Consumers sacrifice privacy for better technology, despite risks

Every now and then, the controversial topic of implanting microchips into human beings for various purposes comes up. I find the debate quite interesting.

Proponents argue that there are many benefits to the procedure. One proponent, PositiveID, a company based in Florida, specializes in implanting a small chip into a customer’s body that holds his or her health records. The benefit is not that obvious, but makes sense: If a customer is a victim of a serious car accident, for instance, and is unconscious or unable to provide critical information, paramedics have instant access to the victim’s important health records via the data chip. These records will facilitate urgent treatment.  Some say that such technology saves lives and should be, in some cases, mandatory. 

On the other hand, opponents argue that such an Orwellian procedure is the beginning of a slippery slope towards a society in which citizens are constantly monitored—and even manipulated by ill-intentioned forces. Many point to issues of security and privacy violation. Perhaps the most compelling objection to the idea, in my opinion, involves hypothetical scenarios in which health records are linked to credit scores. 

I think both arguments are rather silly, especially the former.  Why? Well, the great majority of us already have chips.  In other words, we may not have chips implanted in our arms or brains, but we certainly have chips in our pockets: they are called cell phones.  

Equally laughable is the alarm caused by a recent article published by The New York Times entitled “It’s Tracking Your Every Move and You May Not Even Know”.  The article, which has caused quite a stir, reveals just how cell phone companies store massive amounts of data about a customer’s location at any given time. While the average consumer can surmise that cell phone companies are able to store and use this data, no proof of these capabilities has been revealed in certain terms until now.  Still, it is not that shocking.  Perhaps the only shock is how much consumers depend on private companies to guard customer data and use it for “benign” purposes. 

Often, our faith in companies to do the right thing comes as a result of our dependency on their products.  I am sure that when cell phones, equipped with GPS features, were introduced to the market, consumers had major privacy and other legitimate concerns.  However, after billions of cell phones were sold and a few years passed, those concerns faded, weakened by what has become a necessary technology.  The same could happen with the nascent, implant debate mentioned earlier. 

In short, the amount of data stored by companies about customers goes way beyond location records obtained by cell phone usage or health records stored by chip implants.  This is just the tip of the iceberg, as it were.  And, most of us know it. The New York Times article focuses on Germany, not the United States where cell phone companies do not have to report what information they collect. Here in the United States, companies are probably more advanced. Regardless, consumers all over the world must understand that as technology advances, so too must the effort to protect individual privacy. It is the only solution in a highly technological world where “unplugging” is not an option. 

Read The New York Times article.

Georgia cities lead the nation in credit card debt

 

The reason for the founding of Georgia, the United States’ thirteenth and final original colony, is unclear.  Some say that the state was founded for and settled by debtors. However, the truth is that Georgia’s founder, James Oglethorpe, only proposed this idea.  After a charter for the colony was approved by King George II in 1732, there were already enough people to settle the southern territory without debtors.

Fast forward about 279 years to today.  One would think that Georgia was indeed founded as a debtors colony and that the state's current denizens share their forefathers’ inclination to assume too much debt. 

According to new research released by Experian, one of the major U.S. credit bureaus, three Georgia cities are among the top 25 U.S. cities where consumers carried the most debt on their credit cards in December 2010.  They are Atlanta, Augusta, and Savannah, the very site where Oglethorpe chose to begin his settlement.  Despite a decrease from the previous year, debt amounts still remain relatively high.  Atlanta’s average bank credit card debt is $4,690; August is $4,575; and Savannah is $4,570.

James Oglethorpe, moved by witnessing first-hand the atrocities of debtors prison in London, dreamed of starting an American colony that gave debtors a chance to start anew. It did not happen quite as he planned.  Nevertheless, now that Georgia cities lead the nation in credit card debt, it seems as if Oglethorpe’s dream did come true, but with an ironic twist.

Read the list of the 25 top cities with the most credit card debt at CNNmoney.com.

How we got car insurance pricing based on credit scores

How did we get to the point where car insurance pricing is related to your credit score?  The answer: Now that’s Progressive!

