Will Obama’s plan to increase lending for small businesses help? You decide.

 

The focus of the federal government finally and rightly has changed to helping small businesses, which generate the great majority of new jobs in the United States.  President Obama, aiming to imbue millions of unemployed Americans with hope, has proposed several ideas that he believes will spur job growth.  As a result, the debate on Capitol Hill regarding the soundness of his plans is heating up.

From what I have been able to determine thus far, there are two feuding factions: On one hand, there are those who believe that the key to stimulating job growth is increasing lending to small businesses.  On the other hand, there are those who believe that the solution lies in tax and regulatory relief. 

While there are certainly benefits to both approaches, tax and regulatory relief are the best option for small businesses, in general.  Here is the main reason: Tax and regulatory relief can be applied quickest and to more businesses, regardless of credit status. The other option, increasing lending, requires a much longer process to implement and has a high probability of gridlock. In a nutshell, there is a high risk of it not working at all. (After I peruse the president’s plans in detail later this week, I will share more reasons and details in a future post.) 

For now, I am most interested in your thoughts.  If given the choice of access to more capital or tax and regulatory relief, which would you choose?

Small business ideas for financing during a credit crunch

 

As a small business owner, I feel the pain of the credit crunch caused by the recession. Despite great credit, my company has lost financing options; they have either dried up or become much more expensive.  First, American Express decommissioned my company’s business line.  Second, Capitol One increased my company’s credit card interest rate by seven points. Third, Chase recently sent a letter notifying me that it, too, may decommission my company’s business line and raise minimum payments.  Considering these circumstances, it is increasingly challenging to operate a business, let alone grow. 

As a result of traditional banks refusing to lend, more small businesses are seeking alternative sources of funding.  Two reasonable options are accounts receivable financing and purchase-order financing. 

How to change your name with the credit bureaus after marriage

Finding out how to change your name after marriage can be a difficult and tedious task, especially when it comes to making sure that the three major credit bureaus, Equifax, Experian, and TransUnion, have current information.  If you have to change your name, my wife’s recent experience will help you avoid increased agony. 

Small business lending in local markets the subject of Feb. 11 hearing

The following notification was released today by the House Committee on Financial Services:

Small Business, Financial Services Committees to Hold Hearing on Small Business Lending in Local Markets                         

Washington, DC — Today, Small Business Committee Chairwoman Nydia Velázquez and Financial Services Committee Chairman Barney Frank announced a joint committee hearing on February 11 to examine the condition of small business and commercial real estate lending in local markets. Witnesses will be announced at a later date.

Who: House Small Business Committee, House Financial Services Committee 

What: Joint Hearing: “Condition of Small Business and Commercial Real Estate Lending in Local Markets”

When: Thursday, February 11, 10:00 a.m.

Where: Room 2128, Rayburn House Office Building

Credit card predictions 2010

 

Recently, I received this great press release from Bill Hardekopf, CEO of LowCards.com and an expert on the credit card industry. It is right on the money. (Pun intended.) 

While some experts predict the beginning of credit card anarchy or Armageddon on Feb. 22 (when the entire Credit CARD Act is law), Mr. Hardekopf gives a realistic summation of what you can expect this year with solid examples. Below are his seven predictions.      

* * * * * * * * * * * * *

The LowCards.com credit card prediction for 2010 is no surprise: cardholders will pay more for credit card loans. The cost of credit cards will continue to increase for consumers even though the major provisions of the CARD Act go into effect on  February 22. Cardholders could see increases in both their interest rates and existing fees, as well as the introduction of new credit card fees.

"Credit card issuers have lost billions of dollars in credit card loans during this economic downturn. Now they are staring at these new provisions of the CARD Act that will limit their ability to make revenue. They are coming up with ways to generate additional revenue and it obviously comes at the expense of the cardholder," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "This means that cardholders will continue to pay more for credit card loans. Cardholders who pay their balance in full every month may eventually see the end of 'free' credit card loans as we know them."

Here are some 2010 predictions for the credit card industry: 

1) More Cards with Annual Fees

According to the LowCards Complete Credit Card Index ( http://www.lowcards.com/CreditCardIndex.aspx ) which tracks the rates and fees of 1000+ credit cards, only about 20% of the credit cards in the United States currently have an annual fee. But that number should increase in 2010. Some credit card issuers have already made the first moves to test annual fees on a small percentage of cardholders or offer cards with annual fees that build customer loyalty.

Dubious subprime credit company, CompuCredit, in financial trouble

The bad news for its employees came on Jan. 28: CompuCredit announced that it was closing several call and collection centers around the country in order to cut costs.  Due to the recession, Atlanta-based CompuCredit, which specializes in credit card and car loans for consumers with bad credit, decided to layoff about 740 employees.  However, it will continue to operate centers in Nevada, Florida, and Minnesota. 

