“GET CASH UNTIL PAYDAY! . . . $100 OR MORE . . . FAST.”

The ads are on the radio, television, the Internet, even in the mail. They refer to payday loans, cash advance loans, check advance loans, post-dated check loans, or deferred deposit loans. The Federal Trade Commission, the nation’s consumer protection agency, says that regardless of their name, these small, short-term, high-rate loans by check cashers, finance companies and others all come at a very high price.

Here’s how they work: A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower’s next payday. Or, with the borrower’s permission, the company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The loan amount is due to be debited the next payday. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.”

The federal Truth in Lending Act treats payday loans like other types of credit: the lenders must disclose the cost of the loan. Payday lenders must give you the finance charge (a dollar amount) and the annual percentage rate (APR — the cost of credit on a yearly basis) in writing before you sign for the loan. The APR is based on several things, including the amount you borrow, the interest rate and credit costs you’re being charged, and the length of your loan.

A payday loan — that is, a cash advance secured by a personal check or paid by electronic transfer is very expensive credit. How expensive? Say you need to borrow $100 for two weeks. You write a personal check for $115, with $15 the fee to borrow the money. The check casher or payday lender agrees to hold your check until your next payday. When that day comes around, either the lender deposits the check and you redeem it by paying the $115 in cash, or you roll-over the loan and are charged $15 more to extend the financing for 14 more days. If you agree to electronic payments instead of a check, here’s what would happen on your next payday: the company would debit the full amount of the loan from your checking account electronically, or extend the loan for an additional $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

Alternatives to Payday Loans

Before you decide to take out a payday loan, consider some alternatives.

1. Consider a small loan from your credit union or a small loan company. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans to people. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds: find out the terms before you decide. In any case, shop first and compare all available offers.
2. Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, which includes loan fees, interest and other credit costs. You are looking for the lowest APR. Military personnel have special protections against super-high fees or rates, and all consumers in some states and the District of Columbia have some protections dealing with limits on rates. Even with these protections, payday loans can be expensive, particularly if you roll-over the loan and are responsible for paying additional fees. Other credit offers may come with lower rates and costs.
3. Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments, and ask for more time. Many may be willing to work with consumers who they believe are acting in good faith. They may offer an extension on your bills; make sure to find out what the charges would be for that service — a late charge, an additional finance charge, or a higher interest rate.
4. Contact your local consumer credit counseling service if you need help working out a debt repayment plan with creditors or developing a budget. Non-profit groups in every state offer credit guidance to consumers for no or low cost. You may want to check with your employer, credit union, or housing authority for no- or low-cost credit counseling programs, too.
5. Make a realistic budget, including your monthly and daily expenditures, and plan, plan, plan. Try to avoid unnecessary purchases: the costs of small, every-day items like a cup of coffee add up. At the same time, try to build some savings: small deposits do help. A savings plan — however modest — can help you avoid borrowing for emergencies. Saving the fee on a $300 payday loan for six months, for example, can help you create a buffer against financial emergencies.
6. Find out if you have — or if your bank will offer you — overdraft protection on your checking account. If you are using most or all the funds in your account regularly and you make a mistake in your account records, overdraft protection can help protect you from further credit problems. Find out the terms of the overdraft protection available to you — both what it costs and what it covers. Some banks offer “bounce protection,” which may cover individual overdrafts from checks or electronic withdrawals, generally for a fee. It can be costly, and may not guarantee that the bank automatically will pay the overdraft.

The bottom line on payday loans: Try to find an alternative. If you must use one, try to limit the amount. Borrow only as much as you can afford to pay with your next paycheck — and still have enough to make it to next payday.

Protections for Military Consumers:

Payday loans (and certain other financing) offered to servicemembers and their dependents must include certain protections, under Federal law and a Department of Defense rule. For example, for payday loans offered after October 1, 2007, the military annual percentage rate cannot exceed 36%. Most fees and charges, with few exceptions, are included in the rate. Creditors also may not, for example, require use of a check or access to a bank account for the loan, mandatory arbitration, and unreasonable legal notices. Military consumers also must be given certain disclosures about the loan costs and your rights. Credit agreements that violate the protections are void. Creditors that offer payday loans may ask loan applicants to sign a statement about their military affiliation.

Even with these protections, payday loans can be costly, especially if you roll-over the loan. You instead may be able to obtain financial assistance from military aid societies, such as the Army Emergency Relief, Navy and Marine Corps Relief Society, Air Force Aid Society, or Coast Guard Mutual Aid. You may be able to borrow from families or friends, or get an advance on your paycheck from your employer. If you still need credit, loans from a credit union, bank, or a small loan company may offer you lower rates and costs. They may have special offers for military applicants, and may help you start a savings account. A cash advance on your credit card may be possible, but it could be costly. Find out the terms for any credit before you sign. You may request free legal advice about a credit application from a service legal assistance office, or financial counseling from a consumer credit counselor, including about deferring your payments.

