Check out the new videos from Americans for Fairness in Lending, who interview former bank employees who pushed their customers into piling on more debt. They are very well done and very effective — unfortunately I can’t post them here because my html editor isn’t cooperating.
Last week I saw their story plugged on the front page of cnn.com, but unfortunately didn’t grab the link.
Categories: credit card clarity · media and culture
Well, I’m just getting back in the saddle of walletwatch, and of course the big issue in banking — and in all news, of course — is the $700 billion bailout plan of Wall Street. Of course, the bill just barely failed earlier today. (I’m officially with those who declare John Boehner and his Republican colleagues in the House the “Caucus of Crybabies,” claiming that a little speech by Nancy Pelosi made them not want to vote for the bailout. But I digress.) During the negotiations of the bill over the past 11 days, it has been hotly debated as to whether bad credit card debt, bad car loans, and other types of debt ought to be among the bad assets that lenders can discharge.
Myself being someone who agreed with those saying that escalating defaults on credit card debt could be the next subprime disaster, I initially assumed that bad credit card debt ought to be eligible to be bailed out. However, a Moody’s report that I received from a friend with a subscription changed my mind. Securitized credit card debt — despite the fact that defaults are at their highest amount since the new bankruptcy law went into effect at the end of 2005 — are still a safe bet. It is home mortgages, in fact, that are still front and center in this crisis. The latest figures from the American Bankers Association show that one in 11 mortgages is delinquent or in foreclosure. I’d say that’s a pretty serious problem.
Categories: credit card clarity · credit markets · media and culture
Yesterday, the Washington Post’s personal finance columnist Michelle Singletary published an interview with Barack Obama about fixes to consumer debt. As Ms. Singletary discovers, the candidate and his family know firsthand about the struggles of Americans dealing with high consumer debt and student loan debt: until Mr. Obama published his two books, the family was deep in debt themselves. While Mr. Obama mentions no particulars of his proposals in the interview — although he’s mentioned a five star safety rating system for credit cards in the past — one grets the impression that he’s ready to act.
Notably, Mr. McCain turned down Ms. Singletary’s multiple requests for an interview.
Ms. Singletary’s article is here, but here’s the poignant excerpt:
Obama ticked off a list of his proposed economic fixes: another stimulus package, a universal health-care plan and tax cuts for the middle class.
When discussing consumer debt, Obama had a story to tell that was similar in some respects to that of many people in the country:
Until a few years ago, the candidate and his wife, Michelle, were deep in debt. Together, they were carrying $120,000 in student loans they had taken on to pay for law school.
“We were making payments the size of a mortgage every month,” Obama said.
Although Obama acknowledged that he and his wife were blessed to have enough income to service that debt, it wasn’t until he wrote two best-selling books, “Dreams From My Father” and “The Audacity of Hope,” that the couple were able to pay it all off.
Were he to become president, Obama said he would initiate reforms to address “the whole debt industry that has really got people in a financial hole they never dig themselves out of.”
I believe that when Obama talks about his family’s situation, he gets that we must move away from an economy driven by debt-laden consumers.
Nonetheless, the problems are so large and the changes needed to correct them are so deep and far-reaching — requiring legislative reforms and shifts in people’s financial behavior — that even a self-proclaimed change-agent president would be sharply tested on this issue.
Categories: Gen Y in debt · credit card clarity · media and culture · middle class squeeze
Obama tied the lack of consumer protections by Congress it to credit card companies’ lobbying efforts, which far exceed the limited lobbying budgets of consumer groups.
Categories: credit card clarity · middle class squeeze
Obama made a speech on Jun 9th in Raliegh, NC on the economy, and dedicated a few words to discussing credit card debt. In it, he endorses the idea of a credit card safety rating system — also as seen on his campaign website.
Here’s the excerpt from the speech:
“Finally, we need to help those Americans who find themselves in a debt spiral climb out. Since so many who are struggling to keep up with their mortgages are now shifting their debt to credit cards, we have to make sure that credit cards don’t become the next stage in the housing crisis. To make sure that Americans know what they’re signing up for, I’ll institute a five-star rating system to inform consumers about the level of risk involved in every credit card. And we’ll establish a Credit Card Bill of Rights that will ban unilateral changes to credit card agreements; ban rate hikes on debt you already had; and ban interest charges on late fees. Americans need to pay what they owe, but you should pay what’s fair, not just what fattens profits for some credit card company and they can get away with.