In addition to laying off several employees, CompuCredit released on the same day a press release announcing the following: “CompuCredit Holdings Corporation Announces ‘Modified Dutch Auction’ Tender Offer to Purchase up to $160,000,000 Aggregate Principal Amount of Its Outstanding 3.625% Convertible Senior Notes Due 2025 and 5.875% Convertible Senior Notes Due 2035”.  That has to be the most convoluted title that I have ever read in my life.  You have to have a finance degree to even get an idea of what it means. In a nutshell and explained at the most rudimentary level, CompuCredit is buying back some of its long-term debt at a discounted, auctioned off rate from its debt holders because its financial welfare and future are shaky at best. In short, CompuCredit, like some of its subprime customers, is experiencing financial straits.

Normally, this news would not be material for this blog.  (I would much rather write about the total demise of the company.)  But CompuCredit is of special importance because it was investigated and censured by the FTC (Federal Trade Commission) in part for reducing customers’ credit limits based on where they shop.  As a result, CompuCredit settled for $116 million and agreed to pay a $2.4 million penalty to the U.S. treasury in December 2008.  Similarly, in January 2009, American Express engaged in and admitted to the same insidious practices in 2009. However, it has not had to face any penalties.  In fact, American Express’ actions are what prompted the creation of this blog.  Even with the tremendous media attention given to American Express’ obvious abuses, the company has managed to escape public and political outrage relatively unscathed. 

The phrase that gets you results every time

I am sure that you have been in a similar, frustrating situation: A froward customer service representative is giving you the run around, making your goal of resolution seem impossible.  Whether he or she is trained to be difficult or is just having a bad day, you get no results. 

I have a clever solution to overcome this problem, and it is sure to get a reaction.  It works in the customer’s favor about 95% of the time. 

Do we keep the Federal Reserve or get rid of it?

Since day one of the great recession, there has been much criticism of the Federal Reserve.  Led by vehement critics such as Republican Congressman Ron Paul of Texas, those who call for the abolition of the Fed claim that it does more harm than good. One expert economist, Dean Baker, says that the Fed “bears substantial responsibility for the current crisis”.

I disagree. While there are some structural changes and practices that I think the Fed can improve or discontinue, I would not support its entire annihilation. I suggest we change what is wrong and keep what is right. 

One of the things that the Fed got right was credit card reform.  Before any legislation was passed in the House or Senate, the Federal Reserve proposed and approved sweeping changes to curb the out-of-control abuse of credit card customers.  Do you remember?  In Dec. of 2008, the Fed announced that it received over 65,000 complaints from consumers about credit card companies, and as a result, decided to implement major changes. The Fed’s leadership in responding to the people gave the legislative process validation and needed momentum. 

The most important rule to staying out of debt

Few financial experts, if any, will include the following rule in their recommendations for staying out of debt: Make sure you have and keep health insurance. Not only do I recommend it, but I think it is most important.   

This realization came to mind yesterday as I rode in the ambulance with my younger sister, a victim of a hit and run here in Atlanta. As we headed to the hospital, the EMT asked for my sister’s health insurance information.  She gave it to him while I praised in relief, “Isn’t it a blessing to be able to say that!” The EMT agreed enthusiastically, “Yes!” As he made the final stroke on his digital tablet, he mentioned that recently he canceled his health insurance to save some money. Struck silent by the tremendous irony of an EMT canceling his health insurance, I listened intently.   He continued, saying that he luckily reinstated it two months before he came down with pneumonia.  Yes. He was lucky. My sister was lucky too: Despite the car being totaled, she only received a few minor bruises and was able to go home early in the morning. She slept well, knowing that her bills were covered.

Unfortunately, the great majority of people in my sister’s situation are not as lucky.  The leading cause of bankruptcy and high credit card debt in the United States are medical bills.  According to a recent CNN article, “60 percent of people who go bankrupt are actually capsized by medical bills”. I must admit that I thought the majority of bankruptcies were caused by shopaholics who enjoy this country’s favorite past time: conspicuous consumption. That all changed when I started my blog a year ago. From day one, I received heartbreaking e-mails from everyday people who fell seriously ill and because of lack of health insurance had maxed out their credit cards. 

Here is a depressing excerpt from “Jessica’s” e-mail sent to me a year ago:

“Frontline” documentary examines the present and future credit card industry

The New York Times and the PBS program “Frontline” have joined forces once again to produce an expository documentary about the credit card industry and its latest developments.  The joint reporting project, which debuted on Nov. 24, 2009, also includes a series of articles available on the New York Times’ website.

Whereas the previous collaboration entitled “The Secret History of the Credit Card” focused on the history of the industry, this new collaboration entitled “The Card Game” focuses on the present and future.  In the beginning, the documentary follows the same formula as the previous feature released in 2004, highlighting specific cases in which customers were abused and confronting industry experts for an explanation. Later, it explores how the economic collapse triggered credit card reform, which Harvard Law professor Elizabeth Warren explains “won’t change the game”.  It ends by revealing what to expect in the near future.  

Great Scott! Massachusetts Senate upset could kill financial reform

Scott Brown’s astonishing upset in the Massachusetts Senate race has Democrats aghast, wondering how in the world did a Democratic bastion fall into the hands of the Republican Party. Now that the Democrats have lost their super majority in the Senate, several crucial bills are at stake.