Military consumers can contact the Department of Defense, toll-free 24 hours a day, 7 days a week, at 1-800-342-9647, or at www.militaryonesource.com. Information on the Department of Defense rule, alternatives to payday loans, financial planning, and other guidance is available.

To Complain/For More Information

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a new video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

For more information on any state or local protections for payday loans, contact the consumer protection agency in your area. This information is available in the GSA Consumer Action Handbook, at www.consumeraction.gov. The state offices are listed at: www.consumeraction.gov/state.shtml

This article was publised by the FTC. For more information visit www.ftc.gov.

The Ill Effects of Medical Identity Theft

How would you know if your personal, health, or health insurance information has been compromised? According to the Federal Trade Commission (FTC), the nation’s consumer protection agency, you may be a victim of medical identity theft if:

• you get a bill for medical services you didn’t receive;
• a debt collector contacts you about medical debt you don’t owe;
• you order a copy of your credit report and see medical collection notices you don’t recognize;
• you try to make a legitimate insurance claim and your health plan says you’ve reached your limit on benefits; or
• you are denied insurance because your medical records show a condition you don’t have.

Medical identity theft may change your medical and health insurance records: Every time a thief uses your identity to get care, a record is created with the imposter’s medical information that could be mistaken for your medical information – say, a different blood type, an inaccurate history of drug or alcohol abuse, test results that aren’t yours, or a diagnosis of an illness, allergy or condition you don’t have. Any of these could lead to improper treatment, which in turn, could lead to injury, illness or worse.

An Ounce of Prevention

While there’s no fool-proof way to avoid medical identity theft, the FTC says you can take a few steps to minimize your risk.

• Verify a source before sharing information. Don’t give out personal or medical information on the phone or through the mail unless you’ve initiated the contact and you’re sure you know who you’re dealing with. Be wary of offers of “free” health services or products from providers who require you to give them your health plan ID number. Medical identity thieves may pose as employees of insurance companies, doctors’ offices, clinics, pharmacies, and even government agencies to get people to reveal their personal information. Then, they use it to commit fraud, like submitting false claims for Medicare reimbursement.
• Safeguard your medical and health insurance information. If you keep copies of your medical or health insurance records, make sure they’re secure, whether they’re on paper in a desk drawer or electronic in a file online. Be on guard when you use the Internet, especially to access accounts or records related to your medical care or insurance. If you are asked to share sensitive personal information like your Social Security number, insurance account information or any details of your health or medical conditions on the Internet, ask why it’s needed, how it will be kept safe, and whether it will be shared. Look for website privacy policies and read them: They should specify how site operators maintain the accuracy of the personal information they collect, as well as how they secure it, who has access to it, how they will use the information you provide, and whether they will share it with third parties. If you decide to share your information online, look for indicators that the site is secure, like a lock icon on the browser’s status bar or a URL that begins “https:” (the “s” is for secure). Remember that email is not secure.
• Treat your trash carefully. To thwart a medical identity thief who may pick through your trash or recycling bins to capture your personal and medical information, shred your health insurance forms and prescription and physician statements. It’s also a good idea to destroy the labels on your prescription bottles and packages before you throw them out.

Detecting Medical Identity Theft

Paying close attention to your medical, insurance and financial records can help you spot discrepancies and possible fraud.