While reading “Marketing Mavens”, a book that analyzes innovative companies, I came across the Progressive case. Since it began selling auto insurance in 1937, Progressive has served the riskiest group of drivers and has enjoyed a respectable market share in its industry.  However, 22 years ago a major regulatory challenge forced it to reinvent itself. 

In 1989, Progressive’s core business was threatened by government regulation in California, a huge market for the company.  The regulation called for a 20 percent reduction in insurance rates, making it virtually impossible for Progressive to survive with drastically smaller profit margins.  As a result, Dave Pratt, the company’s general manager for direct marketing, devised a strategy that would forever change the insurance industry. 

In short, Pratt discovered a strong correlation between credit scores and driving records.  Author of “Marketing Mavens”, Noel Capon, describes the evolution of Progressive’s strategic epiphany: “When Progressive analyzed its customers closely, it found that although they were all relatively high risk, they were by no means all the same size, shape, and cost to serve.  In particular, Progressive discovered that although all high-risk drivers tended to get into accidents, high-risk customers with good credit ratings had fewer accidents than high-risk customers with poor credit ratings.” 

Consequently, Progressive implemented a new business model, charging lower premiums for drivers with high credit ratings and higher premiums for drivers with low credit ratings. By doing this, they were able to attract customers that filed less claims and therefore were cheaper to serve.  Such a pricing hierarchy allowed Progressive to experience tremendous growth rapidly without reducing profit margins.

So, in brief, that’s the story of how we ended up with credit scores determining car insurance premiums, not to mention the recent, pricey ad campaign featuring the ever ebullient Flo.

A spoof of the Credit CARD Act

Here is a comedic interpretation of the negative consequences of the Credit CARD Act. I thought it was pretty funny.

The gamble of lending peer to peer

Ron Lieber, The New York Times writer who covered my story in 2009, explores peer-to-peer lending in an article posted online today. He examines two industry leaders, Prosper.com and LendingClub.com, which continue to thrive despite regulatory challenges and administrative setbacks. Mr. Lieber alludes to his family's desire to become a peer-to-peer lender, but he is hesitant to signup for fear of doing something "foolish".  The article is an adventurous read and allows you to vicariously experience Mr. Lieber’s internal debate on whether to proceed. He ultimately asks for your opinion: “Would you lend or borrow money at one of these sites?”

Read the entire article at The New York Times.

Why it’s hard to sue credit card companies

If you ask credit card holders what a mandatory arbitration clause is, chances are they have no clue. Yet, almost all of us have signed an agreement with such a self-defeating clause in it. 

A mandatory arbitration clause requires that any dispute raised by a customer go through arbitration before a civil lawsuit is filed.  In almost all cases, the arbitrators chosen to hear cases are not neutral; they are partial to the interests of the credit card companies.  Thus, many consumers unknowingly sign agreements that limit their constitutional right to the courts and forfeit any likelihood of a fair resolution. 

However, there are efforts to change the widespread use of such clauses in credit card agreements, employment agreements, franchise agreements, etc. For example, in 2007, the Arbitration Fairness Act (S. 1782, H.R. 3010) was introduced in Congress and called for several new measures, including a consumer’s ability to choose arbitration or the courts. Furthermore, a new movie entitled “Hot Coffee” is increasing the focus on America’s civil justice system. The documentary, which received rave reviews at this year’s Sundance Film Festival, explores the tragic stories of people negatively affected by a civil justice system “under heavy attack”. 

In short, when it comes to signing any agreement, especially a credit card agreement, make sure you read the fine print, because that’s probably where you’ll find a mandatory arbitration clause.   As I like to say, the big print giveth and the fine print taketh away.   

Additional Resources:

• Credit Card Arbitration: What it is, how it works (CreditCards.com)
• “Hot Coffee” official documentary web site (HotCoffeeTheMovie.com)

5 ways your bank spies on you

Today I received an e-mail message from a fan of this blog, informing me that I was mentioned in an MSN Money article.  I had no idea.  (It didn’t show up in my Google alerts.)  Naturally, I searched and found the mention. The article, entitled “5 ways your bank spies on you”, is a great read, so check it out.

Is charging interest on a loan immoral? A surprising historical perspective

The idea of charging interest for the use of money is ingrained in our culture, as American as apple pie and baseball.  Nowadays, hardly anyone questions the philosophy on which the practice is based.  Instead, we argue how much interest is too much.  If we were to go back in history a few hundred years, we would learn that the current wrangling over rates is somewhat surface and that there exists a more potent debate beneath.   

