Posts Tagged ‘credit card regulation’

The annual percentage rate (APR) applied to your credit card accounts is a calculation of the cost of credit. All credit card companies are required to fully disclose the APR in the credit card agreement, and every lender not only calculates the APR in a different way, but may also apply a different APR for purchases or cash advances on your account. When you’re comparing credit card offers and want to make the most informed financial decisions about your credit, it’s important to understand how APR is calculated, and what the difference is between variable and fixed APR.

How APR is Calculated for Credit Cards

The APR is calculated as the rate for the payment period, multiplied by the number of payment periods over the year. For example, if your credit card provider has stated a 20% APR, then your periodic rate would be 20% divided by 12 months, or about 1.67% per month. This periodic rate is applied to the monthly balance on the credit card. Every credit card company uses a different method to determine what balance to use when charging the periodic rate.

Some credit card companies will charge the periodic rate to an adjusted balance, a previous balance, an average daily balance, or an ending balance. Others may charge the periodic rate on a two-cycle average daily balance. Understanding how the company charges the periodic rate can help you decide which card really has the best terms.

Variable vs. Fixed APR

APRs on credit cards can either be variable or fixed. A variable APR is calculated by adding a marginal rate to a reference rate, such as the U.S. Prime Rate. In this case, whenever the Prime Rate changes, the variable APR rate also changes. Each credit card company will then adjust your APR on a monthly or quarterly basis. The methodology for charging the APR rate will be listed in your credit card agreement.

It’s important to understand what the difference is between variable and fixed APR. If misread, credit card deals can quickly become credit card traps.

Fixed APRs do not take any type of reference rate into account, so your account balance will be charged the same amount in every period. While fixed APRs are a little more stable than variable APRs, they can still change when the credit card company decides to adjust their rate. All credit card companies are required by law to notify consumers that they are changing the fixed APR rate.

Understanding how APR is calculated and what type of APR is charged to your account balance can help you make the best decisions when comparing credit card companies. Take the time to review your credit card agreement so that you can make the most informed financial decisions.

Sabah Karimi

Affinity Agreements Still a Moneymaker for Higher Education

A common moneymaker in collegiate circles is the sale of alumni and students’ information through the use of affinity agreements. Many believed that the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009 would curtail these business practices, but a clause allows these credit card programs to continue provided they disclose their dealings. The act does not cover other industries. The question many parents and students are asking is “Can the school sell my personal information?” The answer is yes and it is still legal.

In higher education, affinity agreements have become an excellent way to make money and many companies take advantage these programs. They provide car rental discounts, mobile communication packages, campus Internet access and even vending machine displays. Companies encourage students to sign up for special offers or services and the university financially benefits.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 brought the use of these programs to the public’s attention, but it does not abolish the practice. It only limits banking affinity agreements and protects students until graduation. Pennsylvania Congressman Patrick J. Murphy (D-8th District) has proposed additional disclosure measures focusing on financial institutions. It is unclear as to whether Murphy supports abolishing the practice of all affinity agreements.

Under the Credit Card Accountability Responsibility and Disclosure Act of 2009, colleges and universities must publicly disclose their marketing relationships with credit agencies but it does not restrict the college or university from providing the names of alumni for marketing purposes. Credit card agencies must now submit an annual report containing full disclosure of their dealings on campus. The report includes all business, marketing, promotional agreements and an account of all credit cards issued to both student and alumni.

J.P Morgan Chase, Citigroup, Wachovia, Wells Fargo and Bank of America have signed affinity agreements with many universities and colleges. The media tends to focus on Bank of America since it has been the most forthcoming in the publishing the extent of their affinity agreements. According to a November 30, 2009 press release, the bank has 800 collegiate endorsements including 70 percent of the schools in the Big 10, Big East and Pac-10 athletic conferences and five of the eight Ivy League schools. The question alumni must ask is how are these revenues from banks and other companies used to benefit students. The 2009 the Credit Card Act did not require this disclosure.

Anastasia Zoldak

With increasing rates of identity theft, many consumers choose to freeze their credit reports so that the credit report cannot be shared with potential creditors. When you freeze your credit reports, a lender or creditor who makes an attempt to check your credit history will not be able to order a report using your name and Social Security number.

How a Credit Freeze Works

To freeze your accounts, you will need to contact each of the three credit reporting agencies — Equifax, Experian and TransUnion — and provide them with identifying information such as your name, current and former address, Social Security number, birth date and a copy of your driver’s license. The request for a freeze can be made by certified mail or online.

Initiating a credit freeze costs between $3 and $10 per person per bureau, and you will likely receive written confirmation that the freeze is in effect after the credit bureau has received all the information they need. Check your state’s security freeze requirements and fees schedule for specific fees.

