Credit Card Reform Update

On December 18th, Congress passed a reform proposal to take effect July 2010 that puts to rest all the abusive contractual terms that allow credit card companies to blindside cardholders with excessive charges. The reform includes:

1. Eliminating double-cycle billing.
2. Eliminating confusing due dates.
3. Eliminating Universal Default.
4. Stopping the charging of over limit fees from temporary holding amounts (i.e. car rentals)
5. Requiring higher interest rate amounts be paid down first.
6. Simpler credit card terms.
7. Clearer disclosure in advertising
8. Banning "fee harvesting" from cardholders with lower credit scores.
9. Disclosing foreign transaction fees in solicitations, before the account is opened.

Sounds great doesn't it? I bet your congressman wants you to know they are doing this for you, and are going to make sure you are taken care of in terms of consumer credit. Well, don't break out the bubbly stuff yet. In the meantime, responsible customers who never make a late payment are getting significant rate hikes. Also, your Senators and House Representatives are milking this for a couple years to garner favor with voters until legislation comes down the pike to either overturn this or make it unenforceable. Two years is a long time. If you bet against this actually becoming reality, the odds would be in your favor. Just taking a closer look at the list and asking what it would look like in reality makes you wonder how real it really is, some of these would require an entire new oversight agency just to monitor and enforce.

New Rule Against "Unfair Practices"

There is a new rule against "unfair practices" at the Office of Thrift Supervision. It will be interesting to see if this actually makes any difference, or is even enforced. Chances are it will only mean that cardholders will be given an "express" reason for the increase in their interest rate that they would not have been given a reason for today. This isn't even supposed to take effect until 2010 and there is plenty of time to undo this with new legislation. Could it be a smoke screen by regulators to make Congress look like they are trying to protect the consumer?

The New Term "Rate Jacking"

Citibank, and other creditcard issuers, are starting a new practice, raising interest rates on customers who pay their bills on time for no good reason.

Banks are hurting, and they need to raise money these days. Why are they hurting? Because they push loans on people who can't afford them, then when the loan goes into default they think they'll start collecting tons of fees and interest. However, it is backfiring on them now. People aren't able to pay anymore at all, and the banks are losing for a change. Many people are now in total meltdown, losing their jobs, their homes, and everything. So the creditcard doesn't get paid at all from the people who were the "sweet spot" for the industry. To make up for this, Citibank has decided to punish its good customers by making them pay for the defaults. So much for taking responsibility for their own actions. This is referred to as "rate jacking".

Good thing you don't use credit cards anymore, eh? Pretty soon they'll figure out how to get more money from those who pay their accounts off every month. Don't be so arrogant to think you can outsmart them.

It Seems It Will Never End

The bailout total just keeps growing. If this keeps up, the Dollar will eventually be thrown into hyperinflation. Look at what is happening in Iceland this month. Watch the video on that web page featuring Glenn Beck. Here is how things are adding up so far:

$29 billion for Bear Stearns
$143.8 billion for AIG (thus far, it keeps growing)
$100 billion for Fannie Mae
$100 billion for Freddie Mac
$700 billion for Wall Street, including Bank of America (Merrill Lynch), Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and a lot more . On top of $45 billion for Citibank, comes a guarantee of $306 billion in bad loans.$800 billion to buy mortgages issued or backed by Fannie Mae, Freddie Mac, Ginnie Mae and Federal Home Loan Banks.
$200 billion for the auto industry
$200 billion to buy securities tied to student loans, car-loans, credit card debt and small business loans.
$8 billion for IndyMac
$700 billion to $1 trillion stimulus package (from January)
$50 billion for money market funds
$138 billion for Lehman Bros. (post bankruptcy) through JP Morgan
$620 billion for general currency swaps from the Fed

“The numbers change so fast, it is hard to even add them up. Rough total: $3,651,800,000,000 .00 ($3.6 Trillion)

To put that into perspective, the Federal Debt was $5.7 Trillion when President Bush took office. In September 2008, it was up to $10 Trillion. Now in the space of a few months, we have increased it 36%. In September, it was 70% of the GDP, the highest percentage since 1955. The trend is on a steep incline. This is an indication that hyperinflation is not far away. This is a good time to be out of debt, and have as much savings as possible. Realize that Gold is a store of value. When hyperinflation hits, holding gold may be the best way to hedge against that inflation.

