Recall Alert

The U.S. Consumer Product Safety Commission announces five recalls on the following items:


1. Kidde Recalls Dual Sensor Smoke Alarms; Can Fail to Warn of a Fire

2. American Greetings Corp. Recalls Sport Balls Due to Violation of Lead Paint Standard

3. Tea Kettles Recalled by Wilton Industries Due to Burn Hazard

4. Children's Hooded Sweatshirts with Drawstrings Recalled by C-Mrk Inc. Due to Strangulation Hazard

5. Children's Hooded Jackets and Pullover Sweatshirts with Drawstrings Recalled by Hard Tail Due to Strangulation Hazard

Interest-ing

Credit Card Interest Rates Rising Ahead of Rule Changes

There are about six weeks left before some provisions of the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act go into effect. The federal legislation was sponsored by U.S. Sen. Christopher Dodd, D-Conn., and signed by President Barack Obama in May.

One of the key regulations to kick in Aug. 20 applies to interest rate hikes. Credit card issuers will then be required to give consumers 45 days notice before going up on rates, a substantial increase from the 15 days required now.

Bill Hardekopf, chief executive officer of Lowcards.com, said the 45-day mandate will give approximately two cycles' worth of time for consumers to shop around and change cards if they desire.

This may be small comfort to the many cardholders who have experienced interest rate hikes over the past year, as issuers seem to be raising rates before new rules are implemented, he said.
"Issuers realized that change was coming and they have raised rates, cut limits and changed practices quickly and frequently in advance of the regulations going into effect, just as they said they would do," said Hardekopf, also author of The Credit Card Guidebook.

As of Aug. 20, credit card companies also must start mailing or delivering periodic statements 21 days or more before the payment due date in order to charge a late fee.

Lowcards.com reviewed some of the practices that credit card companies have initiated in advance of the new law.

One of the "harshest" changes reported by Lowcards.com was recently announced by JP Morgan Chase, increasing the minimum payment percentage from 2% to 5% for some cardholders, which more than doubles their monthly payment.

For example, if the balance is $8,000, then the minimum payment at 2% is $160. The payment jumps to $400 at 5%.

While a higher minimum payment forces cardholders to pay off their debt faster and thus saves them money in the long run, this increase could make the minimum payment unaffordable for some consumers and could damage their credit scores.

"If this is effective and reduces risk for one issuer, expect other issuers to follow," Hardekopf said.

Dodd, who is chairman of the Senate Banking Committee, on Thursday sent a letter to the heads of key regulatory agencies directing them to write and enforce robust rules requiring credit card companies to review rate increases imposed on their customers since January 1st of this year.

Most of the provisions of the CARD Act take effect after Jan. 1, 2010. Among other changes, the law bans practices such as universal default and sets parameters on the issuance of cards to college students.

Here are some other changes, already implemented by card companies, noted by Lowcards.com:
* Simmons Visa Platinum is moving from a fixed rate to a variable rate. The current annual percentage rate or APR will remain at 7.25%, but it will now be variable. In addition, Simmons is moving from an 8.95% fixed rate to a 9.25% variable rate. Both changes take effect today, July 10.
* IberiaBank has received attention for having one of the lowest rates available. However, the bank raised its low rate from 6.25% to 8.25%, effective June 26.
* Bank of America increased the balance transfer fee from 3% to 4% on June 1.
* Chase increased its balance transfer fee and cash advance fee to 5% effective in August. Both fees are the highest in the industry.
* Both Bank of America and Chase announced that they will be moving a number of their cards from fixed rates to variable rates.
* At the beginning of June, Chase restructured its rewards program. It launched the Ultimate Rewards, a program where cardholders earn one point per $1 spent, with no earnings cap or expiration date.

This will replace versions of its Freedom card, some of which have offered more generous cash-back rewards and bonus opportunities. The Freedom cardholders who want to keep a fixed 3% bonus for spending in grocery, gas and fast-food categories, will pay a $30 annual fee for the card.

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A New Way to Get 'Carded'

Connecticut Restricts Credit Card Marketing to College Students

Connecticut Gov. M. Jodi Rell Wednesday announced her signing of a bill that regulates credit card marketing on campuses to college students and restricts debt collection actions that can be taken by credit card companies against parents.

Rell said the new law sets strict parameters on when, where and how credit card companies may attempt to attract young adult cardholders. “Students are already burdened with education loans by the time they leave college. They risk taking on even more financial pressure when they give in to the lure of credit cards made available to them right on campus,” the governor said.

The move was lauded by state Rep. Ryan Barry, D-Manchester, House chairman of the General Assembly's Banks Committee and a sponsor of the legislation.

“College students are targeted by credit card companies because they are easy prey and active consumers. Since college students are generally new to managing debt obligations, spending can easily get out of hand and cause serious future credit rating problems,” Barry said.

House Bill 6483, An Act Concerning Credit Card Offers on College Campuses requires the Boards of Governors of Higher Education to adopt a policy, on or before Jan. 1, 2010, requiring credit card companies to register with colleges and universities before conducting any business on campus.

Provisions of the law:

· Prohibit credit card companies from marketing during orientation and class registration periods;
· Require companies to distribute credit care management education materials along with marketing information;
· Prohibit companies from offering gifts and incentives at athletics events as part of their marketing strategy;
· Prohibit colleges and universities from selling student names and addresses to credit card companies.

It also bans credit card companies from trying to collect a student’s debt from his or her parent unless the parent agrees in writing to be liable for the debt.

