Credit Justice Services

You may be right!

Not long ago we were being bombarded with advertisements – a non-stop barrage of enticing products to bring home for the holidays. We were encouraged to spend, spend, spend. And we did. Now that the joy of the holiday season has ended, we are left to deal with the credit card debt.

What we didn’t know was that while this was going on, Congress was readying itself to attack the unfair practices of credit card companies. Senators have been receiving increased numbers of complaints from consumers about the credit card companies’ practice of raising customers’ interest rates after their credit scores decrease. Sometimes these rates are increased regardless of whether the customer is a model customer for on-time payment and staying under the credit limit.

Americans are bogged down in credit card debt, totaling $900 billion, or $2,200 per household. As debt mounts, the credit card companies do everything in their power to put the squeeze on consumers. These consumers are beginning to sound off. As the complaints roll in, the practices of the lucrative credit card industry are gaining increased scrutiny of, not only Congress, but also of the Federal Reserve, who will likely order credit card companies to give customers 45 days to close accounts before any increase in interest rate can occur in the near future. The Reserve will likely also demand clearer disclosure of fees – something long overdue in the credit industry.

Sen. Carl Levin, D-Mich., chairman of Senate Homeland Security and Government Affairs Subcommittee, is going to introduce legislation calling for voluntary changes within the industry. It’s a start. Douglas Muir, CEO and Founder of Credit Justice Services and consumer advocate, met with Senator Levin’s staff in December 2007 to advise them on the credit card and credit bureaus debacle. Mr. Muir states, “The inaccuracies of the 3 credit bureaus are driving the credit card interest rates through the roof”. Senator Leven also told reporters “working people are being squeezed.” In the same press conference he went on to say “these abuses need to be remedied… We have some real momentum for reform.” Good for Senator Levin. He and his staff are spearheading this movement for change, interviewing consumers, credit card companies, and industry experts (including a three and a half hour interview in Washington DC with Douglas Muir, CEO and Founder of Credit Justice Services, on December 20th) in an effort to gather enough information to bring about these reforms.

When Senator Levin’s U.S. Senate Permanent Subcommittee on Investigations Hearing: Credit Card Practices: Unfair Rate Increases met, they examined some of the cases from the citizen complaints that they were receiving. In their report are the cases of at least four consumers who have been treated unfairly by the powerful credit card companies. I will summarize below:

Janet Hand, of Freeland, Michigan, is a registered nurse who has had a Discover card for years. In 2006, her interest rate was raised from 18% to 24%. The action was taken because her FICO score had dropped. To add insult to injury, Discover also applied the rate increase to her existing credit card debt. The higher rate now makes it difficult for Janet to pay down this debt. As this [color=#][colo[/color]r=blue]chart[/color] indicates, Mrs. Hand made monthly payments of $200 to reduce her debt. As a result, of the $2,400 that she paid last year, $1,900 went to finance charges, and a mere $350 of her debt was paid off.

Millard Glasshof, of Milwaukee, Wisconsin, is a senior citizen living on a fixed income. For years he has faithfully paid on the balance for his closed Chase card, contributing $119 each time to reduce his debt. Out of nowhere in December, Chase raised his interest rate from 15% to 17% – and then from 17% to 27% in February. The reason for the rate change was that Chase did a review of closed accounts that were being paid off and found that Mr. Glasshof’s FICO score had dropped. Making matters worse, the 27% rate was also applied to the $4,800 balance left on the card.

On February 7, Robert Berner wrote [color=#]this article[/color] for Business Week about Bank of America. In it, he cited this case:
Michael Jordan, 25, a software developer who lives in Higganum, Connecticut, says he received a letter from Bank of America in late January advising him that his card rate would rise from 9.99% to 24.99%. Jordan, who earns $80,000 per year, says he was “shocked” because his payments had been on time and his credit score hadn’t changed in the last year. In fact, Jordan says, he has only $4,500 in overall outstanding credit card debt on two cards and that, on the Bank of America card in question, he had paid down his balance to $3,000 from $3,700 last August. “His rate increase seems unjustified based on his credit profile,” says David Robertson, publisher of The Nilson Report, a credit card industry trade publication.