Around the 14^th century, religion had the most influence on thoughts regarding usury, which during those times meant charging any interest at all. The Catholic Church took a solid stance against it.  Numerous Biblical passages in both the Old Testament and New Testament condemn or restrict usury. Likewise, passages in the Quran are interpreted to condemn the practice. Chris Anderson’s bestselling book “Free”, which explores the topic briefly, highlights some examples of the Catholic Church's official condemnation:

Pope Clement V made the belief in the right to usury heresy in 1311, and abolished all secular legislation that allowed it.  Pope Sixtus V condemned the practice of charging interest as ‘detestable to God and man, damned by a sacred canons and contrary to Christian charity.  

Perhaps the most compelling description of the religious argument of the times is found in a Wikipedia entry regarding the subject:

… usury creates excessive profit and gain without “labor” which is deemed “work” in the Biblical context. Profits from usury are argued not to arise from any substantial labor or work but from mere avarice, greed, trickery and manipulation. In addition, usury is said to create a divide between people due to obsession with monetary gain. Most importantly, usury is the derivation of profit from biological time, which is linked to life, considered sacred, God-given and divine, leading to excessive worrying about money instead of God, thus subjugating a God-given sanctity of life to man-made artificial notions of material wealth.

Conversely, contemporary proponents had no moral objections to usury and thought that the service justified the cost.  Regarding the labor argument, they retorted that the labor induced when administering a loan constituted work and that charging interest was an optimal model to quantify and compensate that effort, especially over time.

Without delving deeper into the arguments—I hope my cursory introduction of two basic arguments is clear—I pose the question to you: Do you believe that charging interest for the use of money is immoral? Why or why not? What situations, if any, are acceptable?

Prepaid cards are the new axis of credit evil

 

A few weeks ago, I praised the launch of the Kardashian prepaid card.  Now, much to my chagrin, I am eating my words.  And the Kardashians are being sued for $75 million for withdrawing their endorsement of their “Kard”, which failed miserably and drew a wave of objections for its exorbitant fees. 

Despite the Kardashian debacle, prepaid cards are growing in popularity. According to the USA TODAY, “The total amount of branded prepaid cards is expected to exceed $440 billion by 2017, quadruple the estimated value in 2009, according to independent research commissioned by MasterCard.” Put another way, when the tween stars from the movie “Twilight” are used to sell financial services, something big is brewing.    

As if on cue, consumer activists and politicians have refocused their criticism from traditional credit cards to prepaid cards. Consequently, the relatively good image of prepaid cards is fading fast. No longer are they being touted as a safe or responsible alternative to unsecured credit cards, especially for consumers aiming to build credit. 

Opponents of prepaid cards highlight the excessive fees for features that are normally free with more mainstream products.  For example, there are fees to load the card, withdraw money, maintain an active account, and even cancel the card. Also, prepaid cards are not heavily regulated and do not fall under the Credit CARD Act. One of the most expensive cards (endorsed by popular radio host Tom Joyner) charges an $8.95 monthly fee to keep the account active.

On the other hand, proponents argue that having such cards are better and less expensive than using a check cashing business, a popular option for the unbanked.  Furthermore, they tout the flexibility of the cards to pay bills and make everyday transactions. 

In short, despite the recent spate of criticism and political cries for regulation, I still think the concept of a prepaid card is solid.  Moreover, there are good options on the market. In fact, Walmart offers a product with very low fees. As is the case with many credit products that thrive on misdirection and deceit, we must better educate all consumers, especially the most vulnerable ones, about the dangers of really bad products. Otherwise, the bloodsucking vampires will prevail.

Read more about this topic at USA TODAY.

Smartphones to replace credit cards in U.S. this year

 

Imagine a world without credit cards.  Instead of pulling out those pesty plastic cards, consumers make purchases simply by waving their smartphone near a receiver. 

For example, say you want a Coca-Cola from a high-tech vending machine.  You simply order what you want, take out your cell phone, and wave it to summon forth your refreshment. It’s almost as simple as waving a magic wand.

