Protect Your Good Credit

Get yourself prepared, folks, because credit card companies are raising their minimum payments. In 2003 banking regulators passed some new guidelines requiring most companies issuing credit cards to raise their minimum payment. The guidance indicates lenders must establish “minimum payments that will amortize the current balance over a reasonable period of time.”

This means your payment could be double or more than what you are paying now. Right now, most companies set minimum payments at about 2%. Unfortunately, if you carry a high balance and have a rate over 20%, that probably doesn’t even cover the interest owed for the month. Your balance then increases each month by the amount of interest your payment didn’t cover, making it impossible to ever pay the debt off making minimum payments.

Regulators want to change that. The new guidelines are designed to force lenders and their cardholders to reduce individual credit card debt each month by having minimum payments that cover not only the interest for the month but part of the principal balance too.

While I have long been an advocate of individuals making higher than minimum payments in order to ensure they routinely pay down their credit balance, in the short run, this could financially cripple individuals who are stretched to the limit payment-wise. This new requirement may take cardholders that are on the verge of financial disaster right over the edge.

I recommend anyone with credit card debt look carefully at their current payment, figure any payment increase will be to at least 4% of the principal balance owed, and begin adjusting their monthly budget to accommodate the higher payment now. Then watch your monthly statement and/or mailings from the card issuer. They have to notify you 15 days in advance of any payment changes.

As a mortgage broker, I become very familiar with the financial pictures of my clients. Most expect me to give them feedback on their credit history and often ask for direction if they have a credit issue. More and more I’m hearing stories of extreme tactics some collection companies are taking in pursuing unpaid debt.

Phone calls, threatening letters and the like have long been the bane of consumers pursued by collection agencies. Since the newest breed of debt collectors purchase other companies’ debt for pennies on the dollar, they turn the collection of the unpaid debt into an almost “abusive process”. Caroline E. Mayer, a staff writer for the Washington Post recently delved into the issues with these companies in two articles published on July 28, 2005.

Harassment in the form of phone calls at all hours, threats of seizure, lawsuit, jail and even voilance are the new tactics taken by these firms which have created an entire industry of “debt buyers”. They only make money if they can make the debtor pay so they will go to extreme lengths to do so, often making as much as five times what they paid for the original debt.

Cited in Ms. Mayer’s Post article, is the Federal Trade Commissions’s suit against one such company, CAMCO based in Rockford, IL. Complaints from over 2000 consumers were made against CAMCO, according to the FTC. The FTC’s suit was primarily driven by issues with CAMCO’s attempts to collect what is referred to as “zombie debt” or debt so old that the statue of limitations on collection has expired. CAMCO was even alleged to have found people with similar names living in the general geographic area of the actual the debtor and trying to collect the debt from them.

Consumers have rights and should understand there are rules of debt collection. Most individuals harassed by collection companies are unaware of these rights.

The following guidelines on consumer rights, outlined in Ms. Mayer’s Washington Post article, are from regulators, plaintiff attorneys and consumer advocates:

Debt collectors can’t call you at either unreasonable times or places. Example: calls prior to 8 am or at your job are against the rules.

Misleading implications of crime, arrest, seizure, violence or harm are not permissible. Nor may collection companies present themselves as attorneys. Inappropriate or obscene language may not be used.

Collection companies cannot contact members of your family, friends or neighbors and tell them you have an outstanding debt. If they do call on someone you know, they may do so only once and only to ask how to reach you.

If they contact you initially by phone, they must provide written notice within 5 of the name of the original creditor and amount owed. You have 30 days to respond in writing if you don’t owe the debt and the collector cannot contact you again without sending proof of the debt. At that time they can also notify you of any specific court action or arbitration proceeding.

If you receive a legal notice from a collector, you should respond as failure to do so could result in a default judgement. If a judgement is issued, your wages can be garnished. If a consumer challenges a claim’s validity, cases are frequently dismissed.

When dealing with valid claims, consumers should be careful of providing specific information to the collector. Don’t provide information such as personal account numbers.

The statue of limitations on debt collection can be different from state to state. Know the limits of your state as collectors can pursue you if the time limit is expired. Even if you owe the old debt, be careful of paying even a portion as, in doing so, you may revive the original claim.