We could go on, but you get the idea. Each credit card company had basically the same way of raising customers’ interest rates – and each applied the new rate to the existing balance – effectively applying a retroactive rate increase.

Most of us are unaware that if we use credit cards to pay for purchases, we can be doing real damage to our financial well being. Most Americans have no idea that if they run up their credit card bills, they also risk tanking their credit scores. *Take special note here to always keep your balances below 30% of your credit limit. Running up over that amount can hurt your credit score in a hurry. This will be addressed in a future article – Credit Cards: The Volatile Polymer.

Some of the issues that are being scrutinized by the Senate Subcommittee are: what or who determines a person’s FICO score; who decides to increase a credit card interest rate; and who actually sets the higher interest rate. What have they found out? NO ONE!

As we sit, scratching our heads on that one, millions of bits of information are streaming through the credit bureaus’ computers, determining the ever-changing FICO scores of consumers. Occasional updates are automatically sent to credit card companies, whose computers scan the scores and score factors and come up with a new rate. Sure, that’s the way it was designed. Sure, humans came up with the rules that were given to the computers in order to determine a new rate. But it is much more convenient to the credit card companies knowing that no particular person has to punch a button to put the squeeze on a customer. This automated system capable of the decision making of millions of credit card accounts has been in place for years. I’d say it’s about time for us to put our foot down. Hopefully Senator Levin has a heavy foot.

As a CCC with Credit Justice Services, I relish the results people report to me after they have used our 90 Day Credit Makeover to repair their credit. There’s nothing like the phone call that makes your heart sing a positive report from a satisfied client who has increased their credit score and is moving forward with their plans for their financial life.

This past week I spoke to a man who was in tears. He told me about a life situation that lead him to living off credit cards for a period of time and the crushing credit card debt he lives with every day. He had received a letter in the mail from his major credit card company informing him that they had raised his interest rate 3 times, because they had been monitoring his credit score and it had slipped below what they deemed reasonable. He was panicked, devastated and embarrassed. He called the credit card company who agreed to lower the rate to the original rate, but informed him that if he charged just ONE more item anytime in the future, they would put the rate back up to the 3 times level = 18%. He began to panic again, knowing him gym membership payment of $20 was due to be charged to that account any day. He frantically tried to contact the billing department of his gym to avoid the billing.

Unfair credit card practices are creating chaos in people’s lives. A bill to stop these practices has stalled on the floor of the House. Until something changes, and laws are put in place to protect American consumers, below is a list of credit card company tacks to be aware of:

(From American’s for Fairness in Lending, Credit Card Action Center, posted July 11, 2008) Credit card contracts are packed with fine print tricks and traps to increase the likelihood of paying fees and penalties. You will be hard pressed to find a credit card without these terms at least until our government outlaws them but if you’re informed and cautious, you have a better chance of steering clear of the traps and saving money.

Fees and More Fees  On any given month, you might pay a late payment fee, overlimit fee, cash advance fee, balance transfer fee, foreign exchange fee, bill payment fee, Western Union fee, and whatever else your lender can devise. Not to mention monthly and annual fees.

Tricks to Make You Pay Late These come in many varieties. If you’re late you’ll pay a hefty fee and your interest rate may go up. Check each statement carefully and pay your bill as soon as it arrives.

Changing Due Dates  Your bill will not be due on the same day every month.

Early Due Dates  Bills may be due just a few days after you receive them.

Weekend Due Dates If your due date is on the weekend and your payment arrives on the date, it won’t be processed until Monday and you’ll be considered late.

Morning Due Times Your payment may be due at 9am on the due date, not 5pm.

