificate that have so far failed to
yield a steady job. The East Price Hill resident's
loans are in deferment through the end of the
year.

CREDIT CARDS, PAYDAY LOANS and
OTHER CONSUMER LENDING

The Issue: Many Americans get in over their
heads over-using the plastic, home-equity lines
of credit or short-term cash advances on their
paycheck.

The Fix: The new CFPB will be able to establish
standards and write rules for these popular lines
of credit.

The Impact: Unclear, until the new agency is up
and running in the next 12 to 18 months.

FORECLOSURES

The Issue: An estimated 6 million Americans are
60 or more days behind on their mortgage - lost
jobs and lost hours have become the driving
force behind homes being lost.

The Fix: While primarily focused on curbing
industry abuses and excesses, the law
designates $1 billion in bridge loans to qualified
unemployed workers to avoid foreclosure. It also
gives the Department of Housing and Urban
Development $35 million to pay for foreclosure
legal assistance for low-to-moderate-income
homeowners. The law also establishes an Office
of Housing Counseling at HUD to encourage
homeownership and provide counseling to
renters.

The Impact: Depends on when the money starts
flowing. Tara Engle, a 35-year-old mother of
four in Independence, is struggling to pay all her
bills after losing her job as a budget analyst for a
medical company. While her husband works at an
auto dealership, their income has been cut way
back after she lost her job and her
unemployment recently ran out. Still,
unemployment - not consumer loans- remains
her concern. Engle doesn't have outstanding
debts for credit cards, auto loans or payday
lenders. She has deferred her student loans.

SMARTER, MORE ENGAGED CONSUMERS

The Issue: Consumers struggle to get a handle
on their finances.

The Fix: The CFPB will establish a toll-free

hotline for consumers to report problems with
financial products. The agency will also establish
an Office of Financial Literacy to promote savvy
consumer use of loans and other products. The
new law also grants consumers free access to
their credit scores in the event their ranking
hurts them in a hiring or financial transaction.

The Impact: The effectiveness of the new
agency won't become apparent until it is up and
running.

Many companies today are offering prepaid credit cards to those with credit problems to help them get back in the financial game. This allows those with problems to have the advantages having a traditional credit card offers. Branded gift cards are offered through many banks and work much like a prepaid card with various limitations and fees. When you apply for such a card you are going to have to pay fees but they are comparable to the fees paid when applying for a card with low credit scores.

Branded Credit Cards

A branded card has the advantage of being accepted but the same places as a traditional credit card. Visa and MasterCard, both well known names, are often the company backing the branded cards offered by banks. These cards are used like a debit card. If a merchant doesn't accept them then you won't be able to use it. Even some bank issued gift cards are not acceptable everywhere.

Know What You Are Getting

A prepaid card doesn't have many of these problems. There is no interest on your purchase and they are accepted wherever credit cards are accepted. But keep in mind, there can be fees for certain transactions and they can be costly. So know what you are getting into before you purchase one. Once you sign up there is usually a fee associated with cancelling the card as well. Another hidden fee can be the monthly charges many companies charge you.

Count the Cost

Knowing the fees can help you choose your transactions wisely. If you have an All Access Prepaid Visa, for example, you can open an account with only a balance of $9.95. Sounds good as most transactions that you do online cost nothing. But if you go to an ATM machine to pull money there is a $2.00 fee. If you inquire about your balance its $.50 to do so. There is also a monthly fee of $9.95. If you let your account go inactive they charge you $5.95 and if you lose your cared it's $5.95 to replace it. The fees can add up.

On the flip side of that you can get a branded prepaid card, backed by MasterCard, through another company. There is no application fee and they only ask for a $5.00 balance to open the account. ATM withdrawals are pricey, they cost $4.95 and there is a $3.95 charge every time you add money to your card from your bank account. The nice thing about this card is you can arrange to have your paycheck put directly on it via direct deposit. There are other charges as well.

Is it Worth to Get one?

It may be worth it to you to get a prepaid credit card. Just make sure you totally understand all the fees and charges before applying. There are many good reasons to go for this type of card if you know what you are getting into beforehand.

If you want to learn more about prepaid credit cards, try visiting best credit card tips, where you will find this and a lot more tips about a free prepaid reloadable Mastercard including tips how to get the best free prepaid Mastercard card.

What can you tell me about the debit and credit card options for students under 21?