The same principle should apply to our bankruptcy laws. When I first arrived in the Senate, I opposed the credit card industry’s bankruptcy bill that made it harder for working families to climb out of debt. John McCain supported that bill – and he even opposed exempting families who were only in bankruptcy because of medical expenses they couldn’t pay.
When I’m President, we’ll reform our bankruptcy laws so that we give Americans who find themselves in debt a second chance. We’ll make sure that if you can demonstrate that you went bankrupt because of medical expenses, you can relieve that debt and get back on your feet.”
Categories: credit card clarity · media and culture
The Fed’s decision to make credit card terms more fair came in part because they got 2,000 letters and emails from real people who complained about their credit card terms. This is one of highest complaint counts they’ve received.
The Fed’s recently published rule on credit card terms gives consumers the opportunity to write again–and influence their decisions again. This quick and easy form letter from Consumers Union can help you write a letter to the Fed. Often the Fed will count identical form letters as only one complaint, so it pays to edit the form letter. By doing this, not only does the Fed learn about more bad experiences, but it racks up the number of complaints.
Consumers Union has more information. From their website:
Credit Cards: When you talk, The Fed listens!
Your frustration with credit card companies came through loud and clear! The Federal Reserve is taking action to rein in abuses.
The reason? They got 2,000 stories from real people about how they were tricked by their card company.
The Fed’s proposed rules are tough, so they’re not a sure thing. The credit card companies don’t want to give up their easy profits. Tell the Fed that you want these new rules because they level the playing field! The rules would:
Your personal thoughts mean more than our pre-prepared letter, so please put your ideas in your own words so they know how important these rules are to you. Your comment becomes public, so don’t include your account numbers.
The comments you submit will be part of the Federal public record made available to the public online and in paper form. You name and address may be included as part of your comment.
Categories: credit card clarity
The state of financial education in the United States is lamentable. Wouldn’t it be great if young Americans in elementary school or high school were given courses on how to balance a checkbook, how to buy a home, how to budget their hard-earned money to save for the future? Many young people fail in the management of their first consumer credit experience, establish bad financial management habits, and stumble through their lives learning by trial and error.
One of the most promising groups working to change this lamentable situation is the Jump$tart Coalition for Personal Financial Literacy. After discovering this deficiency in financial literacy, the Coalition´s direct objective is to encourage curriculum enrichment to ensure that basic personal financial management skills are attained during the K-12 educational experience.
Categories: checking accounts · credit card clarity
Our country’s federal banking regulators are deliberative, slow-moving agencies. Except on very rare occasions, they’re not known for using their authority to implement broad, sweeping action. And they’re even less known for broad sweeping change that could be beneficial for consumers. That’s why the Federal Reserve made huge waves last week when it proposed new rules governing credit card agreements, which has the effect of making credit cards more fair for every day Americans.
Here’s the legal mumbo jumbo: under the Federal Trade Commission Act, the Federal Trade Commission normally has the power to prohibit companies from implementing “unfair and deceptive acts and practices.” But in the case of financial institutions, this power is instead delegated to a given financial institution’s federal regulator. Since these powers were delegated to them, federal regulators have only used them only on a couple of occasions. That’s what makes this move so monumental.
The Fed’s new rule would prohibit or restrict some of the worst credit card abuses, including:
– Raising interest rates on debt that has already been charged
– Assessing late fees when consumers are not given a billing statement within a reasonable amount of time to make a payment
– Applying a payment to the balance with the lowest rate if different interest rates apply to different balances on the same card
– Charging fees to open an account and receive credit
This is great news for consumers, as these rules go a long way to making credit card terms and conditions more understandable. Yet I would still argue that more work needs to be done, which a number of bills currently in Congress would do. Other groups have been talking about the benefits of this move for consumers — as well as what the Fed left out. Consumer groups have been writing about the positive effects on consumers, as well as additonal steps, as has Professor Adam Levitin on his blog (careful — this link is a little busted so you have to scroll down to see his post on the new rules).