Approved Overlimit Charges If a purchase puts you over your limit, your credit card company will approve the charge then hit you with an overlimit fee and maybe even raise your interest rate. Keep careful track of your balance and know that even approved charges may put you overlimit.

Universal Default Pay Card A on time but pay late to Card B (or anything else monitored by your credit score) and your interest rate on Card A may jump!

“Any Time For Any Reason Changes” Most contracts include this ominous phrase. It means just what it says they can increase your interest rate on a whim.

Teaser Rates That Don’t Stick.  An introductory 0% interest rate can jump to 30% with a late payment or if you go overlimit. Don’t bank on keeping that 0% rate for the entire promotional period.

Retroactive Application of Higher Interest Rates. To make things worse, if your interest rate increases, they can apply the higher interest rate to the entire existing balance, not just to new charges.

Allocation of Payments. If you end up with two or more different interest rates, they will apply your payments to the balance with the lower interest rate first. The rest of your balance will continue to generate high interest charges until the low-rate balance is entirely paid off.

Tricky Interest Calculations For some cards, you can pay interest on purchases from previous cycles. This is known as double cycle billing. Look for a card that uses the Average Daily Balance interest calculation method.

Credit Protection Services like this may sound good, but they’re usually useless. The fee for the service likely exceeds the minimum payments it would cover if you became sick or lost your job. Avoid add-on products like this.

Binding Mandatory Arbitration (BMA) This provision requires that you resolve any conflict with an arbitrator selected by the lender, which means you give up your right to take the credit card company to court.

http://www.affil.org/get_active/credit-card-action-center

Fortunately, like lemmings to the sea, there are plenty of great examples around us in our friends and neighbors as to how to model the “Ultimate American Consumer.” In case it escapes you, here is a simple ‘How To’ guide that can serve as a great roadmap to this continued process. Enjoy!

• Always spend right at the level of your after tax earnings. Having surplus dollars is troublesome for most because it’s difficult to know exactly what to do with them.
• Avoid having 3, 6 or even 12 months of basic living expenses tucked into a liquid account such as a money market or CD.
• Repeatedly purchase, preferably on credit, items that rapidly depreciate such as cars and consumer goods. Why pay all cash for something when you can use other people’s money (OPM)?
• Be sure to maintain at least $7-12,000 of revolving credit card debt and preferably ‘store credit cards’ and be sure not to read the monthly statements.
• In the event that revolving debt gets to be somewhat of a burden, be sure to take out a home equity line of credit (HELOC) to alleviate the monthly payments
• Look for and take advantage of ‘get rich quick’ opportunities that offer simple and easy wealth accumulation plans with little effort. Leave the hard work to all the ‘drubs’ who don’t know any better.
• Spend at least half of your allowable IRA contribution each year on Christmas and holidays (preferably on credit)
• If you have an investment or asset plan, be sure not to review it too often as this can be tedious, boring and rather dull. Once every 6-10 years should be fine
• If possible, avoid the toilsome task of creating asset accumulation strategies in favor of more dinners out with friends and fun vacations. After all, you only go around once
• Be sure to invest in insurance and protect yourself from disability, death, dismemberment, accident, ill health and be sure to insure your pets as well!
• Be sure only to buy new automobiles due their quality and reliability over used vehicles. Used vehicles can cost as much as $150/month in long term average maintenance.
• Avoid regular financial plan setting and goals progress
• If you have a home mortgage, be sure to refinance every couple of years to capitalize on low rates. Ideally you could own your house for 20 years and still have 20-25 years remaining on whatever debt is there at the time
• Avoid having financial coaches and truly objective advisors assisting you with your money plans

By following this plan, you’ll have every opportunity to engage in being the “Ultimate American Consumer” with all of the rank privilege that is conferred by that term. If, on the other hand, you want out of this, call Eric Johnson for guidance at 941.713.9307.