The Debt Clock

You know we are in trouble when the debt clock runs out of numbers.

Is Your Money Safe?

A lot has changed since the Great Depression. One thing that hasn't changed is that we never learned from the mistakes that caused it. We are repeating them. What does that mean for you as an individual? How do you weather the storm? Here is my take on the answers to those questions. First, put your money in a credit union. Credit Unions generally didn't get in deep with mortgage lending and usually haven't used Fannie Mae and Freddie Mac to turn loans. They also don't have investment banks as part of their business. They are non-profits that have a primary mission to serve their members, not maximize profits for stockholders. Your money is least likely to be affected by the current banking situation. Second, start living without credit and establish a crisis fund of 6 months of expenses. Keep that money in a safe place like an insured money market account for access when you need it. Use it if you lose your job, or are affected by this banking crisis in some other way that causes a financial crisis for you. Third, consider getting my audio book "How To Live Debt Free" which details how to do this and other things to break our nation's addiction to debt one person at a time. (see details in previous post)If you are debt free, you should be less affected by a "freeze" in the credit markets, and more prepared to weather it.

Everyone is faced with reducing debt now

Let's face it. Now that our congressional leaders and the leaders of the treasury and federal reserve bank have come together to decide to borrow more money to solve a debt problem, we have put a bandaid on this serious economic problem. We are refinancing, so to speak. But the debt problem is still there. As credit tightens, we will all need to learn to live with less debt. I have already done this myself, and I can help you. That is why I am coming out with a new audio book to give you the specific steps to making this easier for you.

Buy an advance copy for a significant discount by sending me $25 (retail 39.95) to my paypal account at jim@jimandersononline.com and as soon as it comes off the presses, I'll mail it to you.

Debt is Really the Problem

As we move into this idea of the Government spending a trillion dollars or more to fix our credit crisis is more of the same mistake. Hear what Ron Paul has to say about it.

CEO Bonus for a Credit Crisis?

Food for thought...
When my business started going south in January 2001, I took a paycut and did everything I could to ease the cash crunch on the corporation. It was the right thing to do. Now, I am watching bank executives walk off with multi-million dollar severence packages while their banks are taken over by the FDIC. This is equivelent to me having fired myself as CEO instead, and have had the forethought to create a "golden parachute" for myself if I left my company as CEO. I could have walked away from my failing business and looted it with a severance package. Uncle Sam would have won because I would have paid income tax on that severance instead of writing off the corporate losses it would have been used to partially cover. I would have let it go into bankruptcy, and walked away with enough to fund my retirement. That is the game these guys are playing. It isn't their business, but they are basically looting a company they led to failure, in these cases, at the expense of our economy and taxpayers who ultimately have to pay for the bailout which means recovering the money for the severance pay as well. The IRS wins, because they get more tax revenue out of the situation.

Why does big business play by different rules than small business? Political corruption. Debt benefits our government officials in many different ways and costs us as individuals. Yet, if the next President allows the debt to keep growing, he will lead our country to a failed banking system and an economic crisis that could bring down our country's current form of government and likely leave us with a socialist or Marxist type system after the World Bank and International Monetary Fund bail us out.

The solution - get out of debt yourself NOW!

Fannie Mae and Freddie Mac Bailout

The warnings I have been posting on this blog for years starting to happen with this bailout. This is significant because these organizations are so large and are connected to the economy in such a profound way. Excessive debt destroys economies. People have been laughing at Ron Paul and his warnings. People laugh at me. They just don't listen, because our society does what everyone else does without thinking it through. Debt has become a norm, so much that people even believe it is foolish to pay off your mortgage because of the tax deduction. They don't do the math, they just listen to what people tell them.

Here are some comments about what this bailout is going to cost us from people who are paying attention:

“1.6 Trillion sounds about right, but they will stir things up, and mix more in, until it will be hard to tell, because it is an ongoing train wreck, and it never will be paid off, because it will destroy the dollar, so the real cost is a free America.”
— John H.

“Every bailout I’ve ever seen was at least a factor of 10 higher that the initial estimate. I’m betting on the 2 trillion number myself.”
— Steve O

“We’ll never know because by the time the numbers are in, we’ll be on to the next financially engineered crisis. But for a number — at least $1.3T.”
— John M.