• Read the Explanation of Benefits (EOB) statement that your health plan sends you after treatment. Make sure the claims paid match the care you received. Look for the name of the provider, the date of service, and the service provided. If there’s a discrepancy, contact your health plan to report the problem.
• Order a copy of your credit reports, and review them carefully. Credit reports are full of information about you, including what accounts you have and whether you pay your bills in a timely way. The law requires each of three major nationwide credit reporting companies – Equifax, Experian and TransUnion – to give you a free copy of your credit report each year if you ask for it. Visit www.AnnualCreditReport.com or call 1-877-322-8228 to order your free credit reports each year, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can download the form at www.ftc.gov/freereports.Once you have your reports, look for inquiries from companies you didn’t contact, accounts you didn’t open, and debts on your accounts that you can’t explain. Check that your Social Security number, your address(es), name or initials, and your employers are listed correctly. If you find inaccurate or fraudulent information, get it fixed or removed. Visit www.ftc.gov/idtheft to learn how.
• Ask for a copy of your medical records. If you believe you’ve already been a victim of medical identity theft, review your medical and health insurance records regularly. The thief may have used your name to see a doctor, get prescription drugs with your health ID number, file claims with your insurance provider, or done other things that leave a trail in your medical records. Try to review your health records for inaccuracies before you seek additional medical care. The Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule gives you the right to copies of your records that are maintained by health plans and medical providers covered by that law. Health care providers and health plans generally are required to give you your files within 30 days after you ask for them. Unlike credit reports, there is no central source for your medical records. You need to contact each provider you do business with – including doctors, clinics, hospitals, pharmacies, laboratories and health plans – that is relevant to your experience. For example, if a thief got a prescription in your name, you may want the record from the pharmacy that filled the prescription and the health care provider who wrote the prescription. Or if you’ve been using the same hospital for 20 years and you think that the identity theft is recent, you may want to limit your request to records of the last few years or months.It’s likely that you have to complete a form and pay a fee to get a copy of your records. Keep track of your communications with your health plan and providers, including copies of postal and email correspondence, and a log of your phone calls, conversations and activities. Be patient: Health plans and providers, particularly small ones, may not have handled a claim of medical identity theft before, and may not be sure how to respond.In most instances, a provider who denies you access to your records must give you the reason in writing. Some providers may refuse to give you copies of your medical or billing records for fear that they’re violating the identity thief’s HIPAA privacy rights. These providers are mistaken: You have the right to know what’s in your file. If your request is denied, you have the right to appeal. Contact the person identified in the provider’s Notice of Privacy Practices or the patient representative or ombudsman, explain the situation and request your file. If a provider still refuses to give you access to your records within 30 days of your written request, file a complaint with the U.S. Department of Health and Human Services’ Office for Civil Rights, at www.hhs.gov/ocr.

You also should get a copy of the accounting of disclosures for your medical record from your health plan and providers. It will help you follow the trail of your information and identify who has incorrect information about you. The law allows you to order one free copy of the accounting from each of your providers every 12 months. The accounting is a record of:

• the date of the disclosure;
• the name of the person or entity who received the information;
• a brief description of the information disclosed;
• a brief statement of the purpose of the disclosure or a copy of the request for it.

Certain disclosures that occur often or as a matter of routine – like each time a doctor’s office sends treatment information to another health care provider, or sends payment information to an insurer for reimbursement – may not be included in the accounting.

For more information about your rights under HIPAA, visit the U.S. Department of Health and Human Services, Office for Civil Rights at www.hhs.gov/ocr, or the World Privacy Forum at www.worldprivacyforum.org/FAQ_medicalrecordprivacy.html.

Bouncing Back from Medical Identity Theft

If you are a victim of medical identity theft, here are several steps to take immediately. Keep detailed records of your conversations and copies of your correspondence.

1. File a complaint with the Federal Trade Commission online at https://www.ftccomplaintassistant.gov or by phone at 1-877-ID-THEFT (438-4338); TTY: 1-866-653-4261.
2. File a report with your local police, and send copies of the report to your health plan’s fraud department, your health care provider(s), and the three nationwide credit reporting companies. Information on how to file a police report is at www.ftc.gov/idtheft/consumers/defend.html.
3. Exercise your right under HIPAA to correct errors in your medical and billing records. Write to your health plan or provider detailing the information that seems inaccurate. Include copies (keep the originals) of any document that supports your position. In addition to providing your complete name and address, your letter should identify each item in your record that you dispute, state the facts and your reasons for disputing the information, and request that each error be corrected or deleted. You may want to enclose a copy of your medical record with the items in question circled. Send your letter by certified mail, and ask for a “return receipt,” so you can document what the plan or provider received. Keep copies of your dispute letter and enclosures.

Generally, your health plan or medical provider must respond: The creator of the information is obligated to amend the inaccurate or incomplete information. It also should notify other parties, like labs or other health care providers, that may have received incorrect information. If an investigation doesn’t resolve your dispute with your plan or provider, you can ask that a statement of the dispute be included in your record.

Other Steps to Consider

A fraud alert can help prevent an identity thief from opening additional accounts in your name. Contact the toll-free fraud number of any one of the three nationwide credit reporting companies to place a fraud alert on your credit report. Contact only one of the three companies to place an alert. The one you call is required to contact the others that, in turn, place an alert on their versions of your report, too.