Over the years, the credit repair industry has come under a negative light. Many companies that promise to improve their clients’ credit have charged exorbitant fees and delivered few results. Internet-based repair companies usually charge clients $79.95 a month without ensuring a specific end date, and it is in their interest to extend the credit repair process. This ends up costing the consumer a lot of money and taking months and months to complete.

For example, if the credit repair company only sends out five letters a month, this process could take one to two years to increase the clients’ scores, resulting in nearly $2,000 in fees.

The other problem with the large Internet credit-repair companies is that The Fair Credit Reporting Act states that any third party sending out dispute letters on behalf of its client can be considered frivolous and therefore discarded by the credit bureaus. The Internet companies do not have their clients send the letters, and instead they send the letters for their clients. Due to the FCRA law, the credit companies can just ignore the letters.

The law further states that if a consumer disputes the accuracy of his credit report it must be investigated or deleted within 30 days. If the repair company is sending out letters on its client’s behalf, and the credit bureaus can ignore claims made by third parties, then the repair companies’ attempts most likely will not be successful. What good does that do the consumer?

That is why consumers need a company like Credit Justice Services (CJS). Employees at CJS help consumers fight negative information in a timely and direct manner.
The reason CJS has a high success rate is because it’s open and transparent about the credit repair process. It provides clients with a clear-cut timeline, which ensures the consumer isn’t wasting time or money.

CJS is also successful because it has a detailed and proven process for disputing the negative items. By having our clients review and sign each letter, we can make certain that the credit bureaus take disputes seriously. It our proven approach that has helped more than 18,000 people since 2004.

Douglas Muir, CEO

Consumers need to take personal action to protect themselves

The credit crunch is in full swing, and everyone is feeling the pressure. Workers and businesses are experiencing the impact because banks aren’t loaning money. Financial institutions aren’t even lending to each other, and you can feel the tension in the air.

The passage of the $700 billion bailout by Congress was supposed to ease fears on Wall Street, but we all watched the stock market tumble over the last week. Now, everyday Americans are wondering how this bailout will affect them, but only time will tell. In the meantime, consumers without great credit aren’t getting any loans.

The real question we should be asking ourselves is how this mess was started. We can all blame both the Republicans for deregulation and the Democrats for trying to give everyone a home. Since no one is solely to blame, we must look at the true cause – subprime mortgages.

From 2001 to 2006, subprime mortgages ran rampant through our country. Greedy banks and foolish borrowers started the economic roller coaster we are all on today. Instead of doing traditional underwriting, such as looking at job history and current debt, banks focused only on credit scores and used the lack of regulation in Washington to sign up uninformed consumers. These financial institutions gave away 105 percent mortgages to people who had no ability to repay the debt, and then sold these mortgages in bundles to Wall Street.

The construction industry fed on these easy mortgages, and the real estate market skyrocketed. Housing prices raced toward their peak. People were buying investment properties left and right because they were excited about the prospect of cashing out in the hot market. But that was the problem — many of these home loans were given to people with credit histories that wouldn’t have allowed them to get a loan 10 years ago.

Then the real estate market came to a halt, and it started to readjust. Here in Florida the real estate market has been hit hard during the past year. Sales have slowed and prices are falling. The lower prices have left many people owing their lenders more than their homes are worth, meaning the owners can’t refinance or sell their homes without paying the difference between their mortgage balances and what the homes are now worth.

Many of our clients are concerned about their own adjustable-rate mortgages and they are looking for answers. Unfortunately, we don’t know when or if we will feel any relief from the Washington bailout. Until then, I encourage you to instruct your clients to follow the basic tips below to help ease their own fears while also preparing for the worst.

1. Reduce unnecessary spending.
2. Have three to six months worth of income in a secure savings account.
3. Pay down credit card debt.
4. Make extra mortgage payments to pay down the principal.
5. Call lenders before a mortgage adjusts to see if they will help.

Douglas Muir, CEO