If you want to open a new credit account or apply for a loan, you have the ability to lift the freeze for a certain period of time so that the creditor can pull your credit report. Each credit bureau charges a fee (approximately $5 to $10) to lift the freeze temporarily, so you need to select a specific date and let the credit reporting agency know which creditor will be ordering a credit report.

Keep in mind that freezing your accounts will not lower your credit score, and will not prevent you from receiving pre-approved credit offers. If your spouse shares a credit account with you, both parties need to freeze their individual credit files separately for the entire account to be frozen.

When to Freeze Your Credit

You probably should freeze your credit if:

• You’ve been a victim of identity theft and had your accounts compromised.
• You’ve lost your credit cards and Social Security card or driver’s license.
• You simply suspect that you have been the victim of identity theft and want peace of mind that your credit report isn’t in the wrong hands.

When Not to Freeze Your Credit

There are some situations where it’s not a good idea to freeze your credit. If your job requires you to access your credit reports regularly to open new accounts, it can be very costly to lift the freeze every time you need to pull your report. If you’ve lost a single credit card or had a credit card stolen, you may only need to contact your credit card issuer to investigate the account and close it as needed.

Another drawback of freezing your credit report is that your credit report won’t be updated with your current name or address until you personally send that information to the credit bureaus. You will need to update your contact information on your own any time you move or make a name change.

Sabah Karimi

Everyone is familiar with the credit card advertisements people receive in the mail, but direct mail marketing has declined in response to the struggling economic climate.

However, according to DM News, credit card issuers have ramped-up their direct mail marketing efforts recently. They are now sending out more advertisements to consumers, raising awareness about new cards and renewing interest in their popular cards.

The total amount of direct marketing sent out by all banks rose 47 percent between the third and fourth quarters of 2009, which is a significant change in only a few months. Chase led the pack by increasing its efforts by 87 percent.

Banks are becoming more optimistic about the future of the U.S. economy, and are once again encouraging consumers to take advantage of credit card offers. DM News reports that banks sent out far more direct mail before the recession hit, but a steady climb could bode well for the credit card industry.

Of course, credit card offers sent through direct mail might not be as enticing as they once were. Annual fees, shorter grace periods and higher interest rates are still common among current terms. It is important for consumers to pay attention and to make smart decisions about which credit cards they decide to obtain.

New changes to the CARD Act of 2009 will take effect in February, which might have an impact on direct mail marketing by credit card issuers. Banks will be keeping tabs on delinquencies and monitoring consumer activity to determine where they should take their efforts from here.

Staying abreast of credit card news and paying attention to direct mail advertisements will help you make effective decisions about your finances. If this trend continues, it could mean that card terms will steadily become more favorable as well.

Steve Thompson

Have you ever tried to read a piece of legislation only to ask yourself, “What the heck did that even mean?” Official decrees from Washington are notoriously verbose at the best of times. The latest credit card bill, the Credit CARD Act of 2009, is no different. Fortunately, the kind folks at CreditCards.com have created a far more user-friendly guide to understanding just what the credit card bill is all about.

The Credit CARD Act of 2009 multimedia guide breaks down each title, section and legislative reference into digestible chunks just about anyone can understand. The guide also allows credit card holders to find the sections that apply to them directly through an easily navigable list of subtopics.

A multimedia breakdown of the Credit CARD Act of 2009 is ideal for this credit card bill because, let’s face it, the same text pasted into a PDF document would be almost as difficult to wade through as the legislation itself. By designing the guide with clickable links and breaking down the text into terms, quotes from politicians and even links to related stories, the site ensures that consumers will not be overwhelmed by impenetrable text. Even better, CreditCards.com has also included the original text of the Credit CARD Act of 2009, so those who believe in thorough research will be able to relate the simplified information to the transcript of the law.

Credit CARD Act of 2009 Multimedia Guide: A Closer Look

The major sections of the credit card bill are broken down into five simple headings:

• Rates, terms and fees
• Youth and credit
• Disclosure
• Studies
• Other

Each of these is further divided into numerous subheadings to help you navigate the text.

Many are unfamiliar with the jargon of the credit card industry — from double-cycle billing to grace periods — terms that the Credit CARD Act of 2009 understandably references frequently throughout its text. Naturally this means many consumers are unable to understand the credit card bill even if they can manage to wade through the wordy transcript. Fortunately, the multimedia breakdown of the Credit CARD Act of 2009 defines all of these terms as you roll your mouse arrow over each one.

This type of legislation affects everyone differently, depending upon spending practices and credit history. This handy tool can help consumers understand the Credit CARD Act of 2009 and, more importantly, comprehend what the credit card bill means for them.

Now, if only someone would do this for every other piece of national and local legislation, perhaps there would be a better understanding of our government throughout our great land.