The best way to protect yourself personally is to be completely debt free, including your mortgage, otherwise the future of your home ownership and financial well being may be in jeopardy. The cost of this will affect all of us no matter what we do, but if we are personally debt free we have a better chance of financial survival. Watch closely what happens. After this next election, we may be in for a big surprise, depending on who wins. It may not be immediate, it may take a few years. That comment above about losing our freedom - don't discount it too much. There may be some truth in that prophecy.

Creditcard Industry News

There is a lot going on in the financial sector these days. People are going broke from the oversaturation of debt and the lenders are starting to pay the price. Today the Congressional Budget Office reported that Fannie Mae and Freddie Mac bailout could cost taxpayers as much as $100 billion dollars. Where is the government going to get that money? They just create it from nothing and add it to the money supply. The ultimate result is inflation, the hidden tax. Get ready, because the dollar is under tremendous inflationary pressure with oil prices in the mix too. It is a good time to seek refuge in Gold to preserve the purchasing power of your savings.

Many people say that American Express cards are not credit cards, but "charge cards", like there is a difference. American Express reported today that second quarter profits are down 37% from the same quarter last year, due to unexpected consumer defaults. This puts American Express's profits down a shocking 96% from last year at this time. If this is happening to American Express, I wonder what is happening to VISA and MASTERCARD issuing banks. Those defaulting on mortgages are certainly defaulting on credit card debt. They are mounting up big losses as well from the combination. Citigroup down $2.5 billion for the quarter only. JP Morgan down 53% and Capital One down 40%. Merrill Lynch has a $4.5 billion dollar loss. Wachovia and Washington Mutual are expected to be down significantly as well. There has been unverified rumors of them both being on the edge of insolvency.

On the other side of this coin, bank cards in China (including debit cards) are up 30% this year. Officials in China are targeting to more than double credit card usage. Currently, Chinese consumers have racked up $10 billion in consumer debt. A small number compared to the U.S. However, it is growing fast.

Folks. Debt does NOT pay! Our government is so deep in debt, they'll never pay it off, and they appear to be taking the same path as previous countries with fiat currencies - where the currency becomes caught in hyperinflation and the system fails because the government creates new money to pay for everything until they spiral out of control. Banks are too big and too important to fail, as is Fannie Mae and Freddie Mac. So the government will bail them out by creating more money. With inflation already ready to drop the shoe on us, we're going to make it worse. That is scary.

Who is Next?

This weekend news reports indicate IndyMac bank in Pasadena California was taken over by the FDIC. NBC news reported that 90 other banks are on the watch list. With the generous and risky mortgage loans that banks have become comfortable making may be coming to an end. It may be important for you to pay close attention to the financial condition of your bank. You can usually take a look at their financial disclosures, however, it doesn't tell you much unless you know how to interpret them. Even then, it isn't the most current information.

This is yet another reason to be doing business with credit unions. The banking industry has become a troubled industry that may no longer be a viable business. If it takes them issuing credit cards to people who are likely to default to stay in business, then something is seriously wrong. It is time to consider moving your accounts to your local credit union, it is less likely they are going to be in trouble unless they have been heavily marketing easy mortgage loans.

There are more bank failures on the horizon. Make sure you aren't a customer of one of them.

Universal Default Still Exists

A few years ago Frontline of PBS aired an investigative report on the credit card industry. It revealed some hard truths about how creditcard holders are abused. Here is a video from that report regarding efforts to get reform to protect consumers. It is now 2008 and still nothing has been done. There have been numerous congressional hearings and numerous bills proposed. The creditcard industry is just too powerful. They will continue to be unless we write our congressman and let them know how strongly we feel about it. Do something. Stop using creditcards, and advocate to limit their power in congress.

Watch this video for a peek into the tricks and traps that still exist. The industry leaders still deny that they practice universal default, yet it continues.

Get Your Credit Card Exorcisms Here

There is a new movie out titled "What Would Jesus Buy". You've got to see it. Very funny. Very entertaining. And very convicting.

Fight Arbitration Clauses

If you have ever signed a contract where you do not have the power to negotiate (the legal term is "Adhesion Contract"), you may have seen an increasing occurance of arbitration clauses. You are waiving your constitutional right to a fair and impartial hearing when you agree to arbitration. It is supposed to be cheaper than litigation in the court system, but that is not necessarily true. Also, the meetings are private. There is no public record of what occured in those meetings. In our court system, pleadings are recorded, which document the cases made by each side. Without this public record, it is easy for creditcard companies to get away with mistreating cardholders in these hearings. There is indications that this is exactly what is happening.

