Credit Card Act Shows a Win for Disclosures to Consumers

credit_cards.topNew Orleans  I have to confess I have often been skeptical of programs claiming to protect consumers that trumpet transparency as a major feature of the reform.  I can show the scars still from negotiations with predatory lenders and tax preparation companies, who would easily agree to full disclosure of their effective interest rates and offer to put them on posters or computer screens even when they stated clearly that the interest might be 300 or 400% annually. 

            All of which had me reading closely a column featuring an analysis of the impact of the Credit Card Accountability Responsibility and Disclosure Act or Card Act (yes, they are sometimes so cute in Congress!) written by Floyd Norris in his “High and Low Finance” column in the Times looking at a study by economist Neale Mahoney from the University of Chicago and others of the impact of the Act on bank and card company practices.   To most of their surprise, this effort at regulation seems to have actually worked, saved consumers what will likely end up being $20 billion in bank rip-offs, and hasn’t led to banks larding up fees to compensate, although there’s a likely reason for that we’ll get into later.

            The success seems to have turned on two sets of very important things.

            On the consumers’ side there are several very clear things that it turns out we concentrate on, which helps us focus and sort out the various bank offers:  most importantly the stated interest rate, then whether there is an annual fee, and any sort of awards for card usage, which some folks like.

            On the banks’ side the law and its regulations plugged a lot of the holes in the dike that banks had been using to siphon off billions.   Consumers were given 21 days, not 14 to pay.  There was a 45 day notice on rate changes and they could not be applied to purchases already made.  Only one late charge or overpayment charge could be assessed.  There were also limits on the size of the fee and on other charges like paying by phone or internet.   You get it; they actually took their jobs seriously and reined in the banks.

            The study of course found that the banks were making the most from the most predatory products and desperate customers, who were their subprime borrowers.  In fact Mahoney says that in the aftermath of the Great Recession, “…when banks were hemorrhaging money on subprime loans, subprime credit cards were a major source of profits.” 

            Good intentions are not protecting us, but it turns out that even without highway robbery fees they still make crazy money, so the banks are restraining themselves, and probably more importantly given the consumer razor like focus on the actual interest rates on the cards, the banks are forced to keep their hands out of our pockets because the card business is so competitive. 

            The fierce competition in the general credit card market backed up by the Card Act is probably the only thing as well that makes disclosure actually work in this case.   On credit cards banks are forced to compete for our business, rather than in more predatory situations where our own desperation makes us sheep for the slaughter.

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Credit Scores and Healthcare Bills

Little Rock       If you have every tried to borrow money from a bank or buy a house, you have been introduced to the strange and terrible world of credit scores that are often key factors not only in whether or not you get the loan or are able to buy the house, but in the interest rates you are offered which translates into thousands and sometimes tens of thousands of dollars you will end up paying over the life of the loan.   Way too frequently confronting the reasons black marks appear on your credit scores goes back to disputes, where you were convinced you were being ripped off and fought back and whether you won or lost you find only when seeking a loan that you were still knifed in the back by the rouge bill collector anyway.   Too often this happens with medical bills which after an illness come flying at you from every direction it seems and invariably from outfits that you never realized even knew your name, but now are billing you, calling you, and so forth.  Anesthesiologists must be the worst offenders since you met your doctor so have no clue who might be the guy is who is billing you for hundreds of bucks while you were out cold.

In a significant development reported by the New York Times, a major credit card score generator, VantageScore Solutions, “has decided to ignore collection actions on credit reports – more than half of which are typically tied to medical debts – as long as the collections are paid.”  That seems exactly right!  The example in the story involved a woman who was going to pay $33,000 in extra interest on a home loan because she had mistakenly used her dental card rather than her medical card to pay a $700 charge.  She fixed it when her mistake became known and paid with the right card, but meanwhile was burned on her credit score she only found out later when it bumped her interest rate up.  Bam!

I can relate.  A couple of months ago, running to pay off my bills before going out of town, I threw the envelopes in the mail to Cox Cable and to CitiMortgage where I’m still paying a note on a fishing camp lost to Katrina 7 years ago.  A month later I got a foreclosure notice from CitiMortgage, even though I had paid the next month, and had ignored several of their envelopes when I returned home assuming the letters had crossed in the mail with my check.  I called them with fire breathing out of my nostrils.  They claimed they had never gotten the payment.  I told them the date it was sent.  I thought we worked it out at the end of the argument when we agreed I would stop payment on the earlier check and send them a new one.  If they got it right away, she claimed she would not report me to the credit bureau.  There was discussion of where the sun doesn’t shine.

A couple of days later someone from Citi left a phone message at the house that they had deposited my hundred dollars.  The same day a letter came in from Cox returning the check to CitiMortgage which they could not deposit.  Ok, you are with me now.  I had put the wrong checks in the wrong envelopes.  Then I got my monthly payment notice from CitiMortgage showing a random $100 they had applied to principal payment and a late charge.

Yep, back on the 800# fired up again.  Citi explained that it is their policy to cash any and all checks that come to them no matter who they are written to.  Fortunately Cox Cable and most other businesses, and even banks, don’t have such a ravenous practice.  I said you can’t have it both ways by taking my money, depositing it wrongfully, and sending me a late charge.  After she talked to her boss, they waived the late charge.  I let them keep the money though they offered to return it, since they were busted.

Mistakes happen.  That’s why we have “I’m sorry” as part of our common language.  When we’re wrong we make it right.  Unfortunately, when they are wrong, they make us pay.  VantageScore Solutions needs to be the model here for stopping these quick trigger credit and corporate culprits.

Credit Scores Audio Blog

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