This is no futuristic scenario. In fact, it is reality in Japan and South Korea, two of the most technically advanced countries in the world.  The United States is behind, but not for long. 

This new technology called Near Field Communication (NFC) is coming this year.  It will make electronic payments effortless and those plastic cards relics of the past.  An expert familiar with NFC’s debut in the States says that smartphones that support NFC are just now hitting the market.  Likewise, thousands of merchants are installing receivers to accept this new payment form. 

So, what’s been the hold up?  In short, companies are working to establish a uniform platform and determine what merchant fees will be.  Despite these challenges, tremendous progress is being made. The tipping point is near. 

While there are certainly some advantages to NFC—efficiency seems to be the most touted—what do you think are the drawbacks? 

Read more at Inc. Technology.

Banks begin to extend consumer credit, target those with balances

 
Today all across the country thousands of consumers are receiving a flattering letter, a billet-doux of sorts, that makes them feel accepted and loved by their charming credit card company. The letter, which reeks of enthralling affectation characteristic of a no-good ex hoping to reconnect, informs them that their credit line has been increased, that because of their improved credit or on time payments they can now spend more money they don’t have. The exciting moment causes giddy consumers to forget how bad the relationship was just a few years ago. They begin to daydream about how they will spend this new money—perhaps a trip to Disney, a dinner for two, or simply bills. So begins the sad story of mass recidivism, the return to American overconsumption enabled by those god-awful credit cards.

My hunch just a few weeks ago served me right and was verified by The Wall Street Journal this week: For the first time since the Great Recession started in 2008, banks are beginning to make many more loans to consumers.  In general, this isn’t a bad thing, but the extension of credit to consumers who haven’t quite learned the lesson of good credit management will pick up old habits and overextend their obligations.  This is likely the case with those who carry balances.  These revolvers are the target of credit card companies looking to increase profits quickly. Thus, as revolvers spend more and creditors increase loans, we could see a return to the unhealthy credit card debt levels of early 2009.

Here are a few important statistics from The Wall Street Journal article:

- Bankcard loan originations increased 17% in the third quarter of 2010 as compared to the third quarter of 2009. 

- Bank of America CEO Brian Moynihan told analysts last month that industrywide, credit-card holders who carry balances "have actually started to borrow just a little bit more: not a lot, but 3% or 5%."

- At Discover, customers who revolve their credit-card balances increased their spending in September, October and November.

Read the entire article at The Wall Street Journal. 

Win $1,000 for shredding your credit card

If you’re ready to get out of debt and willing to create a video about it, you could win $1,000 or other prizes from the folks at LendingClub and PerkStreet Financial. Submit a video of you shredding your credit card to qualify for the chance of winning a $1,000 grand prize in the form of a Visa gift card. Every week, the contest organizers are selecting additional winners of a $50 Visa gift card every Wednesday through the end of January. Two Visa gift cards totaling $600 will be provided to the winners of the “Most Creative Shred” award.

Read full article and contest details at ConsumerismCommentary.

U.S. credit card agreements unreadable to 4 out of 5 adults

If you’ve ever thought that credit card agreements are difficult to read, then you’re not alone. 

A recent study conducted by Credit.com confirms what we’ve all suspected: Credit card agreements are not written in the simplest language. In fact, evidence from the study supports the idea that agreements may be written to utterly confuse us all.

Read the interesting details of Credit.com’s detailed study, which concludes that the average credit card agreement is written at a 12^th grade reading level, “making them not understandable to four out of five adults.”

Frank statement on Congresswoman Bachmann’s effort to repeal the Dodd-Frank Act

Washington, D.C. – Congressman Barney Frank, Ranking Member of the House Financial Services Committee, released the following statement in response to Congresswoman Michele Bachmann’s effort to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act:

“Michele Bachmann, the Club for Growth, and others in the right-wing coalition have now made their agenda for the financial sector very clear:  they yearn to return to the thrilling days of yesteryear, so the loan arrangers can ride again – untrammeled by any rules restraining irresponsibility, excess, deception, and most of all, infinite leverage. 