Bill Hardekopf, chief executive officer of Lowcards.com, says the CARD Act began limiting credit options for students under the age of 21 in February. Hardekopf notes the good news is that the regulations protect students from aggressive credit card marketing on campus, but the law also restricts credit availability for students.

"Credit cards represent freedom and independence for college students, especially that first year when living away from home is new and exciting. The more they understand about the correct use of credit and its consequences, the more responsibly they can handle it," says Hardekopf, author of the Credit Card Guidebook.

Hardekopf notes these options:

Credit cards: Students under the age of 21 can get a credit card if they have a co-signer or has proof of the ability to make payments. Co-signing should only be an option if your student can use a credit card responsibly. If the student makes a late payment, it also shows up on the co-signer's credit report. If the student can't pay off the debt, the co-signer is responsible for all the debt.

Debit cards: These cards are tied to checking accounts. Opt out of overdraft coverage to avoid overdraft fees. Online account alerts can notify you when the account falls below a specified balance. Debit cards do not help build credit scores and there may not be a sufficient balance during an emergency.

Prepaid cards: These can be purchased anywhere, even grocery stores. However, they also have fees, so read the fine print before you purchase.

Secured cards: These cards have more fees and the interest rate is high, so pay them off each month. But secured cards are relatively easy for anyone to get because they are secured by a prepaid deposit. Make sure that the card reports to a credit agency. Secured cards from Orchard Bank and Public Savings Bank both report to credit agencies.

Prepaid credit cards are credit cards that require you to place a specific deposit with the credit card issuer in exchange for which you receive a credit card with a spending limit equal to the deposit amount. You are able to use prepaid credit cards just like you would a traditional, unsecured credit card or debit card; however, no bank account is required.

Prepaid credit cards help build your credit in the following ways:

1. PAYMENT HISTORY: First, many prepaid credit cards operate specifically as credit builders. Approximately 35% of your credit score is based on your payment history; prepaid credit cards help to build your credit by reporting when your payment history monthly, as opposed to the annual reporting seen in many traditional credit cards.

2. PREPAID FEES: Prepaid credit cards can also help build your credit by allowing you to prepay the fees associated with the credit card. For example, many prepaid credit cards automatically withdraw a specific monthly payment each month that goes towards paying the prepaid card's annual fee. As a result, two payments are essentially reported to the credit bureau for each month service, further building your payment history and, as such, your credit.

3. AUTO PAYMENT: Some prepaid credit cards carry the additional benefit of operating as a line of credit, such as the iAdvance Line of Credit on a the AccountNow Prepaid Visa Card. This credit card - and others like it - are, in reality, a hybrid between prepaid credit cards and secured credit cards. They operate like a payday loan, allowing you to take a line of credit when you need it; payments are automatically deducted from your next direct deposit. The advantage here is that while the terms may not be ideal, you get access to the credit you need, and the fact that you were able to repay the sum successfully is reported to credit agencies, further improving your credit.

4. NO CREDIT CHECK REQUIRED: Prepaid credit cards build your credit in other ways as well. For one, there is no credit check required. Being that your credit rating is affected by the number of credit applications you file, having access to a credit card without having to undergo a credit check has obvious benefits.

Lastly, prepaid credit cards can allow you to build your credit while using the account like a checking account. With a prepaid credit card you are able to access the cash in your account, in some cases without fee, and even pay bills online. In this way, you can effectively develop your credit through a "checking" account, basically something you would be doing anyway. Using a prepaid credit card for these transactions just allows you do get a credit-building benefit from it

Why? Mostly because you know upfront exactly how much you'll pay for the services of a check-cashing company, and there's no chance of being on the hook for fees after the transaction is done. A bank account is more complicated, requiring the customer to maintain a certain balance--or at least something more than a negative balance--and there's always a concern about hidden fees hitting you down the line.

In USA Today's story about the roughly 60 million Americans who are "unbanked" (they have no bank accounts) or "underbanked" (they have bank accounts but sometimes use alternatives to cash checks), there are several explanations given for why some folks utilize services that charge them 1% to 3% per $100 to cash a check on the spot. One reason is convenience: Many check-cashing outfits are open 24/7, and so if you work late hours and want cash immediately after leaving the job with paycheck in hand, such a company is waiting for your arrival. Another reason is that a check-cashing operation offers instant cash--and instant gratification. There is generally no period required to wait for a check to clear. Want your money? Here you go, but we'll take a slice of it before you're off on your way.