As a result of the Democratic debacle, political pundits have focused on the likely and immediate demise of health care legislation, the controversial bill that pushed Brown to victory.  However, few pundits are discussing the possibility that financial reform could face a similar fate.  

AmEx debuts new feature: Use reward points to pay taxes

For those who remember the $3.39 billion of TARP money that American Express desperately requested and received about a year ago, the irony of this headline is  unbearable.  I am reminded of the popular saying: He could sell ice to an Eskimo! Only in this case, He is American Express; the ice is our tax dollars; and we are the Eskimo.

I can imagine American Express executives in the board room back in January 2009.

“This new reward feature that allows Cardmembers to use reward points to pay taxes is going to have to wait.  Populist uproar against Wall Street banks is still prevalent.  More importantly, we still owe the government $3.39 billion for the TARP program.  Let’s wait until we pay back the money and give it some time. Ideally, we release the new feature right when customers can appreciate it the most: next tax season. Then, the urgent need will somewhat placate their anger.”

Here is an excerpt from American Express’ Jan. 11 press release announcing the feature:

Barney Frank releases memo to dispel inaccuracies about CFPA exemptions

Washington, DC – Today, House Financial Services Committee Chairman Barney Frank (D-MA) released the following memo to members of the House Financial Services Committee: 

January 21, 2010

MEMORANDUM

TO: Members, Committee on Financial Services

FROM: Chairman Barney Frank

RE: Inaccuracies about CFPA Exemptions

Some inaccuracies have appeared in the press about institutions exempted from the reach of the Consumer Financial Protection Agency in the House-passed financial reform bill.  For instance, yesterday’s New York Times reported that it “exempted smaller community banks, credit unions, retail merchants …”.  Not true.  All of those institutions will be subject to all rules issued by the agency with respect to the extension of credit.  They also will be subject to agency enforcement.  The exemption for smaller financial institutions is only with respect to examination which will continue to be the responsibility of the institutions’ prudential regulators.  However, the CFPA will have back-up inspection authority and may independently take enforcement action.  And even this exemption is limited to institutions with less than 2% of bank assets.

Importantly, the new agency will also have authority with respect to the now lightly or unregulated institutions such as pay day lenders and check cashers firms which are especially important to lower income families.  It also will have authority over independent mortgage brokers and lenders that led the industry in issuing subprime and abusive option ARM mortgages.

Fact #1: There is no such thing as a credit card with no limit

One of the main goals of this blog is to provide sound advice and to countervail misinformation spread in large part by an industry that thrives and profits from customer confusion.  Therefore, I have decided to begin an enumerated series of posts, explaining and dispelling some of the most common misunderstandings that customers have. (They are in no particular order.)

Fact #1: There is no such thing as a credit card with no limit. 

Credit card companies are masters of marketing ploys—or what some consumer advocates simply would call outright lies. Ranging from the 0% introductory rate to the no annual fee, all of these shrewd tactics are part of a strategy to make the sale. 

One of the most appealing credit card tricks is the credit card with no limit.  It’s brilliant; it appeals to the big and glaring egos of primarily the upper middle class which loves the idea of having no restriction on its consumption. Customers who fall for this trick often have a high sense of entitlement and seek self-validation and public admiration through exclusive privileges. American Express, which understands its market well, has used the no limit lure for years.

Here is how it really works and what it really means: A customer does not have a set credit limit because it is dynamic.  In other words, it is always changing.  A rather complex algorithm takes into account a customer’s real-time spending habits, income, credit history, and other factors to determine a credit limit at a particular time. Many customers misinterpret this feature, thinking that they can buy whatever they want and at whatever price.

The burden of privilege: a lesson learned in Haiti

Just 19 days before a 7.0 magnitude earthquake leveled Port-au-Prince, I was in Haiti, celebrating the Christmas holiday with my family.  Every year during the week of Christmas, my family goes on a cruise to somewhere warm in the world to escape the winter weather of Atlanta, to bond as a family, and to reenergize for the New Year.  In 2009, our trip itinerary included a stop in Labadee, Haiti on Christmas day.

Having traveled extensively to the Caribbean, I have a special sensitivity to the region, its culture, triumphs and challenges. In fact, my first trip to the island of Hispaniola of which Haiti is a part occurred in 1995.  While on a mission trip at age 15, I helped build a hospital for extremely poor Haitians and Dominicans working on sugar cane plantations called bateyes. 

When disembarking in Haiti on Christmas day, I felt a tremendous burden of shame: Here I was in the poorest nation in the western hemisphere, vacating on a private, well-secured resort, a Cockaign to natives who on the outside wonder what is beyond the barbwire fences.  In addition to knowing that this was not the “real” Haiti, I saw CNN International flash a sobering headline right before I got off the ship: “250,000 Haitian children in slavery.”  How contradictory, even blasphemous, to ignore the immediate reality while celebrating the birth of Jesus!  I had never felt so crushed, so uncomfortable from the burden of privilege.