For additional guidelines, information or to file a complaint against a collector, contact the Federal Trade Commission at 877-382-4357 or click on the following link: www.ftc.gov

To read Ms. Mayer’s complete articles click on the following links: As Debt Collectors Multiply, So Do Consumer Complaints and To Protect Their Rights, Consumers Should Know the Rules of Debt Collection

The response of some businesses trying to curb identity theft is to put in biometric identification systems to handle purchase transactions. Instead of carrying a credit or debit card, you simply press your thumb to a touch pad. It does, at first, seem convenient and appealing. After all, you never leave home without it. You certainly can’t leave it in your other coat pocket, or in your other handbag. And, the identifying properties, unlike magnatic strips, can’t be inadvertently erased because it went through the wash by mistake.

There are also significant drawbacks. You have to allow the retailers that use these biometric systems to automatically draft the purchase amount directly from your checking account. Since banks currently offer little to no liability protection to consumer’s whose accounts are tapped fraudulently due to identity theft, that could be a big security risk.

Some people may believe that since their thumb is attached to their body and it’s imprint is unique, it’s impossible for an identity thief to steal it. However, if the means used to collect the imprint for a transaction is electronic and the method for transmitting and verifying that imprint is via any type of computer, it can be captured, copied and stolen.

The lack of security with current bank systems, such as ATM machines, is pervasive. The Washington Post reported yesterday that

half the U.S. financial institutions have not programmed their ATM systems to check security codes. Estimated annual losses from ATM fraud is [around] $2.75 billion, or $900 per incident.

A separate report Tuesday by the corporate services unit at International Business Machines Corp. noted

a surge in Internet attacks that facilitate bank fraud, including phishing and the surreptitous installation of keystroke-logging programs that copy what a computer user types.

Whether it is a coded card with a password or a copy of your thumbprint, if there are no checks and balances to the systems established and institutions are not required to ensure consumer accounts are safeguarded, indentity theft will continue to invade the lives of millions of individuals. Retailers, creditors and banks don’t utilize and verify security numbers already available on back of cards or ensure that their automated systems, such as ATMs, verify passcodes and/or pin numbers.

While current security measures fail to be utilized and maintained, those who manipulate technology with criminal intent are already demonstrating their ability to defeat the next generation of “security measures” using biometric-based identification.

The answer: Right now………you do!!

One of the missing links in the legislation proposed in the fight for identity theft protection, is about responsibility. There is much argument and nashing of teeth over notification procedures for when data is compromised. Fine! That is a problem and it should be addressed by any legislative proposal Congress considers.

The one area of responsibility that I don’t see addressed or read any commentary on is about creditors, lenders and banks’ responsibility when their lack of precaution and/or security costs the identity theft victim lost of funds. Credit card companies offer their customers limited liability exposure if their credit card is used fraudulently. But, if the card fraudulently used happens to be your debit card, the bank issuing the card does not.

As I’ve reported previously, it’s costing Americans $5 billion dollars a year in out-of-pocket expenses. Since credit card companies have limits on liability to their customers if their account is accessed and used fraudulently, that number is significantly lower than it would be otherwise. What is not being addressed directly is the financial burden that victims are required to absorb if the theft involves their debit card or bank accounts.

One of the lastest strategies for stealing personal data is for identity thieves to place themselves, with the appropriate receiving equipment, near a store that uses wireless internet connections for credit transactions. The thieves then collect the credit/debit information from the store’s purchase transactions and use it fraudulently. If your credit card data is stolen and used by thieves, you are usually only responsible for up to $50 of any debt incurred. If it’s your debit card and the thieves empty your bank account, you’re in trouble.

Banks currently don’t accept any responsibility for account funds that are tapped fraudulently. The result…..you could discover that you suddenly have no money in the bank and your bill payments, checks, etc. are bouncing like rubber balls.

And, it doesn’t end there, you also get stuck with all the late fees, bank penalties, overdraft charges and returned check expenses. Most people DO NOT UNDERSTAND that financial institutions spend MILLIONS of dollars ever year lobbying to blunt legislation that would make them legally liable for compromising the security of their customers’ accounts.

I’ve read numerous articles surrounding the legislation Congress is currently reviewing. They argue about consumer notification, encryption exemptions, credit freezing, instant credit, etc. Consumer advocacy groups argue with those elements, often within Congress itself, that are hostile to consumer protection, most frequently mentioned are the Senate Banking Committee and the House Financial Services Committee. Both of these committees oversee banks and other financial institutions, yet, they are reported as being “hostile toward consumer protection”.?!?