“Their effort to repeal the new financial reform law reveals the hypocrisy of right-wing claims that they are concerned with ending uncertainty in the economy. Now that we have put in place a set of rules that allow financial markets to function but which also curb their excesses, Representative Bachmann and her allies want to reintroduce uncertainty by going back to exactly the situation that led to the financial crisis in the first place.

Chase hit with SEC whistleblower complaint over credit card practices

Linda Almonte, a former employee of JPMorgan Chase (JPM) who is suing the bank for wrongful termination, has just upped the ante: She has now also filed a whistleblower complaint with the Securities and Exchange Commission. The core allegations add context to her lawsuit, and they charge Chase with grotesque and illegal practices involving its credit card debt processes...

Read full article at DailyFinance.

Visa, MasterCard stocks plunge as Fed releases new rules to cut debit fees

Visa and MasterCard stocks plunged today as the Federal Reserve Bank released proposed rules to reduce debit-card interchange fees by 90 percent. The Fed has until Jul. 21 to implement new rules as outlined in the Dodd-Frank financial overhaul. 

Analysts say that these new rules, if implemented, will pose a serious threat to the profit margins of Visa and MasterCard.  Currently, U.S. debit accounts for about 20 percent of Visa’s revenues. 

Retailers, however, welcome the new rules, which would allow them to maximize their profits and to reduce prices for customers.  Many hope that the reduced fees will be closer to those in Europe.  As reported by Bloomberg, “A 75 percent cut in the interchange rate would put the U.S. on par with the 27 nations of the European Union.”  

The rules are in a comment period after which the Fed will vote on them. 

Read more about this major story at Bloomberg. 

One good reason you should walk away from your mortgage

One of the most common questions or requests for help that I receive goes something like this:  “Kevin, my home is severely underwater?  Should I walk away?  If so, how will a mortgage default affect my credit score?”

Many people who seek my advice on this matter aren’t in dire financial straits.  They neither have taken on too much debt nor have been reckless in their finances.  Contrarily, they have been reasonably good stewards, but worry that they are in a terrible deal, one that won’t get better anytime soon. 

I never answer this question directly, giving only information to help people make an informed decision.  Everyone’s situation and values are different.  However, new information published today strengthens the decision to walk away from a mortgage in cases where homes are underwater.

Almost two years ago, I wrote a prophetic article “Fair Isaac Corporation (FICO) increasingly irrelevant” in which I posited that banks would rely less on credit scores and more on other subjective factors to assess creditworthiness.  It appears that this prediction is a reality, as consultants have created new categories to help banks focus on potential customers who, based on a credit score alone, would be too risky. 

As reported today in The New York Times, these new categories (in order of most to least creditworthy) are “strategic defaulters”, “first-time defaulters”, and “sloppy payers”.  They help creditors distinguish between consumers who have the same or similar FICO scores.  

What does this mean? It means that those who walk away from a mortgage a.k.a. “strategic defaulters” have newfound hope of ascending from the depths of credit purgatory sooner than seven years. According to The New York Times article, strategic defaulters are those “whose credit scores were damaged because they walked away from a home when its value dropped below what was owed on the mortgage. These borrowers made a bad bet on real estate but may otherwise be prudent risks because they make a good living.”

So, in short, this new information will help people solve their moral conundrum of whether or not to walk away from their mortgage.  But, as I often say, this game is always changing. What seems like hope today could be horror tomorrow. Make sure you consider all the possibilities and consequences of such a crucial financial decision.

Wikileaks founder costs Bank of America nearly $4 billion, suddenly lands in jail

Am I the only one that finds it peculiar that Wikileaks founder, Julian Assange, landed in jail suddenly after issuing threats to at least two major U.S. banks?

In a recent interview with Forbes, Mr. Assange talked about the imminent release of bank documents, saying "It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume.” He later says that the disclosure “could take down a bank or two."

Whoah!  It doesn’t get any bolder than that. I can only imagine how my battle with American Express would have come out differently if I had said on CNN that what I plan to reveal could take down the bank. 

Anyway, the moment Mr. Assange threatened major banks, one of which is rumored to be Bank of America, he suddenly ended up in jail.  His indictment of Bank of America cost shareholders nearly $4 billion, as spooked investors jettisoned the stock.  The timing of Mr. Assange’s arrest is no coincidence.  I image elite bankers, the Illuminati, making personal calls to government officials and lawyers: “We’ve got to fix this—and fast!”