• TransUnion: 1-800-680-7289; www.transunion.com; Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92834-6790
• Equifax: 1-800-525-6285; www.equifax.com; P.O. Box 740241, Atlanta, GA 30374-0241
• Experian: 1-888-EXPERIAN (397-3742); www.experian.com; P.O. Box 9532, Allen, TX 75013

A security freeze, also known as a credit freeze, is a warning sign to businesses or others who may use your credit file. It locks down your credit file and blocks access by potential creditors. In short, it makes it less likely that an identity thief can open new accounts. Most states have laws that allow consumers to place a credit freeze with credit reporting companies. In many of these states, any consumer can freeze their credit file; in others, only identity theft victims can freeze their files.

Placing a credit freeze does not affect your credit score, keep you from getting your free annual credit report, or keep you from buying your credit report or score. It doesn’t prevent you from opening a new account, applying for a job, renting an apartment, or buying insurance, either. In these situations, the business usually needs to review your credit report. You can ask the credit reporting company to lift your credit freeze temporarily, or remove it altogether.

There are two key differences between security freezes and fraud alerts:

• The credit reporting companies are not required to share a request for a security freeze as they are with a fraud alert. If you want to freeze all your credit files completely, you have to contact each company with your request.
• The credit reporting companies may charge you a fee to place a freeze or to lift it. The fees and lead times to freeze or “thaw” your credit file vary among states, so it’s wise to check with your state authorities or with a credit reporting company in advance if possible. In many states, security freezes are free for identity theft victims; in others, consumers must pay a fee – typically $10. It’s also important to know that each credit reporting company charges a fee for this. More information is at www.ftc.gov/idtheft.

If you have a valid police or other investigative report about the theft, you usually can place or lift a freeze for free.

If you believe you are a victim of medical identity theft and are concerned that your identity could be compromised further – say, by credit accounts being opened in your name – you may want to consider a freeze as an additional layer of protection.

For More Information

For information about getting and correcting your medical records:

World Privacy Forum
2033 San Elijo Avenue, #402
Cardiff by the Sea, CA 92007
www.worldprivacyforum.org
760-436-2489

Center on Medical Record Rights and Privacy
Health Policy Institute
Georgetown University
Box 57144
Washington DC 20057-1485
http://ihcrp.georgetown.edu/privacy/records.html
202-687-0880

If you believe that a health plan or provider violated your rights under HIPAA, you may want to file a complaint with:

U.S. Department of Health and Human Services
Office for Civil Rights
200 Independence Avenue, SW
Washington, DC 20201
www.hhs.gov/ocr

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a new video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Information provided by www.ftc.gov.

Expect your bank to send you an explanation about how it treats overdrafts; here is an example (38 KB PDF). Here are some key things you need to consider when reading the notice:

The basic facts

An overdraft occurs when you make a purchase or ATM transaction but don’t have enough money in your account to pay for it. For a fee, your bank will cover you when you become overdrawn. This fee can apply each time you overdraw your account.

Generally, banks can cover your overdrafts in one of two different ways:

• Standard overdraft practices. Your bank will cover your transaction for a flat fee of about $20-30 each time you overdraw your account. For example, if you make a purchase with your debit card for $150 but only have $100 in your account, your account will be overdrawn by $50 and your bank will charge you a fee. If you then make an ATM withdrawal for $50, your account will be overdrawn by $100 and you will be charged another fee. In this example, if the fee your bank charges for its standard overdraft practices is $30, you will pay a total of $60 in fees.
• Overdraft protection plans. Your bank may offer a line of credit or a link to your savings account to cover transactions when you overdraw your account. Banks typically charge a fee each time you overdraw your account, but these overdraft protection plans may be less expensive than their standard overdraft practices.

The new rules

• You choose. In the past, some banks automatically enrolled you in their standard overdraft practices for all types of transactions when you opened an account. Under the new rules, your bank must first get your permission to apply its standard overdraft practices to everyday debit card and ATM transactions before you can be charged overdraft fees. To grant this permission, you will need to respond to the notice and opt in (agree).
• Existing accounts. If you do not opt in (agree), beginning August 15, 2010, your bank’s standard overdraft practices won’t apply to your everyday debit card and ATM transactions. These transactions typically will be declined when you don’t have enough money in your account, but you will not be charged overdraft fees.
• New accounts. If you open a new account on or after July 1, 2010, your bank cannot charge you overdraft fees for everyday debit card and ATM transactions unless you opt in. If you open a new account before July 1, 2010, your bank will treat you as an existing account holder: you will receive a notice about your bank’s standard overdraft practices and will have to decide if you want them for everyday debit card and ATM transactions.
• Flexibility. Whatever your decision, the new overdraft rules give you flexibility. If you opt in, you can cancel at any time. If you do not opt in, you can do so later.
• Checks and automatic bill payments. The new rules do not cover checks or automatic bill payments that you may have set up for paying bills such as your mortgage, rent, or utilities. Your bank may still automatically enroll you in their standard overdraft practices for these types of transactions. If you do not want your bank’s standard overdraft practices in these instances, talk to your bank; you may or may not have the option to cancel.