The Christian Science Monitor looked into this issue and found, "...the 10 most frequently used arbitrators - who decided almost 60 percent of the cases heard - decided in favor of the consumer only 1.6 percent of the time, while arbitrators who decided three or fewer cases decided for the consumer 38 percent of the time."

Do yourself a favor and take a look at the website givemebackmyrights.com and learn how to fight back, so that you don't find yourself being taken to the cleaners. If you are already in trouble with one of these contracts, find a consumer attorney.

Is The Federal Reserve Bank On Its Way Out?

In an interview, Jim Rogers, CEO of Rogers Holdings, an investment guru, tells an investment newsletter that the Federal Reserve is intentionally debasing the dollar. This means they are printing money with abandon, increasing the money supply and inviting inflation. Historically, when other central banks have done this, the currency becomes worthless. If the currency fails, the Federal Reserve will be a failed institution. This is an inevitable result of a fiat currency and an economy driven by debt.

Watch this interview on CNBC where he elaborates on the problem.

The Credit Score Scam

Most people think having a good credit score is necessary. This is the most successful marketing lie that exists in the financial industry. It only matters if you borrow money. Unfortunatey landlords, insurance companies, and various other companies have started using it as a guide. It is the lazy mans evaluation of a person's creditworthiness. Unfortunately, since there are so many errors on credit reports it has become an unreliable source of evaluating creditworthiness. Getting these errors corrected is a formidable task. While you are correcting them, more errors appear. It is a losing battle.

Despite what most people think, the credit bureaus don't work for consumers, they work for creditors. They will not accept any information from a consumer without undisputable proof, while the creditor just simply needs to make a claim and it is slapped onto your report unverified.

What's more, the scores themselves have now become a way to rip off consumers. There is the FICO Score (considered the standard), and then each credit bureau has their own proprietary score. They have started giving away "free" credit reports, which are little more than bait for subscriptions. The consumer thinks they are purchasing accurate information, when each bureau is likely to have vastly different information, and the score they give looks higher than the actual FICO score. There is a lawsuit in progress attempting to address this.

You even have to be careful about who you get your financial advice from. Suzy Orman is in bed with Fair Isaac and touts the value of a good credit score because she makes money when she does. However, Fair Isaac has recently settled a class action lawsuit against them involving Suzy Orman and her "FICO kit" for claims that they violated the federal Credit Repair Organizations Act and various state laws. They got away with providing "free" 3 to 6 month subscriptions. Ironic, since the FICO score marketing is all about improving your score, yet the scores continue to be fraught with countless errors, helping them continue to sell credit repair for their own mistakes.

The truth is that if you don't borrow money, the FICO score formula gives you a poor rating. In actuality, you are the lowest risk. Lenders who pay attention to what they are underwriting will see this. The score means little in the end with lenders who pay attention who they are lending to. As for the others, the landlords, the insurance companies, and employers. You can simply point out the errors and usually get past this screening. If you don't borrow money and tell them this is your policy, they should think highly of you regardless of the zero FICO score.

Creditcard Issued to a Tree

With all the talk these days about how irresponsible creditcard holders are with their irresponsible spending, running up large balances and tripping the "universal default" clause, we don't often hear about how irresponsible the banks are, and how we are manipulated by the system. There is a new documentary film out you should see about this.

A story confirmed on Snopes tells us about how a creditcard was issued to a tree called "Don't Waste A Tree". How does the creditcard company screen applicants? Or do they? As a parent, it is vital that we monitor our children's credit reports to make sure they aren't issued a creditcard. There have been cases, cited in Robert Manning's book "Credit Card Nation", where creditcard companies have attempted to sue parents for their children's debt when the parents were completely unaware of the account. He also tells of a case where a law student committed suicide because of the pressures of his creditcard debt, and complaints to colleges and legislators for the numerous documented cases like this are ignored.