What do you think?

Read more about this at The Street.

How credit cards with no spending limits can hurt your credit score

A great article recently published by The New York Times investigates how credit cards with no limits can hurt your credit score.  I highly recommend that you read it.

Also, be sure to read this article: “There is no such thing as a credit card with no limit”. It will help you better understand how some of these cards actually work.

Financial literacy foundation donates $1 million to EEI, Inc.

I am really proud to have helped make this happen. As Donald Trump would say, "This is huge!"  I have supported EEI for years with time and money, because the financial literacy and entrepreneurial education of young adults is so important in today's society.

The Jonathan D. Rosen Family Foundation (JDRFF), dedicated to improving financial literacy, today announced a contribution of $1 million to Economic Empowerment Initiative, Inc., a 501(c)(3) also known as EEI, Inc.

The commitment will enable EEI to pursue challenge grants with a value of up to an additional $2 million over the next four years as well as to support their existing financial literacy and entrepreneurship...

Read the entire press release at Atlanta Daybook.

Just when you thought you knew something about mortgage securitizations

 

If you ever needed more proof of just how complicated the mortgage crisis is because of securitization, you’ve got it. Try to follow all of these transactions for one mortgage without getting a headache. It took one year to put together this flow chart.

View a higher resolution chart with an introduction at ZeroHedge.com.

Credit Card Max-and-Walk: Consumers Learn How to Game the Banks

I am mentioned today in an article published by the Huffington Post.  Possibly, my campaign, NewCreditRules.com, has empowered not only honorable consumers, but also the less scrupulous ones.

Read the article at HuffingtonPost.com.

The shocking stats of credit card debt in America

Instead of reading the esoteric reports provided by the Federal Reserve or financial analysts, check out this user-friendly chart which is an excellent overview of credit card debt in America.  View the entire chart at CreditSesame.com.

 

Survey: Seniors too embarrassed to ask for help, a major cause of financial trouble

One of the biggest obstacles to achieving good financial health is the lack of communication.  Put another way, a great majority of Americans does not like to talk about money.  Crippled by feelings of shame and misguided optimism, Americans with financial problems often do nothing to improve their lot, hoping for a miracle.

We all know that the first step to overcoming a problem is admitting that there is a problem. As trite as the saying is, it is true, especially when it comes to extirpating bad financial habits.  Fewer and fewer adults are willing to take that difficult first step of acknowledgement.

As evinced in a recent survey, this is increasingly the case with retirees who find themselves in dire financial straits.  Members of the so-called Greatest Generation continue to increase their credit card debt with no intention of paying it off before they die.  They ignore the warning signs of financial disaster, blaming the faltering economy or simply giving up.

An insightful article released in USA Today provides fresh data about this trend and stresses the importance of communication when fixing problems of personal finance.

David Silberman to run credit card unit of the Consumer Financial Protection Bureau

Elizabeth Warren, the special White House adviser assigned to set up the Consumer Financial Protection Bureau, has selected David Silberman of the Kessler Group to run the unit that will research and write rules for credit cards, according to…

Read more about this major appointment as reported by Bloomberg.

Fitch: Credit card write-downs to continue falling

Tighter underwriting, better customer payment habits and "a substantial cleansing" of past-due accounts helped drive improvements in bank credit card portfolios during the third quarter, Fitch Ratings said Wednesday.

In a review of quarterly results for the major credit card issuers, the agency noted that four large banks have written off 14 percent or more...

Read more about this as reported by Bloomberg Businessweek.

Colleges should do more to protect students from credit card disaster

 

It’s like a trusted guardian selling off his teenager into slavery—financial slavery.  Universities and colleges have become salivating sellouts, taking millions of dollars from banks that wish to push credit cards on young and impressionable students.

Perhaps that was too harsh—I take it back—but there are similarities, if at best remote.  These lucrative deals are great for the colleges and banks, but put the financial future of students in peril, especially those who have no idea of how to manage their finances. 

Credit card delinquencies hit 9-year low

More Americans who’ve been behind on their bills are catching up, according to a quarterly report from D.C.-based American Bankers Association.

Read more about this as reported by The Washington Business Journal.

