Posted on Tuesday, 9th February 2010 by debtpreventions

A recent US News and Report article states that consumers are doing the unthinkable and paying their credit card bills instead of their mortgage.  This new trend is confirmed by Trans Union who found that the number of Americans who were current on their credit cards but behind on their mortgage increased to 6.6 percent from 4.3 percent in the third quarter of 2009.   Moving in the opposite direction is the share of consumers making mortgage payments on time but behind on their credit cards, sliding from 4.1 percent to 3.6 percent over the same time period.

These actions are shocking to bankers who operated under the assumption that consumers are willing to do whatever it took to keep their homes.  Other experts weighed in that, at this time, credit cards may be more important to keep for struggling consumers.  The cards could be used as another form of income, especially with high unemployment, and for bare necessities purchases.  Keeping those credit cards current is important because a missed payment could increase the rate or decrease the credit line.

Those consumers are experiencing being “underwater” with their mortgages and without equity in their homes.  Roughly, 1 out 4 homeowners is considered underwater.  Borrowers are questioning whether putting money into their mortgage, which has lost much value and will probably never regain that value, would be the smart thing to do.  When a home loses value, the chance of a default significantly increases.

The decision to pay credit cards first, is also a result of comparing the two consequences of default.  A credit card default can immediately jeopardize the access to credit, whereas, a mortgage default can take up to 18 months before being forced out of the home.  Paying the monthly credit card bill will fund the purchase of essential items, while paying the mortgage bill satisfies lost value.  For these reasons, a borrower believes that the credit card payment is a more rational decision than a mortgage payment.

Tags: Credit Card, Loan, Mortgage
Posted in Consumer | Comments (0)

Posted on Thursday, 4th February 2010 by debtpreventions

A 2009 USA Today survey found that each of the 10 largest banks allow consumers to overdraw checking accounts.  By doing so, banks reaped a record $38.5 billion from overdraft fees that year, nearly twice the $20.5 billion collected from credit card penalties, such as late and over-limit fees.

“Overdraft fees are the mother lode of (deposit) fees,” says Michael Moebs of Moebs Services, an economic research firm.  “If it weren’t for the overdraft fees, 45% of banks and credit unions wouldn’t have made money in 2008.”

Banks have covered a debit card overdraft as small as $1 and charged a fee as high as $35 as well as charging $7 – $10 daily for being negative after a certain period.  Some banks also charge fees before consumers actually overdraw by deducting a purchase when it’s made, instead of when the transaction clears.  And they process transactions in order from highest to lowest dollar amount to empty the account quicker and trigger more overdrafts.

Banks contend consumers can avoid overdrafts by keeping track of their money.  Consumers contend, though, that banks’ policies make it challenging to avoid fees.  Banks have long said that customers appreciate automatic overdraft coverage and that this service helps consumers avoid the embarrassment of a declined transaction.  In truth, as banks have now acknowledged, these fees can push consumers into financial distress.

Rep. Carolyn Maloney sponsored legislation requiring banks to obtain consumers’ permission to cover overdrafts, disclose APRs, and pay transactions in a way that do not increase fees.  The Federal Reserve’s new regulation prohibits banks from charging overdraft fees on ATM and debit card transactions unless consumers “opt in” to overdraft protection.  The regulation is effective in July 2010 and it protects consumers who unknowingly overdraw their accounts.

In anticipation to the changes, some banks have eliminated “free checking” accounts and are finding new ways to raise revenue by hiking ATM fees or introduced charges for features, such as identity theft alerts, that they once offered for free.  J.P. Morgan Chase renamed its Chase Free Checking program to Chase Checking, and added a $6 monthly fee.  TCF Financial Corp, a Minnesota based bank who turned retail banking upside down in 1986 when it introduced “totally free checking” accounts, is now putting an end to them.

Although overdraft fee charges have been limited, consumers are angry that banks are passing them the “bill.”  Sadly, banks had to rely on overdraft fees to compensate for bad loans.  Consumers should anticipate new and creative banking fees in the coming months.

Tags: Bank, Checking, Consumer
Posted in Consumer | Comments (0)

Posted on Thursday, 4th February 2010 by debtpreventions

The now retired and former CEO of Bank of America Corp, Ken Lewis has been named in a civil fraud suit by New York AG Andrew Cuomo.

