You are Invited…

…to share your story, feedback, and/or review of your experience working with Consumer Recovery Network in the comment section of this post.

There are no rules for posting. You may want to follow an outline of what brought you to CRN, how we compared to other options or companies you looked into, what happened along the way, and what the ultimate result of working with us has been, to date. Or, just have fun and express yourself!

ALSO:

Not everyone we consult with qualifies for our more aggressive approach to dealing with debt. Many of you we consult with still appreciate the time we take to inform you of what debt settlement really involves after having contacted other service providers. Our consults are often a refreshing dose of blunt honesty for people just looking for information and answers they can trust. You are invited to share too!

Tell you what….if you having anything to share about CRN, the Debt Bytes Blog, or any facet of the work we do…. chime in! We look forward to hearing from you!

P.S. You can identify yourself using your initials or first name only, unless you are comfortable sharing your identity, like Jonathan Grossman, who blogs about his experience with CRN at Debtsettlementstory.com

Every day thousands of consumers — hard working businessmen and women, mothers, fathers, grandmothers, students — walk through airport security where their purses, bags and wallets are screened and cleared on their way to their new destinations. Yet, unbeknownst to their carriers and their fellow passengers, they are carrying highly explosive materials onto their planes — ticking time bombs in the form of little pieces of plastic, that could blow up at any moment and incite what could amount to personal financial terror.

I am, of course, talking about credit cards, because the banks that issue them have had the ability for years to explosively increase the interest rates on your outstanding balances for virtually any reason. Through the artifice of carefully thought out contract provisions and court precedents in selective states, banks have had free reign to set off their own version of a hidden bomb, which consumers have carried willingly after being aggressively solicited and enticed into playing the card issuers’ profit making game.

I’ve Been “Jacked”!

The explosions set off by card issuers when they cause your interest rates to go through the roof, and thus increase the minimum payments and the cost of the purchases you already made with the card and had budgeted for can set off other explosions in your vicinity — the rates on other cards in your purse or wallet may blow up too. While it can only take one rate increase to ruin an already weak budget, a series of such explosions often leads to the destruction of a consumer’s finances and bankruptcy.

Interest rate increases on credit cards have  been a huge source of profits for banks, but the current recession and the joblessness faced by millions of card holders has caused the detonation of their little bombs (which banks handed out like candy prior to the recession) to blow up in their faces.

The default rate on these credit card accounts are at historic highs. For more on this, please read this recent post on Mike Shedlock’s (Mish) blog: reflections-on-credit-card-fees-and-chargeoffs.

Now however, with the soon to be enacted CARD ACT, many of the banks’ trick and trap policies, which were designed to ensnare the public into becoming debt servicing slaves, are about to be curbed. However, banks will and have already begun to adjust to the coming new reality by finding new ways to profit from their plastic explosives.

One way they are doing that is by switching consumers’ interest rates from fixed to variable rates based on a formula that might charge say 12.9% above prime. Although this switch may not seem like a big deal right now with federal interest rates at historic lows, those rates will most certainly rise in the not too distant future, perhaps significantly, and when they do, the cost of using their credit cards will increase for consumers. In other words, those plastic explosives will detonate in consumers’ wallets yet again, sending potentially more shock waves through their finances. And unfortunately, I suspect that the timing of these future interest rate increases will come at a time when our economy is widely recognized to be solidly on the path to recovery.

For another example of how far those who issue standard grade plastic explosives in the name of profit will go to get around the CARD Act, please read nationally-syndicated personal finance columnist Kathy Kristof’s personal story in her recent blog post, Credit Reform and My New 703.8% Card.

Kristof wrote:
“Consumer reporters were all crowing about a 79.99% rate credit card that was launched in response to credit reform a few months ago–collectively horrified that a law designed to cut rates and eliminate sneaky fees was inspiring increasingly abusive bank behavior. I thought that was about as bad as it gets until I took a close look at the statement for my new Macy’s card, which I had opened with “instant credit” while Christmas shopping. It made that 79% card look like a bargain.”

Kristof went on to explain that based on her average daily balance of $3.41, her minimum charge worked out to “an actual annual percentage rate” of 703.80%!!!! Also, her blog linked to a good resource over at www.getrichslowly.org for additional information about the CARD ACT. Click: An Act To Inhibit The Placement Of Small Incendiary Devices Upon American Citizens to read more.

For additional information about the CARD ACT and to learn how you can win free help from Consumer Recovery Network, a fair and ethical debt settlement firm, by sending it your personal story of what happened to you when one of your banks triggered your plastic explosive and the rate on your credit card went sky high, visit CARD ACT-CRN Contest.

Credit Carnage

More than half of the debt-stressed consumers my company has consulted with over the past several years has indicated that “a plastic explosion” was a key factor in their being unable to keep up with their debts. Furthermore, if you’ve been hit by plastic shrapnel, I know that you will easily relate to the analogies I have used here. I know they are appropriate because I work with the carnage of these explosions every day.

Looked at in this perspective, card issuers and their fee traps have already blown up the finances of millions of consumers. How many more explosions will we see between now and February 22nd when rate jacking, as we have known it, will end? While I see the variable interest rate ticking time bomb referenced earlier in this blog as having the greatest potential to spark renewed controversy over credit cards, many card issuers have already mentioned they will revert back to the annual  fees they charged years ago and that they will also be limiting the rewards programs that they used to compete for market share and consumer loyalty.

{So, what’s in your wallet?}

By the way, a great place to compare credit card interest rates and reward programs and to read consumer feedback about specific cards is “Credit Card Ratings”. Now, more than ever, in this rapidly changing credit card marketplace, it is important that you use respected, reliable resources to research and understand the credit products you are using or considering using.