Information retrieved from www..federalreserve.gov.

As previously reported, Congress in 2009 passed a new law for credit cards that helps protect consumers from most instances of sudden interest rate increases and other unfavorable changes in fees and account terms. Most of the rules implementing the law are now in effect, and the remaining provisions will be effective on August 22, 2010. (See The New Consumer Protections on Credit Cards: An Overview.) But here’s something else to know — it’s possible consumers could face account changes going forward, such as interest rate increases on future transactions and the imposition of new fees or penalties.

How can you avoid potential pitfalls in the new world of credit cards? FDIC Consumer News offers these simple strategies.

1. Understand your right to cancel a credit card before certain significant account changes take effect. Under the new law, card issuers now must generally tell customers about certain changes in account terms — in areas such as interest rate and fee increases — 45 days in advance, up from 15 days in the past. In that same notice, they must inform consumers of their right to cancel the card before certain account changes take effect. These notices may come with your credit card bill or through a separate communication. “It’s important to read everything from your card issuer, even what appears to be junk mail,” said Kathleen Nagle, FDIC Associate Director for Consumer Protection. “Be aware of when the new rate or fee will take effect, so you can have enough time to shop around for a new card, if necessary.”

   Consumers who notify their card company to cancel their card before fees are increased or certain other significant changes take effect will still be required to repay the outstanding balance, but they cannot be required to repay it immediately. However, the card company can increase the minimum monthly payment, subject to certain limitations.

   For more about what can happen under the law if you exercise your right to cancel your card, see The New Consumer Protections on Credit Cards: An Overview. Also note that there are exceptions to the 45-day notice requirement. For example, you will generally not receive advance notice of a rate increase on a card with a variable interest rate that will fluctuate based on an advertised index, such as the prime rate.

2. Keep an eye on your credit limit. Some people, even those with good credit histories, have recently seen their credit limits cut back. Reductions in credit lines can be harmful because your borrowing power will be diminished. Also remember that your credit score is based, in part, on what percentage of your credit limit you are using and how much you owe. Borrowers who carry large balances in proportion to their credit limit may see their credit scores fall. And a lower credit score can make it difficult or more expensive to get new credit in the future. How can you reduce the risk that your credit limit will be cut or your credit card account will be canceled? One factor that credit card companies consider is how you pay your bills. “It’s important to show a steady, timely payment history,” reported Evelyn Manley, a Senior Consumer Affairs Specialist at the FDIC. Paying all your credit-related bills by the due date — that includes your credit card bills as well as your car loan, mortgage and other debts — shows that you’re a responsible borrower.

   Also, pay as much of your credit card bill as you can each month. If possible, pay in full, but definitely try to pay more than the minimum balance due.

   What should you do if you’ve already had your credit limit cut? Put a renewed focus on lowering the amount of money you owe on your credit cards.

   Also, consumers who have difficulty making their minimum payments on time may benefit from speaking with a reputable credit counselor to get help or guidance at little or no cost.

   For a referral to a local counseling agency, one option is to call the National Foundation for Credit Counseling at 1-800-388-2227 or visit them at www.nfcc.org. For more information on how to safely pay down credit card debts, including how to avoid scams that target people in financial trouble, check out the new Federal Trade Commission fact sheet “Settling Your Credit Card Debts,” online at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre02.shtm.

3. Decide how you want to handle transactions that would put you over your credit limit. Under the new law, no fees may be imposed for making a purchase or other transaction that would put your account over the credit limit unless you explicitly agree, in advance, that the credit card company can process these transactions for you and charge a fee. “Even if you agree to over-the-limit fees, you have the right to change your mind down the road,” said Luke W. Reynolds, Chief of the FDIC’s Community Outreach Section. “You would simply instruct your card issuer to deny any transactions that would exceed your credit limit and would trigger a fee.”

   In either case, he said, “you still should monitor how much you’ve charged on your card so you don’t exceed the credit limit.”