The suit alleges that Lewis and former CFO Joe Price mislead investors and the government when purchasing Merrill Lynch & Co in 2008.  Cuomo contends that the two officers understated the losses at Merrill in order to get BOA investors to approve the deal.  Once the merger was completed, they then overstated the firm’s willingness to terminate the deal because of the losses unless the government provided a second bailout.

The government provided $20 billion in additional bailout money for the combined BOA and Merrill companies in Jan 2009.  BOA is currently involved in a $150 million settlement agreement with the Securities and Exchange Commission for its decision to pay billions of dollars in bonuses to former Merrill employees.

Tags: Bank, Lender
Posted in Bank | Comments (2)

Posted on Saturday, 23rd January 2010 by debtpreventions

Banks on Wall Street are inserting “clawback” provisions and deferred stock awards to executives in an effort to reduce public scrutiny of excessive cash bonuses.

In a recent filing, Morgan Stanley said its CEO James Gorman will receive deferred stock valued at $5.4 M but no cash bonus for 2009.  If he meets certain performance targets, an additional $2.7M worth of stock will be awarded to him.

He will also receive a “clawback” deferred stock that will boost his pay for 2009.  However, the bank can reclaim that award in case of any wrongdoing by Gorman.  The figure will be announced later this year.

Morgan Stanley announced a $617 million profit in the 4^th Quarter from its investment banking and retail brokerage businesses.  The bank’s 2009 compensation expenses, including salaries and bonuses, rose 30 percent to $14.4 billion from $11.1 billion in 2008.

Does Gorman deserve the bonus?  Yes he does.  In fact, even if Morgan Stanley didn’t produce a profit, I still think he deserves it.  The $8.1M bonus is minute compared to the banking industry’s recent meltdown.  Executives should be retained and fairly compensated while managing a crisis.  It’s an incentive to stay focused on the problem and bring out the best ideas.

As an entrepreneur, I understand one truth; you get what you pay for.  Even as a debt settlement professional who has been critical of banking executives, I understand bonus packages are necessary in order to keep those who are valuable to the organization.  Each person has unique talents and equality discourages a person from becoming their best.

Tags: Bank
Posted in Bank | Comments (2)

Posted on Thursday, 21st January 2010 by debtpreventions

The Free Pre-Debt Relief Course is an innovative program designed by Global Debt Systems to give consumers insight into their financial condition and debt relief options that may be available to them.  It is our commitment to provide consumers with straightforward information, which we hope can guide them in their decision to;

• Enroll into a Debt Settlement Program or Credit Counseling Program
• Hire a debt settlement company or do it themselves
• Or, decide if a bankruptcy attorney should be consulted

Hiring a debt relief company can be costly, time-consuming, and has no guarantee of success.  Before enrolling into a debt relief program, get unbiased facts on the debt settlement, credit counseling, and bankruptcy solutions.

The course introduces consumers to collections and debt settlement.  Students will become knowledgeable about the American credit system and they can immediately begin making informed decisions.  This powerful information can instantly turn problems around.

Receive the FREE Pre-Debt Relief Course by registering today.  Understand your rights and options, and smartly choose which debt relief solution best suits your financial circumstances.  For more information, visit http://tiny.cc/UZQQV.

Tags: Consumer, Debt Settlement
Posted in Debt Relief | Comments (0)

Posted on Tuesday, 19th January 2010 by debtpreventions

Consumers filing for bankruptcy protection peaked in 2005, in anticipation of tougher regulations enacted under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).  Those regulations made it more difficult for consumers to discharge all debts and, instead, forced more people into debt payment programs – commonly a Chapter 13 bankruptcy.

Consumer Bankruptcy Filings

Source: American Bankruptcy Institute
*Data includes U.S. Territories

After the sharp drop from 2005’s record highs, totals have risen steadily.  By the end of 2008, filings again exceeded one million per year.  Because consumers have less control over repayment terms under the new regulations, those terms can be challenging for many people living paycheck to paycheck.  As many as two-thirds of borrowers are unable to complete the terms of a Chapter 13 bankruptcy program and have to exit it.  However, most borrowers are able to discharge their debts by converting to a Chapter 7 liquidation bankruptcy.