A third reason surprised me, but I suppose it shouldn't have: Many people, having been burned in the past by monthly fees, overdrafts, and other charges they didn't anticipate, simply distrust banks and prefer the upfront fees of a check-cashing company instead. Why did this surprise me? I guess I've always regarded pawn shops, liquor stores, and other check-cashing storefronts as somewhat sleazy operations; they're generally found in rundown areas of towns, and they seem to prey on people who need money desperately and quickly--so much so that they're willing to hand over 3% or so of their paycheck so that they don't have to wait a few days. But apparently many consumers feel that today's banks take advantage of them in even worse--and sneakier--ways. Per USA Today:

People who use check-cashing stores don't have to worry about hidden fees, says Edward D'Alessio, general counsel for the Financial Service Centers of America, a trade group. "Our industry is more transparent with respect to terms and conditions of products and services than banks have ever been," he says. "When you walk into one of our locations, our costs are all clearly posted."

Yvonne Lopez, 62, of Newhall, Calif., says she started using cash for all her transactions because she was tired of surprise fees. She also believes the banks were responsible for the financial meltdown. "I just don't trust them," she says. "They charge you for everything."

Of course, there are plenty of ways to maintain a bank account and not get hit with fees all the time. But seeing as so many people prefer alternatives partly because they just don't trust banks, the banks out there clearly have some work to do. The consumer with a fresh paycheck in hand knows exactly what he's getting into when he heads to a check-cashing storefront. The relationship isn't quite as transparent at a bank, which is bad news for banks--because people aren't going to give their money to somebody they don't trust.

Add one more place to the growing list of locations where you should be wary about using your debit card: gas station pumps.

According to a recent post on Consumer Reports' Money Blog, banks have reported a sharp rise in recent months of crime related to thefts of bank account data from tampered gas pumps. Reports of the thefts are popping up in states like Arizona, Florida, Utah and Colorado. In fact, according to the post, the governor of Arizona recently ordered inspections of gas pumps to find the skimmer devices.

Gas stations are just the latest spot where thieves looking to collect valuable account and personal identification number information have set up shop. Other locations include A.T.M.'s at banks and A.T.M.'s elsewhere.

So what's the best strategy to protect yourself?

You can learn how to spot a skimming device before using your debit card or avoid typing in your PIN. Or you could just pay cash or use your credit card instead -- it's generally less of a hassle to get fraudulent credit card charges halted.

As a recent victim of debit card theft (someone made a few unauthorized point-of-sale transactions using my debit card earlier this month and it took me a couple days to get the charges erased), I'm now wary of using my debit card at all and I haven't used it since the thefts.

Where do you avoid using your debit card, if anywhere?

Innovations in technology and endless change that we see every day in our community has strongly influenced the way we think, speak, act and live our normal lifestyle. Indeed, new discoveries have helped us to accomplish much easier than we could have done 20 years ago. Now it's easy to find and buy the food that we need to communicate to our friends and acquaintances, and even pay bills. New technologies seem to have really helpedimprove our lives and do many things more convenient for us.

Because of the changes and see life more comfortable that we know today, gradually become dependent on new technologies. Also why many people choose to have a credit card. Credit cards seem to be really useful because it helps people to easily purchase goods online and make hotel reservations at the comfort of their home, pay bills online or by phone, and many others.However, since most people do value their comfort and too much reliance on credit cards, most people forget the disadvantages that may be more our dependence on him. Some spend too much beyond their credit limits and damaging their credit ratings without realizing that the money they spend is not really clean, but is considered a debt or something borrowed bank. In turn, many people are suffering to pay off debts with interest rates very high and in trouble withtheir ratings.

An alternative for convenience, while being careful to manage your finances properly through the use of prepaid debit cards. The use of debit cards to help instill financial discipline that the owner knows that all costs and orders paid by debit card are automatically deducted from your account. This makes the wisest things you buy and reduce costs, avoiding buying thingsdid not really need.

A debit card can really serve as an alternative to credit cards in terms of comfort, because they are almost identical. Debit cards can also be used to make purchases online or pay bills with very reasonable rates, or in most cases, debit cards have no fees at all. We also need to worry about late fees or charges high interest, because their money is being used.

A prepaid debit card can really be a good option and may serve anumber of services in our daily lives. In any case, we can always get the comfort want as long we're careful with our expenses if we are cautious in taking care of our financial responsibility.