4. Be cautious with “no-interest” offers. Many retailers, such as electronics or furniture stores, promote credit cards with “zero-percent interest” on purchases for a certain amount of time. These cards allow you to buy big-ticket items, perhaps a sofa or a stereo system, without paying interest for anywhere from six months to more than a year. While the chance to avoid interest payments sounds like a terrific deal, keep in mind that if you don’t follow the rules for these offers, this “no-interest” special could end up being expensive. The reason is, with many of these offers, you must pay off the entire purchase by the time the promotional period ends to take advantage of the zero-rate offer. If you don’t, the lender will charge you interest from the date you bought the item. You would then have to pay interest — at the lender’s standard rate — from the date of purchase. And if the Annual Percentage Rate or APR on the retailer’s card is higher than what you would pay on another card you have, the extra costs could really add up. The APR is the cost of credit expressed as a yearly rate, including interest and other charges.
5. Keep only the credit cards you really need and then periodically use them all. Some consumers have too many credit cards. Among the concerns: Those extra cards can lead some people to overspend. Also, having many cards with no existing balance or a very low balance can reduce your credit score because prospective lenders can conclude that you have the potential to use them and get into debt. For the average person, two or three general-purpose cards are probably enough. Consider cancelling and cutting up the rest. However, also remember that closing a credit card account can temporarily lower your credit score, especially if the cancelled card was one you owned and used responsibly for many years.

   With the credit cards you do keep, remember to avoid large balances on them in relation to the credit limit. And in the new environment, it also may be beneficial to periodically use all of your cards. Here’s why. Even if you pay your card bill in full each month and never pay interest, using your card earns money for the card company because merchants pay a fee each time you use the card. So, consumers who regularly use their cards and repay their debt may be considered valued customers, even if they pay on time and don’t pay interest. “Regular purchases promptly paid off may be enough to reduce the risk of a credit line reduction, inactivity fees and other penalties,” said Susan Boenau, Chief of the FDIC’s Consumer Affairs Section.

6. Do your research before paying high annual fees for a “rewards” card. Rewards sound great in advertisements for credit cards, but the points formula can be complicated, the rules are subject to change, and the benefits may not be as generous as you think. You should always read the fine print and be realistic about your likely use of the card before you accept an expensive annual fee in return for rewards. For more information about using rewards programs wisely, see our article “Points, Cash Back and Other ‘Rewards’ from Your Bank: How to Cash In on the Right Deal,” in the Summer 2009 issue of FDIC Consumer News at www.fdic.gov/consumers/consumer/news/cnsum09/bank_rewards.html.
7. Take additional precautions against interest rate increases. “Although the law puts new limits on interest rate increases, you need to remain vigilant,” Manley added. For example, while card companies cannot increase the interest rate on existing balances except in certain circumstances, they may raise rates on extensions of credit for new purchases as long as proper notice is provided. “If you receive a notice that your interest rate is increasing,” Manley said, “determine whether you have another way to make future purchases, such as by waiting until you have saved enough money for the purchase or by using a card with a lower interest rate.”

   Rate increases also may come in another form. For example, some fixed-rate cards may be converted to variable-rate cards after a notice has been sent to cardholders. This would result in variable rates being applied to new balances.

   Also note that a credit card company can increase the rate on an existing balance if the consumer fails to send the minimum payment within 60 days of the due date. So, it’s very important to avoid being more than 60 days late on a credit card. If you miss a due date, you can avoid a “penalty” interest rate on that existing balance by getting your payment in within 60 days. And if you’re more than 60 days late and that does trigger a rate increase, get current on your credit card payments as soon as possible and then start consistently paying on time. Card issuers are required to reduce the penalty rate if they receive prompt payments for six months.

   In general, what else can you do to get the best rates? Keep in mind that a credit score is built up over long periods, not just over one or two years, so make all your loan payments on time. Even if you have past blemishes, you can improve your credit score over time by managing your credit well. Be aware that if you can only afford to pay the minimum amount due, you probably won’t get the best rates. But if you can pay more than the minimum each month — as much more as possible — that will work in your favor.

   Also, carefully read the terms of a new credit card before using it. If the card has a high interest rate or fees, shop around for a better offer.

8. Parents of young adults have a new opportunity to teach responsible management of credit cards. The new law includes protections for young consumers, including a requirement that anyone under 21 who wants to obtain a credit card must have a qualified co-signer on the account or must prove he or she alone can repay any debt. This is intended to protect young people from getting overwhelmed by credit card debt. But it also offers an opportunity for parents to teach their kids about responsible use of credit cards. “Parents should have discussions with their children about how credit cards should be used and repaid,” said Reynolds. “They may even want to make sure their kids have taken a financial education course before they have access to a credit card.”

   If you’re considering co-signing for a credit card with a young adult, it’s best to have an understanding (if not a written agreement) that you will get early notice of any troubles, including late payments, so you can keep on top of the credit card and work out problems with the lender before your own credit record is damaged. “One way or another,” Reynolds added, “parents should make clear their expectation to their child — the cardholder — that the child will pay the credit card bill on time, and that the child keeps this fact in mind when using the card.”