Maximize relief dollars, remove transaction fees

It has been done before: credit card companies temporarily suspending transaction fees to maximize the dollar amount of donations going to help disaster relief and recovery efforts.  Given the catastrophic proportion and immediacy of Haiti’s need, it should be done now.

When disaster occurs and private donations abound, credit card companies reign in a considerable amount of money through transaction fees.  Companies such as Visa, which has come under fire for its high transaction fees, make about three cents of every dollar donated.  Visa and other companies will likely rake in millions of dollars of profit as a result of the donations made via credit card for the Haitian relief efforts.  

Instead of eagerly watching their bottom lines swell, credit card companies should cease this opportunity for humble leadership and partial redemption.  While the existence and convenience of their processing infrastructure is certainly valuable and has an associated nominal cost, the need for every penny of relief is most important.

Join me in demanding that credit card companies suspend their transaction fees to maximize relief efforts in Haiti. 

For more information about how much credit card companies will profit, read an article released today in the Huffington Post.

Credit unions no longer a safe haven

In this ever-changing and tumultuous world of consumer credit, no borrowers are completely safe from the whims of frantic lenders--even the so-called safe ones. Often considered the best option for consumer loans, credit unions are becoming more like their rogue cousins: commercial banks. 

Based on recent e-mails and comments sent to me from frustrated consumers, credit unions are beginning to adopt and to implement changes to their credit card accounts, including increased interest rates and stricter terms.  This comes as a surprise given that amid the widespread outrage against commercial banks, credit unions have been touted as the safe alternative.   

One such customer wrote me:

Chase to jettison small business lines in March

When a ship is sinking, its crew members are last to disembark regardless of who or what is to blame for the disaster.  In other words, passengers are at the top of the hierarchy during a maritime triage. If our financial system were a huge ship about to go under, this moral convention would be turned upside down: Ruthless banks would rush to secure lifeboats for themselves, knocking over consumers and small businesses and leaving behind everyone to fend for themselves.    

Among the many casualties on this boat would be small businesses, the most important sector of our gigantic economy.  (Over the last decade, small businesses have generated 60 to 80 percent of net new jobs in the country.)  Despite the catastrophic effects of the financial crisis and credit crunch on these businesses, the government has been slow to offer much substantive help.  On the contrary, the swift passage of the Credit CARD Act of 2009 gave consumers, not businesses, life jackets and a better chance to survive the cold, oceanic currents. 

For whatever reason, small businesses have been overlooked when it comes to receiving protection against the whims of banks looking to curb their losses.  Perhaps it is because small businesses don’t vote. Or maybe it is because they are a major risk.  As a result of this vulnerability, banks have been changing rapidly their credit terms for small businesses by reducing credit limits, eliminating access to lines of credit, and raising minimum payments twofold. (I wrote about American Express doing this about a year ago.) 

Most recently, Chase sent me a letter, outlining new adverse terms for its business lines of credit.  The changes will go into effect on Mar. 31.  My business line of credit originated with Washington Mutual, which was acquired by Chase during the height of the financial crisis. As a Texan might say: “This ain’t my first rodeo”. I had a premonition that any notification around this time was likely to be bad news.  I read the cryptic letter like an attorney from Harvard Law School.

Here are the morbid highlights:

Senator Dodd’s legacy, a fighter for financial reform

I am almost embarrassed to admit it: The first time I heard of Senator Christopher Dodd (D-CT), I was watching “Late Night with Conan O’Brien” a few years ago.  In one of his reoccurring, comedic interludes, O’Brien compared Mr. Dodd’s headshot with that of an animated Simpsons character, I believe, saying that they looked just alike. Since then, I have forgotten who the “twin”, animated character was and learned much about Mr. Dodd.  (I will exchange my chagrin with pride now, realizing that my political IQ has increased tremendously at the expense of my knowledge of pop culture.)

Earlier this week, Mr. Dodd announced his plans to retire from the United States Senate where he has served for almost 28 consecutive years.  While his announcement (made amid a flurry of controversy regarding his diminishing popularity and ability to maintain his seat) was not shocking, it certainly was disappointing to learn that one of the most powerful fighters for consumer rights is leaving.  As chairman of the Senate Banking Committee, Mr. Dodd was especially vociferous about the need for change to the credit card industry. 

Mr. Dodd’s political legacy will be, in general, his passionate advocacy for financial regulation and, in particular, the passage of his Credit CARD Act of 2009. Furthermore, he will be remembered for standing up for and sticking with unpopular ideas like credit card reform decades before any significant legislative reform was enacted.  While the verdict is still out on the Credit CARD Act and considering that many believe the timidity of some of Mr. Dodd’s regulatory policies are self-defeating, this much is clear: Consumer advocates and financial reformists alike have lost significant ground in the fight to ensure equity in our financial system.  I doff my hat to Mr. Dodd.