Some of the Tricks and Deceptions You'll Find in Creditcard Agreements

You have read about the tricks creditcard issuers play, here is a list of some of them:

1. Constantly advancing due dates each month and other due date tricks. (Bankrate.com survey found nearly half of all credit card holders missed payments in 2006, the latest info available.)
2. Double-cycle billing, collecting interest on balances already paid
3. imposition of repeated fees for one single credit limit violation
4. Always applying payments to lower interest balances first, regardless of what came first.
5. Disclosure requirements are used to obfuscate, not to inform.
6. The typical agreement is over 30 pages of incomprehensible text, to discourage anyone from reading it, or understanding it.
7. Referencing complex and technical terms referring to interest rate calculations for pages, only to conclude that they reserve to change the terms at any time for any reason.
8. Bank of America, Capital One, Citibank, and J.P. Morgan Chase have all testified before congress that they will not engage in universal default, yet in Feb. 2008 issue of Money magazine observed the five major issuers (80% of the market) officially practiced it.

The agreements violate basic contract law, yet the courts will still enforce these provisions.

1. Using universal default and any-time, any-reason re-pricing.
2. Not giving fair notice of interest rate increases
3. Refusing to let card applicants read the terms of the agreement before the card is issued, and hiding material terms from the language of the agreement through open ended clauses.
4. Redefining the ordinary meaning of terms such as "fixed rate" and "prime rate" to deceive cardholders with hidden meanings.
5. Unlimited ability to change the credit limit without the consent of the customer.

(Most of this data is taken from Elizabeth Warren's Testimony before the House Representatives March 13, 2008.)

Sound reasonable enough to carry a credit card? Think they'll never enforce those terms? Think again. These companies will charge a late fee for a payment that is one day late, default the account under universal default terms, and raise the interest to the default terms. If that puts the account over its credit limit, they charge over limit fees - all for a payment that is credited to the account one day late, sometimes at the negligence of the creditcard company themselves.

Consumers Are Denied A Hearing in Congress

There was a recent hearing in congress about credit card abuse, to talk about a bill for additional consumer protection. It would be very educational to read Elizabeth Warren's testimony. (Adobe Reader required) This was in the House, it is just as bad in the Senate. A number of years ago Louis Freeh lied about MBNA's universal default policy in his sworn testimony before the Senators, acting as the General Counsel for them, and no one cared. See a previous post on this blog about it.

The surprising thing about this hearing (or maybe not if you realize how corrupt congress is) is that there were consumers there who flew to Washington to testify at the hearing about the abuses of the credit card companies. They were not allowed to testify without providing unlimited disclosure of their account activity with the credit card company. That might seem fair on the surface, but the request to ask the credit card companies to back up their claims with documentation was denied. Elizabeth Warren writes about it here.

Are you sure you want to do business with these guys? Are you sure that credit card agreement is not a threat to your financial and legal security?

Think Credit Card Companies Care About Identity Theft?

Take a look at this series of articles and watch John Hargrave prove that Citibank fails the test on fraud protection. Credit Card Criminal, Part 2, Part3, Part 4. John Hargrave is also the guy who did the Credit Card Prank which showed that no one pays attention to credit card transactions.

I had a company that I do business with try to convince me that I should use a credit card for protecting my identity, and do all my transactions on-line with them. Naturally, I refused. But I discovered that a lot of people think that the reason to use a credit card is because they have such good fraud protection. So, I will be sending them to this website.

Consequences of a Credit Based Econony

Yesterday, gold, platinum and oil made all-time highs. This morning, the London A.M. Gold Fixing posted an all-time high of $865.35. It may surprise you that gold, platinum (which is called "the white gold") and oil (called "black gold") are appreciating substantially.

Most of us do not know that the increase in the broad money supply, which is called "M-3," is no longer reported by the government. So the Government and the Federal Reserve are trying to hide what they are doing. Very few people understand that the money supply expanded over 16% in 2007, which is greater than at any time in nearly 50 years. Furthermore, most investors do not want to understand how monetary inflation precedes price inflation and that the greater the monetary inflation the greater the price inflation. Obviously, a dramatic or persistent price advancement in gold and oil will cause investors to take notice.

Uncle Sam is churning out dollars in an effort to ward off a recession. Foreign central banks are pumping out paper to keep their own currencies competitive with the dollar. The great global competitive currency devaluation is coming. When you consider this extraordinary monetary inflation now being generated by central banks, it is hard not to imagine extraordinary price inflation sitting right out on the horizon.

Should it be a surprise that gold and other precious commodities such as platinum and silver, which are known as a safe havens in these times, will see higher prices?