In 2009, the total filings reached 1.4 million, soaring 32% from the previous year – making it the highest since the passing of the BAPCPA.  The most recent data available (November 2009) show that Chapter 7 filings were up 42% compared with the same period a year earlier.  Chapter 13 filings rose by 12% and made up less than a third of 2009 filings as of November.

The surge can be attributed to foreclosures and unemployment.  For those reasons, most borrowers now qualified for Chapter 7 bankruptcy and could walk away from their debts without entering into a Chapter 13 repayment program plan.  The new bankruptcy law was intended to prevent consumers from discharging debts in such ways.  This is not what Congress had in mind with the BAPCPA.

Tags: Bankruptcy, Consumer
Posted in Consumer | Comments (0)

Posted on Thursday, 12th November 2009 by debtpreventions

In an attempt to limit a viable solution for consumers struggling with debt, financial institutions are pressing the Federal Trade Commission to set strict rules for debt settlement firms under amendment 16CFR Part 310, commonly known as the “Telemarketing Sales Rule”.

According to the National Association of Attorneys General, in the past five years, 21 states have sued 128 debt-relief programs. Several Attorney Generals have launched investigations into debt settlement firms alleging deceptive business practices. In its effort to protect consumers from abuse, the FTC is proposing an amendment to combat “false promises” by requiring firms to better disclose the debt settlement process and limit the firms abilities’ to charge up-front fees.

Debt settlement firms are notoriously bad at the financial calculations involved in the process. Since most firms use the “reduce debt by 60%” marketing message, counselors will often use the original debt balance provided by the consumer and apply that ratio – knowing full well that the creditors will add penalties, fees, and interest to that amount. Creditors negotiate starting from the inflated balance, typically increasing by 25%, and in rare cases even more, resulting in consumers paying a larger dollar-amount settlement than originally expected estimated.

At the root of this problem is the unregulated nature of the fast-growing debt settlement industry. Unlike debt collection companies, which are heavily regulated, most debt settlement firms operate without established policies and procedures that ensure the accuracy and consistency of services offered. The reality is that many debt settlement programs regularly fail to provide the services promised resulting in regulators and consumer confidence to dramatically declined.

To discredit the debt settlement industry, financial institutions along with collection agencies, collection attorneys, and consumer credit counseling agencies have been claiming that the industry is “illegal and unethical.”  Credit card companies and bill collectors have gone as far as telling consumers struggling with debt, that they don’t settle with third parties.  These agencies work together to ensure that loans are repaid.

As a debt settlement advocate, I assure you that creditors are motivated to accept settlement offers after an account has been in delinquency for a  period of time. If the consumer is in default on multiple credit obligations, lenders are further motivated to settle quickly before any available money has been paid to other creditors.

I believe the controversy surrounding debt settlement can be resolved by preventing unscrupulous firms from taking advantage of vulnerable consumers and, effective immediately, prevent credit card companies from reneging on contract agreements with its customers. Most consumers aren’t suited for debt settlement. Many who attempt it eventually file for bankruptcy protection from relentless creditors as a last resort. I believe change is needed to protect consumers. In debt settlement, it takes time to see results, it shouldn’t be guaranteed, and it takes one creditor to ruin a program underway.

Tags: Attorney General, Federal Trade Commission, Regulation
Posted in Legal | Comments (2)

Posted on Wednesday, 19th August 2009 by debtpreventions

The first of a series of new rules taking effect since the passing of the Credit Card Act of 2009 is set to begin on Aug 20th.

The first of the changes is for creditors to comply with mailing ?bills? at least 21 days before their due dates and providing at least 45 days’ notice before making a significant change to their rates or fees. In the current billing procedure, the creditor normally mailed ?bills? to its customers 14 days before its due date and provided a 15-day notice of changes in terms of the interest rate or fees.

If a rate increase occurs, consumers are given the option to avoid future interest-rate increases and pay off any outstanding balance over time under the original terms. The current procedure did not allow the customer to make such objections and they were forced to accept the new changes.

To combat these changes that favor consumers, creditors have stepped up their efforts by reducing credit limits and even going to the extent of closing some customer accounts. Since the new rules were signed into law by President Obama, banks have raised rates and fees to reduce their losses from defaulted debt and a weak economy. Most notably, American Express notified its Blue, Optima and other co-branded credit card customers that it was raising rates by an average of 2-4% with additional rate increases and fees set to take effect in October.