Doctors push medical credit cards, spark investigations

Imagine this unsettling scene.  You lie in the emergency room of a hospital.  After being hit by a drunk driver, you are critically injured. Barely conscious and in tremendous pain, you find out that your insurance company will cover only some of the costs of your vital surgery.  Realizing the gap of coverage and your inability to pay for it, your doctor pulls out a credit card application and says, “Don’t worry. We offer this great medical credit card that is interest free.  Just sign here on the dotted line, and we’ll get you put back together in no time.” As you sign the agreement, your doctor smiles, elated that he gets some payment upfront and that he gets a kickback from the creditor.  

This scenario dramatizes a growing problem: doctors pushing medical credit cards. In fact, the number of complaints about doctors promoting medical credit cards has risen in recent months.  Some of the complaints are so outrageous that they have sparked the ire of New York Attorney General Andrew M. Cuomo, who recently announced an investigation into the health-care lending industry. Other state attorneys are pursuing rogue doctors who take advantage of patients, many of which are not fully aware of the credit card terms.

Loopholes of the Credit CARD Act

ABC News takes a look at some of the loopholes of the Credit CARD Act. Read more details in the written article.

Great documentary: "Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders"

This is a great documentary on credit and predatory lending.  Released in 2006, "Maxed Out" is a sobering film that will change how you look at the industry and its often devastating effects.  Make sure you watch until the very end.  You will be terribly surprised.

Expert on the global math elite inspired by this blog

About a couple of weeks ago, I was amused to find a jeering post written about me on a popular blog entitled “The Numerati”.  The post was written by Stephen Baker, the blog’s creator and a former senior writer covering technology for BusinessWeek.  Mr. Baker named the blog after his recently published book entitled “The Numerati”, which according to his website takes a “captivating look at how a global math elite is predicting and altering our behavior—at work, at the mall, and in bed.” I have not yet read the book, but it is on my reading list for this year. 

Anyhow, Mr. Baker’s Feb. 1 post, “Tracking the data trackers”, pokes fun by questioning the practicality of my advice to consumers to tape conversations with customer service representatives.  In the post, Mr. Baker comments that my “strategy is exhaustive”. Perhaps he is right. Sometimes tracking the data trackers requires such exhaustion. 

While my membership in the global math elite is debatable, I would guess that my obsessive-compulsive or “exhaustive” behavior of consuming and analyzing data is an attribute of the numerati.  With that said, I will take the feature and light-hearted criticism as a compliment. 

Read Mr. Baker’s post and tell me what you think.  Also, make sure you buy a copy of his book. 

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.

“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.  

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. ]

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. ]

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. ]

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. 

The Credit Crisis Story: An educational, witty, and lighthearted visualization

[ View Part II of The Credit Crisis Story. ]

Everywhere I speak, I ask for people in the audience to raise their hands if they understand the esoteric reasons behind the current economic crisis.  I almost always get about one or two bold people to raise their hands no matter how large the crowd may be.  I imagine that even the few who raised their hands are not so sure and cannot explain the crisis in simple words because their hands go up with much timidity.  I suppose they are scared that I may ask them to explain it to the group.  Understanding this economic quagmire is one thing; explaining it is another. 

How risk management is changing

While doing some research a few weeks ago, I came across this brief interview put together by Fair Isaac Corporation, the company that created the FICO score.

In a nutshell, Chief Research Officer for Fair Isaac, Andrew Jennings, talks about how risk management is changing as a result of the deep recession. 

Jennings, a former risk manager, posits three important trends that will have a major effect on risk management. 

A comprehensive list of "toxic" mortgage companies

In a previous post, I listed "toxic" mortgage companies that credit card companies likely use to justify interest rate hikes, account cancellation, and credit limit reduction. 

At the time of the post and statistical analysis based on frequency, few company letters explicitly cited a bad mortgage company as a reason for adverse changes to an account. But now, more and more customers who have mortgages with these toxic companies are receiving letters from their credit card companies informing them of adverse changes to their accounts because of a relationship with a bad mortgage company.  Some of the banks that our analysis revealed include Countrywide Mortgage, CitiCorp Mortgage, and GMAC Mortgage, but there was no definitive public blacklist until now --sort of.