   And what if, despite your best planning, your child (or any other co-signer for a credit card or loan) can’t or won’t make the payments? As a co-signer, you are obligated to pay the debt to the lender, and not doing so can damage your own credit report.

Final Thoughts

“By enhancing required disclosures, making them more understandable, and limiting the ability to change terms and interest rates on existing balances, the law has given consumers greater control of their credit cards,” said Reynolds. “But the first step in taking advantage of these legal protections and the competitive marketplace is to become more proactive in simple areas such as reading all the communications from your lender and by shopping around for the best deals.”

For additional information about other aspects of the law, see our article in the Summer 2009 issue at www.fdic.gov/consumers/consumer/news/cnsum09/newlaw.html. For more on managing credit cards, visit the U.S. government Web site www.mymoney.gov.

Information retrieved from www.ftc.gov.

Card issuers also must generally provide a 45-day notice before applying an interest rate increase to new transactions (those made more than 14 days after the date of the notice). For example, if customers receive a notice from their card company stating that the Annual Percentage Rate will increase to 24.9 percent, and the notice is provided July 1, that higher rate would apply to transactions made on or after July 16. However, interest on new transactions would only be charged at the higher rate if there is still a balance due after August 15 (the close of the 45-day notice period). As always, if you pay the balance in full by the due date, you can avoid interest charges.

Restrictions on Fees: As with a rate increase on new balances, card issuers also must generally provide a 45-day advance notice of other significant changes, such as new fees or increases in existing fees. However, in addition, cardholders must be notified that they now have special rights when they reject a change in fees. Those who say they want to cancel the account because of the change cannot be required to immediately repay the outstanding balance. The card company can either continue offering the existing payment method on the outstanding balance, give the consumer five years (or more) to pay the balance, or increase the minimum payment up to double the current level.

In addition, consumers will no longer be charged a fee when a transaction causes an account to exceed its credit limit unless the consumer has agreed in advance.

And, initial fees are significantly limited for subprime cards (for consumers with a limited credit history or a bad credit record). In the first year, and with the exception of three types of fees — those for late payments, going over the credit limit or returned payments due to insufficient funds — total fees cannot exceed 25 percent of the card’s initial credit limit.

Note: Proposed rules governing card fees are pending at the Federal Reserve Board. One proposed rule would prohibit credit card issuers from charging penalty fees (including late payment fees and over-the-limit fees) that exceed the dollar amount associated with the consumer’s violation of the account terms. Another proposed rule would ban inactivity fees. Final rules will take effect on August 22, 2010. For updated information, visit www.federalreserve.gov.

Better Billing Practices: Periodic statements must be mailed or delivered at least 21 days before the payment due date.

The law also requires that payments be allocated a certain way to minimize finance charges. For cards with multiple interest rates, payments over the minimum must be applied first to the balances with the highest rate.

In addition, payment due dates must fall on the same numerical day each month.

Protections for Young Adults: The marketing of credit cards on college campuses is restricted. Also, consumers under 21 must have a qualified co-signer or must prove they have the ability to make the required payments for the account.

Information retrieved from www.ftc.gov.

Remember that a reverse mortgage is a loan that must be repaid. “Not all advertisements clearly indicate that a reverse mortgage is a loan,” said Mira Marshall, an FDIC Section Chief specializing in consumer issues. “In fact, a reverse mortgage is a very complicated loan that uses home equity as collateral, just like the mortgage you probably used to purchase your home.”

Reverse mortgages allow homeowners to receive cash in a lump sum, through monthly payments, as a line of credit whenever they need money, or any combination of these options. Unlike traditional mortgage products, homeowners do not make any monthly payments to the lender. However, they eventually do have to repay the principal and interest when they move, sell the house or pass away. And, because no monthly payments are being made, the amount owed will grow over time as interest costs build up and, in some cases, as additional funds are advanced.

The borrower also is still responsible for paying the property taxes and insurance and maintaining the house. Failure to do so can cause the reverse mortgage to become immediately due and payable in full.

The rules to determine how much you can borrow through a reverse mortgage are complex. For example, the total amount of cash available is a percentage of the home’s value that will vary by the age of the borrower and the location of the property. And if there’s a co-borrower, the value is determined by the age of the youngest borrower.

Let’s say your house has a market value of $250,000, you owe nothing on a mortgage and the youngest co-owner is 70 years old. Even though your home equity is about $250,000, with a reverse mortgage and depending on the location of the property, you can borrow only up to approximately $130,000. In contrast, with a traditional home equity loan, it may be possible to borrow up to 100 percent of the value of the home.