“Connecticut is leading the charge against unfair and deceptive credit card practices,” said U.S. Sen. Christopher Dodd, D-Conn. “These strict regulations, coupled with the tough new protections against predatory practices established by the Credit CARD Act, will go a long way towards ensuring that Connecticut college students don’t fall prey to the tricks and traps of credit card companies.”

Dodd sponsored federal legislation - the Credit Card Accountability, Responsibility and Disclosure Act - which President Barack Obama signed into law in May.

Susan Bruno, a certified public accountant and principal of Beacon Wealth Consulting LLC in Norwalk, Conn., said she has a daughter in college and believes it is a good idea for students to build a credit history responsibly.

"Credit cards have caused a sense of over-spending because it's so easy," she said.

Parents would be in a better position to teach their children financial literacy and help protect their children's credit scores if they can have access to credit card account activity, Bruno said.

"There is a question of privacy. Similarly to transcripts, we pay the tuition bills, but we don't get to see the grades. We have to ask her to show that to us," Bruno said. "How can we teach financial literacy if we don't know what's going on? You can't."

The American Bankers Association, an industry group that represents credit card issuers, said that as a co-signer, a parent would not be able to receive copies of monthly statements. But joint accounts allow both the primary cardholder (i.e. the student) and the co-signer (i.e. parent or guardian) to access the account, including online.

Joint borrowers usually designate who would receive statements, the ABA said.

The federal CARD Act bans universal default, double-cycle billing, retroactive rate increases unless the cardholder is delinquent by 60 days or more and over-the-limit fees unless the cardholder chooses to exceed the limit. It also requires credit card companies to post their card agreements online and mandates notice of 45 days before rate increases are imposed.

Anyone under 21 must show proof of ability to repay the debt before getting a card or complete a certified financial literacy course.

Card issuers also are prohibited from charging customers a fee for paying a bill by telephone or Internet.

Coming tomorrow: Some provisions of the CARD Act go into effect next month.

Credit Defaults: Don't Wait -- Negotiate

Credit card default rates are now above 10 percent for several major issuers, meaning some banks might not get paid back on more than 10 percent of their credit card loans, which are unsecured.

To cut their losses, issuers have been be more willing to negotiate a payment plan or settle accounts with card holders.

"While settlement and payment plans may relieve a bit of the pain for issuers and cardholders, this is not an ideal solution. It is merely a way out to avoid total loss. For cardholders, it means their financial situation is so difficult that they can't pay anything on their loans," said Bill Hardekopf, CEO of Lowcards.com and author of The Credit Card Guidebook.

"They probably already have a poor credit score and settling their debt could make it worse, but it does remove some of the weight from the burden of the debt. For issuers, they are losing money on loans, but at least it isn't a total loss," he said.

LowCards.com simplifies your shopping for credit cards. It is a free, independent Web site that helps consumers compare credit cards across a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

Hardekopf said cardholders struggling to meet payments should be proactive and try to work out a solution that avoids more serious financial problems.

Bank of America, the largest bank in the U.S., reported that its default rate jumped to 12.5 percent in May, up from 10.5 percent in April. American Express said its default rate rose to 10.4 percent from 9.9 percent.

Defaults are expected to climb as the recession lingers.

That trend is troublesome for card issuers, Hardekopf said, because they have to write the balance down to zero once a person has been delinquent for six months. They may continue to try to collect the debt through a collection agency, but they must post the loss on their books.

If you are having financial difficulties and can't make your credit card payments, now is the time to contact your issuer, explain your situation and work out a payment plan, he said.

Here are some steps to consider:

*Start with trying to adjust interest rates and fees.

If you can make some monthly payment, ask the issuer to lower your rate and waive your fees. That could make a big difference in how much of your debt gets paid off. If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem.

The sooner you contact them, the more willing they may be to work with you. If the first person you speak with can't help lower your rate or make adjustments to your account, ask to speak with a supervisor. Document all conversations, including whom you spoke with, the date, time, and the results.

Remember: persistence, persistence, persistence.


*If you are already in default, DON'T ignore the problem and hope it goes away.

A good place to start is "Help With My Credit," a service started by financial institutions and credit card issuers to educate and assist cardholders who are struggling to make their credit card payments. The service can be reached toll free at 1 (866) 941-1030.

Operators will provide information about contacting credit card issuers and accredited credit counseling agencies. Consumers can also get help and information through a website, HelpWithMyCredit.org.

*If you are close to or over 90 days past due on your account with no hope of paying it off, talk directly with your credit card issuer about debt settlement.

Credit card companies might be able work out a settlement whereby the account is closed and you pay a portion of the amount that is due.

Keep in mind that there are negatives to arranging a settlement for debt. Closing an account due to settlement will affect your credit score for several years.

Also, income taxes must be paid on any forgiven debt greater than $600. You would need to file Form 1099-C with the IRS.

*Do not respond to ads from debt settlement companies promising to cut your debt in half.

They charge high fees, much of it due up front, for services that you can sometimes do yourself with about the same success. In some cases, scammers have disappeared with the funds, making the situation worse.

A non-profit accredited counseling agency can help you get lower interest rates and develop a debt management plan. The National Foundation of Credit Counselors is a good place to start, Hardekopf said.

The foundation has a Debt Management Plan for paying down outstanding balances through monthly deposits to a credit counseling agency, which would then distribute the funds to creditors.

It takes approximately 36 to 60 months to repay debts through such a plan, but once finished, it can help re-establish a positive credit history. Fees include a $25 counseling fee and a $10 to $25 monthly fee for administering the plan.