In a statement distributed on Jan. 6 by House Financial Services Committee Chairman Barney Frank (D-MA), Mr. Dodd is lauded:

Two peas in a pod: commercial bankers and the Harlem Globetrotters

As an adolescent, I vividly remember my father taking me to see the Harlem Globetrotters, an exhibition basketball team that for decades has entertained millions of spectators with a mixture of amazing athletics and slapstick comedy.

Mostly, I remember the team’s signature pranks: There was the sneak attack, which resulted in an opponent’s underwear being exposed; the disappearing basketball; and my favorite, the bucket of water gag.

Despite their famous buffoonery, the Globetrotters have an impressive win record.  In over 80 years, they have lost only a few games out of tens of thousands. I suppose it helps that they often play the same helpless team, the Washington Generals.

What do the Globetrotters have to do with credit? Nothing per say, but one of their exhibition games is the perfect metaphor for the endless battle between bankers and consumers.  In this example, bankers are the Globetrotters and consumers are the Generals. And let’s not forget about the politicians; they are the referees. 

How a loan modification can damage your credit

An article released in The New York Times on Jan. 1 reports that economists and housing industry experts believe that President Obama’s plan to fight the foreclosure crisis is not working.  In fact, many believe that the President’s $75 billion plan, which compels banks to lower monthly mortgage payments, has backfired and prolonged the recovery process. 

The article mentions briefly an important and little-known consequence of the program: the fact that some borrowers who accept a loan modification receive adverse reporting on their credit reports.  Certain banks, such as Bank of America, have reported to credit rating agencies that homeowners are making only partial payments.  This occurred despite some borrowers being told by their mortgage companies that their credit would not be damaged. 

I am officially back and on the front lines

I have great news: I am back!

As mentioned in my last post about five months ago, I ran for state representative here in Atlanta, Georgia. The seat was vacated in April, so I felt like I had a good chance of winning. Thank you all so much for your patience and encouragement during the special election, which was a wonderful experience.

Why my sudden hiatus? VoteKevinJohnson.com

A few of you have sent me e-mails, asking what I have been doing.  Thanks for your concern.  Given that I have not posted an entry during the last two weeks, I thought I would let you all know what has been taking up so much of my time.

In a nutshell, I have been preparing to run for office.  In fact, I declared my candidacy today for Georgia State Representative House District 58, which encompasses most of the communities in East Atlanta.  This effort takes up my time entirely. It requires a lot more of my time than I thought, especially since the election is a special election likely to be held in November. (The incumbent resigned because of a conflict of interest with her new job. The seat is open, and it is a great opportunity.)  

Small businesses: Too big to fail

During this financial crisis, the federal government has become a generous and a reckless creditor to failing companies at the painful expense of taxpayers.  In addition to buying corporate bonds and providing short-term loans worth billions of dollars, the government is giving away money in hopes that its largess will resuscitate an economy with failing vitals.  Its reasoning: the companies are too big to fail.  I think the government has got it wrong.

While I agree that saving the big corporations is important—especially to avoid major unemployment surges—I also believe that small businesses are just as important.  According to the Small Business Administration (SBA), small businesses represent 99.7 percent of all employer firms (firms with payroll).  Furthermore, they have generated 60 to 80 percent of net new jobs annually over the last decade.  There are plenty of statistics that support the claim that small businesses are, in fact, too big to fail. 

In short, big corporations and small corporations are struggling to tread water in this maelstrom of an economy.  However, the government’s corporate triage gives priority to big companies when both big and small firms are crucial to a sound economy.  By not providing help to small businesses, which many experts say are the backbone of this country’s economy, the government is missing a huge opportunity for tremendous growth and a speedy recovery. 

Discover Financial’s credit rating reduced

In what seems like a cruel and ironic twist of fate, credit card companies are beginning to see their ratings decline. 

Discover Financial Services, purveyor of the Discover Card, is the most recent victim of the credit crunch.  Moody’s Investors Service, a corporate ratings agency, cut its senior unsecured debt rating for the ailing company.  Currently, the company’s rating is in non-investment grade territory. 

Representatives from Moody’s Investors Service cite Discover’s lack of product diversity and its dependence on the securitization market, which is virtually frozen. 

[ Read the Associated Press article. ]

Credit CARD Act contains amendment inspired by this campaign

Despite the fact that the Credit CARD Act does not outlaw credit card redlining, I am proud of this campaign’s unyielding demand for change, which led to an important amendment in the final bill signed by President Obama on May 22. 

The amendment, found in Section 505, requires within one year of the bill’s enactment that the Federal Reserve, Federal Trade Commission, and other federal banking agencies report to the House and Senate banking committees to what extent banks assess a customer’s credit worthiness based on where he or she shops.

While waiting for the report—which will serve as the basis for recommended regulatory or statutory changes—I will continue to work with legislators at the federal and state level to fight for and craft stronger credit card regulation.  Until the dignity and merit of responsible consumers in my beloved community are respected, this will be an issue for which I fight passionately.