Be aware that not all reverse mortgages carry insurance and other protections from the federal government. The most common type of reverse mortgage — the Home Equity Conversion Mortgage or HECM — is offered as part of a program from the U.S. Department of Housing and Urban Development’s Federal Housing Administration. The FHA has protections for the lender as well as the borrower. In the case of the latter, for example, if the borrower or heirs sell the home to repay the reverse mortgage (instead of keeping the house and repaying the loan otherwise), the total debt will never be greater than the value of the home.

However, there are several types of reverse mortgages that are not FHA-insured. These are mostly reverse mortgages developed and offered by private companies, nonprofit organizations, and state and local governments. They may not offer the same guarantees and protections as an FHA-insured HECM.

Understand the costs and fees, which can be significant. Most reverse mortgages have an origination fee, closing costs and periodic servicing fees. There also is an additional monthly insurance premium for an FHA-insured reverse mortgage. The total amount of fees will depend on the loan product. And while the costs and fees can be added to the reverse mortgage instead of being paid up front, doing so increases the loan balance and incurs interest charges.

Borrowers also should keep in mind that the more cash they take out and the longer they go without making loan payments, the interest charges and other costs can use up much or all of the equity, leaving fewer and fewer assets for the borrower or heirs. And if you or your heirs want to keep the house instead of selling it, the full loan amount would be due and payable from your own funds, even if it’s more than the value of the property.

“Because the costs and fees can be extremely high,” said Mike Evans, an FDIC Fair Lending Specialist, “most experts generally advise homeowners not to take out a reverse mortgage if they plan to stay in their home less than five years or if they simply need extra money for small expenses.”

Do your research and shop around before committing to a reverse mortgage. To understand the potential pros and cons of a reverse mortgage, talk to financial advisors and qualified housing counselors. Depending on your circumstances, there may be other, less expensive options available to you. Explore different kinds of loans (including a mortgage refinancing, a home equity loan and a home improvement loan) and programs from local government agencies or nonprofit organizations. In some cases, it may even make financial sense to sell your home and downsize to a less expensive home or even a rental.

If you decide that borrowing money is the way to go, contact several lenders and compare the costs and benefits of the options they offer.

“Most financial experts also agree that it is never a good idea to use the funds from a reverse mortgage to purchase other financial products or services,” added David Lafleur, an FDIC Senior Examination Specialist. “Not only will you immediately incur expensive interest charges and other fees in connection with the reverse mortgage, but having large deposits or annuities may make it tougher for you to qualify for certain entitlement programs that take assets into consideration, such as Medicaid. Also, if you tie up money in CDs or annuities, you will be giving up easy access to funds you may need to meet your expenses.”

Additional information and guidance on reverse mortgages is available from HUD at www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm or by calling 1-800-569-4287.

Note: To receive an FHA-insured reverse mortgage, you must first speak with a HUD-approved counselor, who can provide you with information on this product and other alternatives so you can determine what is suitable for you.

Information retrieved from www.ftc.gov.

This Act amends the Truth in Lending Act in various respects, including requiring certain creditors to disclose on the front of billing statements a minimum monthly payment warning for consumers and a toll-free telephone number, established and maintained by the Commission, for consumers seeking information on the time required to repay specific credit balances.

Information retrieved from www.ftc.gov.

This Act, amending the Fair Credit Reporting Act (FCRA), adds provisions designed to improve the accuracy of consumers’ credit-related records. It gives consumers the right to one free credit report a year from the credit reporting agencies, and consumers may also purchase for a reasonable fee a credit score along with information about how the credit score is calculated. The Act also adds provisions designed to prevent and mitigate identity theft, including a section that enables consumers to place fraud alerts in their credit files. Further, the act grants consumers additional rights with respect to how their information is used. The FTC has rulemaking responsibilities under numerous provisions of the Act and study requirements under many more.

Information retrieved from www.ftc.gov.

This Act authorizes the FTC under section 3(a)(3)(A) of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6102(a)(3)(A), to implement and enforce a do-not-call registry. The Act also ratified the do-not-call registry provision of the FTC’s Telemarketing Sales Rule, 16 C.F.R. 310.4(b)(1)(iii), which became effective on March 31, 2003.

Information retrieved from www.ftc.gov.

Section 5 of this Act, Pub. L. No. 105-318, 112 Stat. 3007, makes the FTC a central clearinghouse for identity theft complaints. The Act requires the FTC to log and acknowledge such complaints, provide victims with relevant information, and refer their complaints to appropriate entities (e.g., the major national consumer reporting agencies and other law enforcement agencies).

Information retrieved from www.ftc.gov.