Banks, like any other creditor, collect, maintains and trafficks in consumer data. They often create the broadest exposure risk to consumers and, yet, they bear little to no responsibility for the cost to their customers if accounts are tapped by identity thieves. If a thief walks into the bank and robs it, customer accounts are protected………so does it make sense that if the thief accesses the bank fraudulently with a stolen identity that they’re off responsibility hook?

This leads back to what I’ve said before, until the responsibility impacts the pocketbook of those creating consumer exposure, whether it’s through lack of encryption, lack of appropriate systems, unscrupulous employees, or just general carelessness, the risk for each of us will continue to grow……………….and you just might be next!

Since credit is so easy to obtain in today’s world, often at a moment’s notice, it could create unexpected liability for married individuals. In some cases, whether you are aware of a spouse getting new credit or not; whether it’s a joint account or not; you could be liable for your spouse’s debt.

For those of you who are married, even if it’s blissfully, you should investigate the laws in your state governing the debt of a spouse. You may be the most financially prudent individual on earth, yet if you are married to someone who isn’t, you could experience debt and/or credit issues as a result. Even if you aren’t on your spouse’s account.

In some limited situations I am aware of here in Virginia, a husband or wife opened one or several credit card accounts without their spouse’s knowledge. When divorce proceedings began, the unknowing spouse discovered that they were responsible for half of the debt incurred………..despite the fact they weren’t on the accounts and were not even aware they existed.

I have worked with many mortgage clients who have experienced credit difficulties as a result of the poor financial habits of their former spouses. It is, therefore, in each individual’s best interest to learn what, if any, responsibility s/he may have if a spouse incurres credit card or other debt. Learn what liability you may have and find out what measures you should take to protect yourself and your credit.

Marriage is a challenge in the best of circumstances. Divorce is devastating on any level, but if financial and credit problems are also present, it is only more so. Forewarned is forearmed. Find out before there is a problem where you would stand legally. If necessary, seek advice from a professional source to ensure you understand not only your rights but your potential liabilities.

This information should not be substituted for the professional, tailored opinion of a lawyer, a financial advisor, and/or other trained and/or licensed professional in your jurisdiction. Please seek the appropriate source to handle any legal, credit, or other issue.

Is it really necessary to be able to buy numerous high dollar items on a moment’s notice?

With new legislation before the Senate designed to protect Americans from identity theft, arguments between consumer advocacy groups versus creditors and lenders are numerous. One major point of contention is whether or not Americans should have the ability to freeze their credit or for lenders to continue to have instant access to it.

On this particular point, California’s legislation, which allows individuals to freeze their credit, appears to be the model that was used in the Senate proposal. In CA, individuals who decide to freeze their credit have to notify the credit bureaus, in advance, if they want it “thawed” in order for a lender to check it before issuing new credit. Credit institutions and lenders don’t want to be in a position that they have to wait 3 days to access someone’s records before granting new credit.

Why? It’s simple. If a person doesn’t have the ability to make a spontaneous decision to buy high dollar items on credit, then they might be more prudent in how they choose to spend their money. Retailers and lenders prefer, of course, for you to make that snap decision and go ahead and spend the money now.

Being able to freeze your credit can’t guarantee identity theft prevention but it can certainly reduce your risk of exposure. Being able to buy a big-screen TV on a moment’s notice with instant credit may seem convenient, but it’s not necessarily a benefit to you.

If people are allowed to freeze their credit and high dollar purchases are no longer spontaneous but planned for, I believe most people will end up in better financial condition. Having to think through and plan for such purchases may lead the way to helping people avoid large amounts of unsecured credit card debt.

One man’s junk is another man’s treasure. The same thought process has applied to those who create or hate “spyware”. At first glance, those cute little toolbars that give you the ability to dress-up your email, “block” pop-up ads, download free screen-savers are just fun, interactive pieces of software.

On the other hand, those same software “tools” can also be parasitic programs that clog up your hard drive, identify you and/or your ISP to others, and allow hackers access to your computer. The overriding problem in designing a way to prevent information and identity theft from “spyware” is finding a way to clearly define it.

“One of the biggest challenges we’ve had with spyware has been agreeing on what it is, ” said Ari Schwartz, associate director for the Center for Democracy and Technology. “The anti-spyware community needs a way to quickly and decisively categorize the new programs spawning at exponetial rates across the internet.”