But what I find most blog-worthy is the timing of this new rule. The hot financial news out there is about how the Federal Reserve was asleep at the switch when it came to regulating subprime mortgages, and how that lack of regulation led to huge problems not just for the borrower whose home was lost, but also for people who invested in subprime mortgage-backed securities. Is it possible that the Fed foresees a parallel crisis saw trouble brewing in the credit card market and didn’t want a repeat of the subprime mortgage crisis?
To over-simplify the subprime mortgage story, lenders shoehorned every day borrowers into very complex mortgages. These borrowers couldn’t understand and couldn’t afford these mortgages, and ended up not being able to make payments. Hundreds of thousands of borrowers have now defaulted, and more defaults are still to come. These defaults subsequently have ruined the quality of the subprime mortgage-backed securities that these loans were packaged into.
Just like subprime mortgages, credit cards are difficult to understand, and new numbers tell us that Americans are getting in debt up to their eyeballs. And just like subprime mortgages, credit card debt is packaged into securities and bought and sold on Wall Street. Whether or not averting a financial crisis was its intention or not, kudos to the Federal Reserve for tightening credit card rules not just for the benefit of our consumers but for our economy as well.
Check out this summary video from whatthefico :
Categories: credit card clarity · credit markets
In lamenting the state of the consumer financial services movement in the United States, Rep. Barney Frank called the consumer movement a “horseless headman” — great representation in Washington, but no grassroots support. For consumers, this lamentation is particularly harsh — Barney Frank chairs the House Financial Services Commitee, and any legislation that would make financial services more fair must be part of his agenda.
The folks at Americans for Fairness in Lending are working hard to — as they say in their blog, “match up the horse with the head” — that is, create a serious movement of concerned Americans who have had it with credit card tricks and traps. They are working hard to make the consumer financial services movement more like the environmental movement, for example — a concerned group of citizens who write letters, make calls, and give support to efforts on Capitol HIll to make financial services more fair. AFFIL’s great public ad campaign has recently been placed in a number of magazines recently, and they’ve recently started radio ads as well.
Check out their website to stay more involved with their campaign. Or take a look at their great viral video.
Categories: credit card clarity
Baby Boomers seem to think that the reason that Generation Y is in so much debt is cultural. Baby Boomers were raised in the era of cash only. If you don’t have the money to buy it, then you can’t have it. Getting ahead is about saving: putting aside money for life’s large expenses, such as a downpayment on a home, a car to get you to work, or necessary appliances and items that help middle-class families run. This argument certainly has some merit.
But the reason that Gen Y is in so much debt is that (with apologies to Tamara Draut, from whose book “Strapped” I stole this line) as young adults work to get into the middle class, they’re being hit by a one- two punch: the economy no longer generates widespread opportunity, and our public policies haven’t picked up any of the slack. The price of almost all of life’s necessities has increased since Baby Boomers were Gen Y’s age. The cost of a college education has doubled many times over; getting a mortgage is more difficult; health care is a much bigger burden; and necessities such as gas and childcare are on the rise too.
So as Gen Y’ers enter the workforce, up to 15 percent of their income goes towards paying off student loans. Homeownership isn’t possible until much later in life, especially in high-cost cities where jobs are most readily available. A college education isn’t worth as much, especially as manufacturing jobs that used to be widely available have vanished. And even jobs in high-tech professions that Gen Y’ers thought were a reliable bet — such as IT — are being shipped overseas. Many who were raised in middle-class suburbs by Baby Boomer parents are learning to live with less.
And it certainly doesn’t help that our nation’s most prestigious financial institutions make it very easy to get into debt. All the expenses that Gen Y can’t afford — what used to be standards of middle-class living — can now be swiped and put on a credit card.
walletwatch gives a big shoutout to conservative columnist David Brooks. In an October 2007 column, he says that the economic vise grip that Gen Y is stuck in is driving their culture — not that Gen Y’s culture of consumption is driving them further into debt. He writes that
During this decade, 20-somethings go to school and take breaks from school. They live with friends and they live at home. They fall in and out of love. They try one career and then try another.
While Brooks could have done a better job of describing these economic trends in more detail, he is spot on when he writes:
The job market is fluid. Graduating seniors don’t find corporations offering them jobs that will guide them all the way to retirement. Instead they find a vast menu of information economy options, few of which they have heard of or prepared for.
It’s possible to see that this period of improvisation is a sensible response to modern conditions.
The column is a great read.
Categories: Gen Y in debt · credit card clarity · media and culture · middle class squeeze