[ Read Section 505 of the Credit CARD Act. ]

AmEx sues rocker Courtney Love for unpaid bill

Average consumers get no mercy. Bankers get no mercy. And apparently, celebrities get no mercy either. 

AmEx has decided to sue infamous rocker Courtney Love for allegedly not paying $350,000 on her AmEx Gold charge card.  The company has suspended her account and will seek $352,059.67 for the unpaid balance, damages, attorney's fees and late charges. 

Banking executives get no mercy either

While having lunch today with a prominent banking executive, I learned that not even high-level bankers, who know the banking industry well, can receive clemency from ruthless credit card companies. 

The banking executive related her story of how American Express negatively adjusted her account.  Because of her extensive knowledge of the industry, she feels strongly that American Express is guilty of credit card redlining. 

Introducing the Obama credit card. Seriously!

As many of you learned in a previous post, I helped Obama’s presidential campaign from the very beginning, primarily through fundraising here in Atlanta. In fact, I was the youngest member of the host committee for Obama’s first fundraiser in March 2007 in Atlanta (View the event invitation).  We raised over $250,000.  I mention this not to boast—though it is nice to be on the winning team—but to bring some credibility to this post in making my proposal a reality.

When I heard the president mention that credit card companies should issue “plain vanilla” credit cards, I started thinking—of course, with entrepreneurial eagerness and, to a larger degree, with consumer compassion.  Why not create that plain vanilla card and brand it as the Obama card?  This card would be the most competitive and consumer friendly card on the market. 

Capital One raises my interest rate seven percentage points

The party is over: The reprisals of credit card companies have begun, as if on cue the moment the Senate made increased regulation a reality. 

On Friday, the same day President Obama signed the Credit CARD Act into law, I received correspondence from Capital One notifying me that my interest rate will increase, effective for all billing periods after Jul. 2, 2009.  Simply put, the rate on my business platinum account will rise from a reasonable 15.9 percent to 22.9 percent—a 44 percent increase in the rate. I am afraid to ask what the penalty rate would be.  Thirty-five percent?

NBA star, financial experts, and I inspire high school students

Wednesday afternoon, I spoke at the Carver School of the Arts, one of the most successful high schools in the Atlanta Public Schools system.  A good friend of mine, Samuel T. Jackson, CEO of the Economic Empowerment Initiative Inc., hosted a summit for high school students on the importance of financial literacy. 

I was on a panel with Amar’e Stoudemire from the Phoenix Suns, Andrew McClain from Ameriprise Financial, Pamela Cross from Wachovia Banks, a Wells Fargo Company, Corey Sutton from H&R Block, and Dana Lee Jones from State Farm. 

Political commentator says credit card bill is a fraud

Not everyone is rejoicing over President Obama signing the Credit CARD Act today.  Controversial author and political commentator, Jim Morris, is circulating his skeptical views in an article entitled “Obama’s Credit Card Reform is a Fraud”.

As suggested by its title, the article focuses on the president’s failure to “reform the most basic offense” of credit card companies: their usuary.  Morris calls for concrete restrictions in the form of interest rate caps that would prohibit extremely high interest rates and ridiculous, punitive rate hikes.  

Do you agree with Morris that President Obama and the Congress sold out to the powerful influence of credit card companies?  Does the legislation do enough?  

[ Read Dick Morris’ article. ]

Credit card bill won't outlaw redlining

Lights. Camera. NO ACTION!  Despite the glorious passage of the Credit CARD Act by both houses and the president’s impending signature, nothing has been done to outlaw assessing a customer’s creditworthiness based on where he or she shops.  In my opinion, the most egregious practice of some credit card companies has been overlooked. 

WSB-TV, an ABC News affiliate in Atlanta, produced a brief story yesterday that reintroduces my story and focuses on the unfortunate fact that there is still plenty work to do to make the credit card industry fair and transparent. 

While I am certainly disappointed, I am not discouraged.  We have won a great battle, but the fight is not over.

[ Watch the story. ]

Bankers vow revenge. What's next?

It’s not a good time to be a banker these days. Not only do you have to worry about populous anger and increased government regulations, but you also have to turnaround declining profits. 

How do you cope?  Well, you go back to the drawing board, the place where late fees and over-the-limit fees originated. You call up your close friends and consultants—the brilliant numerati—who invented those deceptive, introductory-rate offers?  In short, you create a new animal, a fresh scheme that will allow you to restore record profits and happy shareholders.

As President Obama prepares to sign bold legislation that will restrict credit card practices, bankers are already threatening to milk their best customers for more money. The cry goes something like this: If we can’t penalize the bad guys, we’ll get the good guys.  It reminds me of a superhero gone bad type story.   

Anyway, I’d like to know what you think.  In addition to targeting good customers, what other new tactics will we see over the next few months, especially when pending legislation becomes law?  

Senate vote means credit card regulation a reality

In an act of surprising solidarity, the Senate passed the Credit CARD Act, a sweeping bill that drastically will change the credit card industry and guarantee that consumers are treated more fairly. With such widespread support in the House and the Senate, regulatory legislation could be on the president’s desk in a few days.

