Month: October 2008
The current instability in credit markets has touched just about every facet of our financial world; student lending is no exception. While some allowances have been made on the federal loan side, the private/alternative loan option just keeps getting uglier. I saw a notice from one of the biggest private loan providers yesterday with new rate info. The range? LIBOR + 4% to LIBOR + 12.75%! That obviously doesn't include their up front loan origination fees that would tack onto that (commonly 3-10%) … Keep in mind that this “ugly” option isn't even available unless you have good credit [or a creditworthy co-signer].
This morning I came across a very comprehensive student loan web resource designed for borrowers, their families, and advocates – Student Loan Borrower Assistance. This 'project' is a program of the National Consumer Law Center, “focused on providing information about student loan rights and responsibilities for borrowers and advocates [as well as] … to increase public understanding of student lending issues and to identify policy solutions to promote access to education, lessen student debt burdens and make loan repayment more manageable.”
Student Loan Borrower Assistance provides information on …
— Answers pertaining to a wide range of frequently asked questions:
—> Default and delinquency
—> Loan cancellation
—> Student loans and bankruptcy
—> Understanding student loans
—> Where to go for help
In May I blogged about potential credit card changes that were being discussed to crack down on unfair and deceptive industry practices. Representative Maloney of New York spearheaded the bill, H.R. 5244: Credit Cardholders' Bill of Rights Act of 2008, which would serve to amend the current Truth in Lending Act.
The bill passed the House (by nearly a 3 to 1 vote) on September 23rd. Govtrack.us – a website that tracks Congressional action – provides helpful details to track the progress/status of the bill (the full text of the bill is also provided).
Why is the bill being proposed?
Rep. Maloney: “Credit cards are an essential part of our economy, but for too long card issuers have been allowed to do whatever they want, any time, for any reason. A deal is a deal, but what sort of deal is it when one side gets to make all the decisions? This bill will get credit card practices back to basic principles of contractual fairness.”
“In 2007, credit card issuers imposed $18.1 billion in penalty fees on families carrying credit card balances—up more than 50% since 2003 and accounting for nearly half of the $40.7 billion in credit-card industry profits. While credit card companies will pull in more than $19 billion this year from late fees, over-limit charges, and other penalties, consumers nationwide are facing excessive credit card fees, sky-high interest rates, and unfair, incomprehensible agreements that credit card companies revise at will.”
What issues would the proposed bill address?
– Bar creditors from changing agreement terms [open-ended accounts] until contract renewal (or for specific reasons laid out in contract).
– Eliminates universal default clause.
– Ends the credit card practice of applying consumer payments to lower interest debt first.
– Prohibits a creditor from furnishing information to a consumer reporting agency concerning a newly opened credit card account until the consumer has used or activated the credit card.
– Protects consumers from due date gimmicks by requiring credit card companies to mail bills 25 days (instead of 14) before the due date.
– Requires advance notice of rate increases on account. Authorizes a consumer who receives such notice to: (1) cancel the credit card without penalty or imposition of any fee; and (2) pay any outstanding balance that accrued before the effective date of the increase at the APR and in the repayment period in effect before notice was received.
– Requires each periodic account statement to provide specified information on obtaining the payoff balance.
– Restricts the frequency of over-the-limit fees.
Ironically, today (10/9/08) marks the one year anniversary of the Dow Jones Industrials and S&P 500 averages hitting their all time highs. My how things have changed – the housing market has unwound (to put it mildly) due to the high volume of “liar loans” (low or no documentation home loans) and zero down payment requirements (43% of home purchases were made with no down payment). The result of people purchasing homes they couldn't afford – a record number of foreclosures. Poor lending standards (here and abroad) have also led to a precipitous drop in financial company stock values (60% on average) and has impacted all other aspects of not only the U.S. but global markets. All of the major market averages are down about 40% from the high last year, and over 20% in just the last seven trading sessions alone! The result? Panic, fear, and a wide range of financially 'unhealthy' emotions and reactions. I was reading the other day that over 1 in 5 people over the age of 45 have now stopped contributing to their 401(k) plans. While it can be a challenge to maintain a long-term perspective in this type of economic environment, you most definitely need to keep your eyes open as people will try to prey on your vulnerable state …
USA Today published an article today reminding consumers of cymberscams that are designed to exploit fears. “Cybercrooks are creating fake websites, spam, phishing attacks and malicious software code to take advantage of anxiety during the economic calamity … A new spin on old tactics.”
Most of the scams are centered on phishing (sending spam e-mails in an attempt to get you to go to a “fake” website to request personal information), focusing on recent bank failures, mergers and takeovers. Some easy targets right now are current and former customers of Chase and Washington Mutual (as Chase is currently navigating its acquisition of WaMu). For example, a current e-mail that appears to come from Chase asks customers to go to the “Chase” website (a fake site), and provide personal information (user ID, password, name, address, phone number, Chase credit card number, …). Phishing attacks on Citigroup soared after it announced its intent to acquire Wachovia (since that has fallen through with a subsequent “better offer” from Wells Fargo, WF customers should be on the look out).
The article doesn't provide any “new” suggestions [as was mentioned, this is not a new problem]. Their suggestions:
1. Be Aware. Be suspicious of e-mail requesting personal info.
2. Don't Click. Don't click the link in the e-mail to visit the website.
3. Be Secure. Use secure websites (i.e., https:// and 'padlock' icon).
4. Don't Fill Out E-mail Forms. Never fill out forms within an e-mail.
5. Keep an Eye on Your Accounts. Monitor your account activity.