Some “spyware” innocently disguised as “adware” has the ability to track users and capture passwords and credit card numbers. This leads to identity theft! The lack of clear definitions of spyware and adware make it difficult for protective federal and state legislation to be established.

Ben Edelman, the country’s foremost spyware researcher, said, in relation to defining spyware, “from the perspective of users whose computers are infected, there is nothing hard about (defining spyware). If you have adware or spyware on your computer, you want it gone.”

Once again, consumers unaware of the risks of “free” downloads and software are the most likely to be victims of identity theft. Since the use of personal computers is an integral part of daily life and an abundance of information we hold dear is on them, everyone should be vigilant about inadvertantly allowing access of any kind to theirs.

The best “rule of thumb” about unnecessary and/or unwanted programs on your computer is the same one you use for the old stuff in your refrigerator. “When in doubt, throw it out” if it’s in the fridge. If it’s on your computer, hit DELETE.

For a complete overview of the Anti-Spyware Coalition Definitions and Supporting Documents, click on the following link: http://www.antispywarecoalition.org/definitions.pdf

A bipartisan group of Senators has recently introduced a proposal for new legislation which is designed to protect Americans from identity theft. At first glance, it appears to be similar to the legislation passed by California and Texas. However, it does require that businesses collecting and sharing individuals personal data begin bearing more of the burden of preventing identity theft or face fines and penalties.

A review of the proposed legislation and further updates on this topic will follow in later posts.

In order to help citizens protect themselves from identity theft, California and Texas have passed legislation that allows individuals to freeze their credit history with each of the three credit bureaus. There are mixed reviews from various camps on whether or not this will actually benefit consumers, however, many other states are proposing similar legislation.

Fraud experts and consumer advocacy groups are praising the legislation as being a much needed first step towards arresting the ever-increasing incidents of identity theft in this country. Realtors and lenders are claiming that this type legislation will ultimately be detrimental to consumers by making credit more difficult to get.

The problem of identity theft in this country is not only major issue, it’s one that won’t go away. The same technology that allows individuals to get credit almost instantaneously is the technology that supports opportunity for identity theft to occur.

Over the next few days/weeks, we are going to look at not only the legislation but the numerous reactions to it and, hopefully, we can find a common thread with which we can weave additional methods for protecting ourselves.

I will be looking for feedback from anyone who has either an opinion to share or a suggestion to offer. When we, as consumers, give voice to our need for stronger legislation and better resources for addressing this issue, we can achieve postive results.

It costs us millions every year. Can you afford it?

Data security experts in Europe don’t collect statistics on identity theft because it’s not seen as enough of a problem. Conversely, the Federal Trade Commission reports that over 10 million Americans are victims of identity theft each year.

Europeans, as a rule, have national identity cards and European credit bureaus tend to have unique identifying numbers for the consumers in their databases. We have a social security number which is suppose to be used for social security retirement benefits, not as an all-purpose identifier.

“It’s much more difficult to steal your identity” in Europe, said fraud expert Jim Vaules, a vice president of LexisNexis a US database company. The key piece of information an identity thief needs is a person’s national ID number, and that appears in a lot few places [in Europe] than Social Security numbers do in the US.

“A lot less of their data is floating around, ” said Bob Sullivan, an MSNBC technology reporter. “They are far more strict about data sharing than we are in the US.”

Since credit bureaus are contained, ususally managed by banks, and don’t allow unlimited access to their data bases in Europe, lenders use other means in evaluating credit risk. Not so here, where any business can subscribe to a credit bureau and use that information to make decisions about an individual’s transaction with them.

The most important thing European countries have done to protect their citizens from identity theft—they have strict laws which control and penalize businesses from selling and/or sharing personal data.

While credit processes in Europe may take a little longer, Europeans are far better off when it comes to the risk of exposure. Americans should be more concerned about their exposure to identity theft than in obtaining credit quickly. The penalties to businesses and credit bureaus that compromise personal data should be stiff enough to ensure that data is protected from access.

Bottom line, America, we need to take a page from the European’s book and start being a lot more stringent about protecting our data. If not, those FTC statistics are just going to get worse. Right now, identity theft is costing you $5 billion a year in out-of-pockets expenses. I can’t afford it, can you?