I received the news this morning from the news. More specifically, a Pulitzer Prize-winning journalist called me to get my thoughts on the legislation and its significance.  It was a pleasant surprise. 

South Korea: Been there done that

If you are looking for hope that this credit card crisis will end soon, read an article published yesterday by The New York Times. 

In her article “Notes From Another Credit Card Crisis”, writer Suki Kim compares the credit card crisis of South Korea in 2003 to the current crisis here in the U.S.  At the height of the crisis in South Korea, credit card debt reached almost $100 billion.  Currently, credit card debt in the U.S. is $960 billion.  (South Korea’s population is approximately 16% of the U.S. population.) 

Even though South Korea is certainly a different country, you’ll find many parallels between our country’s situation and theirs.  It is a good case study that can help us predict the future here in The States. 

[ Read The New York Times article. ]

Create your own data mining strategy

Whenever creditors call you—for whatever reason, good or bad—they are keeping record of almost everything.  They record the date and time, what you say, what they say, your tone and temperament, etc.  Likewise, they know when you log onto their web sites to make a payment or to check a balance.  In addition to information pulled from your credit report or account history, companies have a comprehensive dossier on you.  You should do the same.

Credit limits reduced—again and again!

Normally, consumers wouldn’t equate their credit card company with an electric cattle prod, but that’s just the type of imagery that comes to mind for many disgusted credit cardholders who are feeling the shock of multiple credit line reductions.   

In December of last year, many readers who saw my story in the media informed me that their credit card company lowered their credit limit multiple times.  One woman, for example, complained that every time she paid down her balance, the credit card company would lower her credit limit.  To add insult to injury, sometimes the company would lower the limit below her outstanding balance, causing over-the-limit fees!  The majority of the complaints I received were about American Express. 

Not until recently have I seen this practice of “chasing down the balance” reported.  It’s about time.  In an article published today in The Wall Street Journal, Gordon Deal offers some good advice on how to deal with this growing and cruel tactic used by some companies. 

[ Read the article in The Wall Street Journal. ]

The world’s poorest more creditworthy than Americans

If you haven’t heard of microfinance, chances are you will soon.  The phenomenon, which has been around for a few decades, is becoming quite popular and is growing exponentially. 

In a nutshell, microfinance refers to extending credit, usually in the form of small loans with no collateral, to nontraditional borrowers such as the poor in rural or undeveloped areas.  In other words, poor people have increased access to banking services and to capital to grow their businesses, and therefore can lift themselves out of poverty.  Many experts believe that microfinance, as opposed to aid, is a much more sustainable and rapid way to eradicate world poverty.

Republicans less likely than Democrats to have too much debt?

If you’ve been following the political struggle for increased regulation of credit card companies, you’ll quickly realize that, in general, Democrats support more regulation and Republicans oppose it.  In fact, this bipartisan showdown could ultimately make any legislation for regulation futile. 

A friend of mine commented the other day that Democrats want more regulation because they are the ones who are more likely to have too much debt.  In other words, Republicans are better stewards of money, and therefore despise any increased regulation of the credit card industry. 

I’d love to hear your thoughts on this conjecture. There may be some truth to it since politically Democrats are the big spenders and Republicans are fiscally conservative.  

Elite publisher mocks poor AmEx customers

The jeering article posted below was released today in an electronic newsletter published by Elite Traveler, an impressive, glossy magazine that reaches the world’s most affluent.  The magazine claims that its readers are in over 100 countries and have an average Household Income (HHI) of $5.3 million.  (By the way, the magazine should use a geometric mean or a median figure since Bill Gates throws the average way off.)

The publisher, Doug Gollan, argues that this recession hasn’t hindered the super rich at all.  In fact, they continue about their Lucullan lives without a hint of cutting back—still flying private planes to obscure places of the world and buying expensive jewelry. 

Slash and burn to continue for cardholders

The results of the recent stress tests done on the 19 largest banks in the U.S. reveal more bad news: the credit crunch will continue, and credit cardholders will continue to see their credit lines slashed and their accounts canceled. 

Despite the relative good news circulating in the media about the stress tests, not much has been mentioned about the assumptions of the tests as they relate to credit card debt. For example, the tests assume that the rate of unemployment figures will not get worse.  Traditionally, credit card companies have used the unemployment rate as a gauge to see how much debt they will likely write off.  Also, the tests do not consider credit card loans that banks packaged into bonds.  Those could be worth as much as $82.4 billion. 

Congress passes anti-predatory mortgage lending bill—six years too late

Undoubtedly, one of the underlying causes of the economic meltdown is mortgage fraud.   In order to curb fraudulent practices by rapacious lenders, the House overwhelmingly approved the Mortgage Reform and Anti-Predatory Lending Act on May 7 by a vote of 300 to 114.

The historic legislation will prevent some of the worst practices in the industry.  For example, lenders will be prohibited from issuing loans that borrowers cannot pay by establishing a simple standard of qualification.  Furthermore, it will outlaw products like no-documentation loans, which allow borrowers to inflate their incomes to qualify for larger loans. 