During this period, rate hikes are allowed following a 45 day notice. Even more outrageous and unfair, some banks have converted its fixed variable customers to variable so the issuers can raise rates in the future.

How does a fixed rate turn into variable rate? The banking industry continues to somehow modify laws to its advantages and for its own benefit.

Tags: CARD Act, Credit Card, Regulation
Posted in Credit Card | Comments (2)

Posted on Wednesday, 19th August 2009 by debtpreventions

NY Attorney General Andrew Cuomo is at it again vying to shut down a debt collection firm whose employees used outrageous tactics in several states.

The Associated Press reports that AG Cuomo announced the lawsuit against the Benning Smith Group based in Buffalo and operate 13 debt collection firms under different names. The group has more than 850 complaints nationwide and 1,000 violations of state and federal law in NY alone. The lawsuit alleges the group harassed people in New York, Pennsylvania, North Carolina and Texas. “They did everything they could to demean and humiliate their targets, stooping so low as to sexually harass and verbally abuse individuals nationwide,” Cuomo said.

An unidentified collector went as far as calling a NY woman: “You are totally ghetto. … Learn English; get an education instead of just sitting on your fat derriere all day long.” The caller then continued to insult the woman by telling her she was an “uneducated reject. … Get a real job, get an education and learn to take care of your responsibility like a grown adult would.”

The call was over a $182 debt that the woman repaid a year earlier. Although the woman didn’t sleep a couple of nights due to rude and insulting call of the collector, she holds onto the receipt under her mattress just in case.

Another employee of the collection firm went as far as threatening to commit sexual attacks against a consumer’s daughter if the debt wasn’t paid.  Other collectors called consumers drunks, deadbeats and in one case a low-life piece of trash; one allegedly told a woman he would pay the debt himself if the consumer and her husband would have sex with him, the attorney general said.

No comment has been received by the Benning-Smith Group’s operators or from their attorneys.

Cuomo said the Benning-Smith Group operates as Abrams, Burke & Associates; Benning and Smith Acquisitions; Brady and Caruso; DebtPayments.com; Fredericks, Goldstein & Zoe; Graham, Noble & Associates Bookkeeping; Graham, Noble & Associates LLC; Graham, Beagle & Associates LLC; Kingman, Cole and Associates LCC; Marshall and Ziolkowski Enterprise LLC; Marshall Ziolkowski Acquisitions LLC; Lansky, Goldstein, Zoe; OLS Payment Services; and University Debt Collection.

Tags: Attorney General, Collection
Posted in Collection, Legal | Comments (0)

Posted on Tuesday, 18th August 2009 by debtpreventions

A Florida man is alleged to have re-set his own record for the largest credit card identity theft fraud. Prosecutors from the Department of Justice said that Albert Gonzales, a 28-year-old hacked into the credit card processors of Heartland Payment Systems and retail chains 7-Eleven Inc, and Hannaford Brothers Co.

Gonzales and two other associates were indicted on Monday accused of stealing more than 130 million credit and debit card numbers in the US. The DOJ describes the incident as “the largest alleged credit and debit card data breach ever charged in the United States.? The two associates have been identified as “Hacker 1″ and “Hacker 2″ and are confirmed to be Russians. However, they are not in custody and prosecutors would not comment on their whereabouts.

When the indictment was filed, Gonzales was already in jail awaiting trial for another hacking case. He is currently being held in a Brooklyn jail. In this case, he is suspected of hacking into the network of major restaurant chains in May of 2008. Additionally, several months later, Gonzales was indicted for hacking into retail chains that affected eight major retailers and responsible for the theft of 40 million credit card numbers.

Gonzalez is a former informant for the U.S. Secret Service who helped the agency hunt hackers, authorities say. The agency later found out that he had also been working with criminals and feeding them information on ongoing investigations, even warning off at least one individual, according to authorities. At that time, the largest credit card data theft case in the US, Gonzales conspired with 10 others that hacked into retailers as TJX Companies, BJs Wholesale Club, OfficeMax, Boston Market, Barnes & Noble, Sports Authority, Forever 21 and DSW. The data breach amounted to 45.7 million credit and debit card numbers. Prosecutors estimated the data breach had damages of $400 million.

Gonzales is facing life in prison for the charges that he is currently awaiting trail on and 35 years for the new charges.

Tags: Credit Card, Identity Theft
Posted in Credit Card | Comments (0)