Steve Thompson

Going to college is the first step towards independence for many young adults. Many attend colleges in their home state, living on their own in dorms or apartments. During these college years a student’s main concern should be on studies and how to pursue a career upon graduation. Unfortunately, rising debt lurks in the shadows for many of these students and when they graduate, the harsh reality of this debt brings puts a tether hold on some of their plans and goals.

College Debt

It used to be that credit card debt was the big culprit for the debt college students had upon graduation. However, with the Credit Card Act of 2009, that debt won’t be a factor. But the debt of college students will still be as high as before and some instances higher. In recent years college students have been borrowing more money than they ever have in the pursuit of higher education. So many students’ borrowing has increased to keep up with the costs of rising tuition.

Tuition Hikes the Main Culprit

There used to be a time when a person entering college fresh out of high school only needed to take out a college loan for a couple of thousand dollars each semester. However, with the cost of tuition rising significantly each year, students are borrowing twice as much just to pay for an education. In fact, college tuition hikes have passed the rate of inflation. According to the College Board, between the years of 1999 to 2000 and 2009 to 2010, college tuition has increased at an average annual rate of 4.9 percent over the general rate of inflation.

Life-Altering Effects of Increased Student Borrowing

Federal Direct and Stafford loans typically give graduates a six-month grace period before they have to begin repaying their loan. However, with the current economic situation and unemployment still high, finding good paying jobs is becoming difficult for some. Even when a decent-paying job comes along, plans such as getting married and purchasing a home are put on the back burner, as graduates find themselves living paycheck to paycheck.

There may not be a way to avoid borrowing for college tuition. However, if college students are made knowledgeable about how student loans affect their lives after college, they can be better prepared to handle the debt. Financial education on debt and borrowing can benefit students a great deal and help them develop a plan to handle the debt college tuition helped them to accrue.

ShawnTe Pierce

The U.S. Census Bureau claims there are roughly 1.5 billion credit cards in use across the nation, which translates to an average of eight credit cards per American adult. At the same time, a company that advises the credit card industry, R.K. Hammer, reports that Americans annually pay more than $20 billion in credit card fees. Perhaps it is no wonder that 41 percent of U.S. adults told the National Foundation for Credit Counseling that they grade their knowledge of personal finance at “C,” “D” or “F.”

Knowledge is power. Here, then, are 10 credit card industry facts that may help you better deal with the world of credit cards.

1. Beware of the “universal default clause”

Just one late payment on any credit card can prompt the entire credit card industry to raise your interest rates on all of your cards.

2. Identity theft

A plague upon the credit card industry and personal finance in general, identity theft is described by federal authorities as America’s fastest-growing source of crime. Monthly reviews of credit card statements and credit reports are the best ways to combat identity theft.

3. Credit card offers can lead to identity theft

A typical household receives several credit card offers per year. The trouble is that if the household doesn’t shred these offers, identity theft criminals can obtain vital personal information and open credit card accounts in your name.

4. Maintain that credit score

The magic number for your credit score is above 600. Go below that and you likely will face severe credit limits and high interest rates.

5. Make some noise

The fact that you may receive multiple pitches from the credit card industry, even if your credit score is below 600, reflects the fierce competition between companies. Call the credit card companies and ask to speak to supervisors for the lowest interest rates, and even negotiate for consolidation of credit card debt. The same determination on the phone can help if you believe an unwarranted late fee or penalty has been assessed.

6. Watch those gas stations

Folks seem to run into all sorts of problems when they use credit cards at gasoline pumps. First, if you don’t have a minimum of $50 remaining on your limit, your purchase attempt may be rejected. Gasoline stations may also be slow to record your transaction. Sometimes it’s best to simply pay with cash.

7. Keep an eye on payment time frames

If a few days are shaved from a payment time frame, such as 25 days instead of 30 days, credit card holders may falsely assume that they’re paying on time, only to run into a costly late fee and all of the accompanying troubles.

8. Minimum monthly payments will cost you dearly

Minimum monthly payments often consist of little more than interest on the lump sum. The laptop you purchased for $300 could end up costing $1,000 or more if you’re paying the minimum monthly payment. In this sense, credit card purchases can cost even more than rent-to-own arrangements.

9. Shop locally

If you restrict your purchases to within your home state or within 100 miles of your billing address, you will have an easier time disputing charges for unsatisfactory goods or services. Federal law gives credit card companies more rights for purchases made out of state or beyond the 100-mile radius.

10. Sometimes, “big government” actually can work for you

When looking for advice, keep in mind that the Federal Trade Commission monitors trade within the 50 states. There’s even a U.S. Financial Literacy and Education Commission, and local nonprofit credit counseling agencies are abundant.

Michael Thompson