Rep. Mel Watt (D-NC), one of three congressmen to introduce the bill, stated, “My joy at House passage of this important bill is tempered by my belief that we could have avoided the major credit and economic meltdown we are now experiencing had we passed this legislation when Rep. Miller (D-NC) and I originally proposed it 6 years ago.” 

As we are learning the hard way, the classic American dream got out of hand and grew into a dream on steroids, a dream fueled by internecine greed.  Perhaps over the last few years, the dream became a reality for far too many, and thus became an expectation for all.  A gargantuan home with more square footage than needed quickly became "Joe the Plumber’s" expectation despite his inability to afford such a purchase. 

Now, with the help of Congress, things will soon get back to normal: everyday people wishing to not only own a home, but also to stay in it.   

[ Read more about the passage of the Mortgage Reform and Anti-Predatory Lending Act. ]

Top 25 subprime lenders behind the mortgage meltdown

If you were wondering just who the culprits of the great recession are, you are in luck. 

The Center for Public Integrity has listed on its web site the guiltiest companies that led the subprime lending craze.  David Donald, the Center’s data editor, analyzed over 350 million mortgage applications going back to 1994.  More specifically, the top 25 list focuses on loan originators during the height of the lending frenzy, 2005 through 2007.  The web site also includes information on hefty lobbying and political contributions to members of Congress by the companies on the list.  To date, this is the most comprehensive data I have seen that brilliantly prosecutes the banks, providing incontrovertible, empirical data. 

Thanks, Teresa, for the link.  Teresa is my anonymous mortgage-lending oracle.  

[ Find out which companies made the top 25 list. ]

An inspiring chat with Fed economist, Paula Tkac

This morning, I had the great pleasure of meeting and speaking to Dr. Paula Tkac, a financial economist and associate policy advisor for the Federal Reserve Bank.  She was invited by the Buckhead Business Association, an organization I support, to answer questions about the current economic crisis.  Although the session was brief, her insight and extensive knowledge of the financial markets was tremendously helpful. 

Duped investors fight for credit rating reform

Fair Isaac Corp. (FICO), the monopolistic, consumer credit rating firm, is not the only company feeling the heat of populous anger and demands of change to their credit rating methodology.  In a parallel struggle with the major corporate credit rating firms (Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings), miffed investors are seeking reform of the industry to avoid being misled by exaggerated credit ratings. 

History suggests our efforts are in vain

Considering the increased support of legislation that will further regulate credit card companies and the success of consumer advocacy campaigns like NewCreditRules.com, I think tremendous progress is being made to ensure that companies act responsibly.  However, an article released a few days ago in BusinessWeek warns that “any enthusiasm should be tempered by experience.” 

The BusinessWeek article reminds us of a similar “consumer movement” in the 1970s led by Ralph Nader.  Nadar was successful in getting laws passed at the state level and in putting pressure on corporations.  As a result, many companies changed their agreements and minimized esoteric legalese.  But it didn’t take long before complicated and long terms returned.  In short, the simpler terms—while they lasted—did little or nothing to prevent consumers from getting the short end of the stick, and we ended up with the same mess from before.  As one expert put it, the “plain-language movement failed miserably”.

Are we doomed for the same fate again? 

[ Read the BusinessWeek article. ]

Newest version of FICO score closes major loophole

In this video produced by FICO, Lisa Nelson, vice president of Scoring Solutions for FICO, talks about two new features of the recently launched FICO® 08 score.

First, FICO fixed a major loophole in its credit scoring software.  The fix will prevent “piggybacking”, a term used to refer to shoddy Credit Repair Organizations (CROs) abusing authorized user accounts.  In a nutshell, several CROs charged outrageous amounts to improve a customer’s credit score by illegally adding the customer as an authorized user on someone else’s credit card account that was in good standing.    

Second, the new software improves predictability by 5 to 15% for certain consumer segments, such as those that do not have a long credit history. 

Banks to get a "bill" with a massive over-the-limit fee

Since it is the weekend, I thought I would break away momentarily from the monotony of political punditry and insider advice. 

Isn’t it ironic that Congress is working on a bill to regulate credit card companies?  In other words, the roles of banker and customer are being reversed such that taxpayers are handing the banks a bill with a symbolic over-the-limit fee.  As we’ve seen during the past few months, taxpayers have had enough of banks taking advantage of customers, and Congress is prepared to create and to process the bill on behalf of its constituents. 

Credit Cardholders’ Bill of Rights clears the House 357 to 70

The Credit Cardholders’ Bill of Rights cleared the House 357 to 70 on Thursday, Apr. 30.  The bill, which was created to provide protection for and relief to credit card customers, restricts credit card practices such as sudden interest rate hikes and exorbitant fees. 

The same legislation, save a few changes and amendments, passed the House in September of last year, but died before it could be approved by the Senate.  As a result of continued bipartisanship on the issue, the likelihood of the bill passing the Senate in the next few months is promising at best.