Click here to read how wrong ( http://moneywatch.bnet.com/retirement-planning/blog/what-works/too-much-credit-card-debt-dont-blame-your-bank/101/ )

With quotes like the following, you should really click the linked blog above for the full read:

“Of course, the U.S. congress passed the CARD Act as a measure to “protect” consumers from the fee-generating schemes employed by greedy credit card issuers aimed at targeting defenseless consumers. PAHLEESE! I’m not buying it.”

“The real losers here are the millions of folks who use credit cards…”

“If you think banks credit-card fees are the source of your financial troubles, then you have the mind set of a money LOSER.”

While Mr. Martin ends his brief article with sound advice, everything but that last paragraph leads me to question the depth of thought he lent to the topic prior to his missive.

• Mr. Martin, are you aware of the pernicious practice of rate jacking a consumer on purchases already made and budgeted for, thereby increasing the costs of that purchase (often dramatically)?
• Are you aware of the now widely documented and recognized arbitration scam used by major card issuers and foisted on the American public?
• How about that card issuers securitized and sold to investors credit card receipt portfolios and that this practice, as quoted by the FDIC, accounted for half of their funding source, a practice which enabled  unhealthy expansion in credit (remind you of sub-prime mortgage backed securities anyone)?
• Have you seen any of the investigative reports on credit card practices done by Frontline which establish these practices as having been developed to profit off the backs of low income and middle class Americans?

I can only hope some of what he wrote was tongue in cheek, but it does not appear so.

While I would tend to agree with the underlying message of your words suggesting consumers become more constrained and informed in how they approach spending and budgeting, and agree that this premise should extend to governments and politicians, please do not suggest that banks are innocent in their enabling the credit fueled boom/bust we are experiencing.

Did consumers create the sophisticated loan programs that are not done blowing up in our nations face? No. How could they? They are money LOSERS in your words.

Were banks bailed out having the costs pushed onto the American taxpayer (that would be you and your CFP clients)?

Are banks done failing and being taken over by the FDIC as a result of their risk taking?

Mr. Martin, how many people do you speak to every day that lost a portion of their income in the current recession and who made every effort to communicate with their creditors openly about the need for a payment restructuring whose plight falls on deaf ears, only to then have their rates jacked from 8.9% to 29.9?

Mr. Martin, are you heavily invested in bank stocks? Did you personally, or in your capacity as a financial planner encourage others to; invest in pools of securitized debt obligations?

SAGBXEF2GMZA

It’s our way of celebrating the fact that in February of this year, the Credit Card Accountability Responsibility and Disclosure (CARD) Act will prohibit credit card companies from rate jacking consumers. This means that their pernicious practice of increasing interest rates on consumers’ existing account balances, for virtually any reason, will end. But before going into the contest details, I want to quickly outline why CRN believes that the end to rate jacking merits a contest.

There are many reasons why so many consumers struggle with crushing debt;  cut in work hours, job loss, medical issues, and other difficult events are just some of the more common. But rate jacking (also known as universal default) is another reason, and when consumers are rate jacked, they become the victims of greedy creditors searching for higher profits under the guise of risk management.

One of the effects of rate jacking is that it increases the cost of purchases consumers have already made and budgeted for. It also increases their monthly minimum payments, making it almost impossible, for many consumers to keep current. Some of these consumers end up having to pursue credit counseling, debt settlement, or bankruptcy to deal with their debts. Case in point, over the last several years, more than half of all the consumers CRN consulted with had had their interest rates increased.

Adding insult to injury, when a consumer is rate-jacked by one creditor, the consumer’s other creditors usually follow suit. Often, when this occurs, consumers who would have been able to get out of debt by applying a simple debt rollup strategy, lose that option.

During the months leading up to implementation of the CARD Act, the media has spilled a lot of  ink on this topic. I have also written about and spoken against rate-jacking more times than I can count. So, the end of rate jacking is a GREAT REASON TO CELEBRATE!

Contest Details:

Submit your personal rate jacking story to CRN no later than 1/31/10. You can submit it via the comment section of this blog post (see below), by email (michael@consumerrecoverynetwork.com) or send it by regular mail:

CRN
217 Cedar St. #281
Sandpoint ID 83864

There is no limit on the length of your story. The only criteria are:

1. You must describe having been “jacked” by one or more of your creditors and the effects that it had on you.
2. Your entry should indicate if you have resolved the problems that resulted from the rate jacking. If you have , please explain.
3. You must include your name (first name is sufficient), a valid email address and your daytime phone number (when submitting your story via the comment section of this blog, this information will not be made public). You may be contacted by me or another CRN debt specialist for additional details about your experience.

The winner will receive a FULL CRN Membership at absolutely NO COST! This includes the CRN “Settle Down” educational series, full service debt negotiation services, and unlimited one-on-one assistance and support from an assigned CRN specialist for a period of 2 years. Depending on the winner’s financial circumstances, and the results of program implementation, the prize value may be worth thousands of dollars. (prize is transferrable; see below)

CRN staff will read all entries and choose 6 semi-finalists. Then, a panel of CRN specialists, personal finance writers and well-known consumer advocates will choose a winner from those 6. The contest winner will be notified by phone and email, and will have 90 days to claim their prize. Their story will be published here on 2/15/2010.

What a unique opportunity to tell your story & win a great prize that can help turn your finances around!

Michael Bovee, CRN President

NOTE: CRN reserves the right to publish any contest submissions, but will never publish your name. CRN understands that some consumers who enter CRN’s contest may have already resolved the financial problems that were the consequence of their having been rate jacked. For example, they may have been forced to file bankruptcy. Therefore, if one of these consumers is chosen as the winner of CRN’s contest, that individual can transfer their prize to a friend, family member or co-worker who can benefit from a CRN membership. Who doesn’t know someone who could use help getting out of debt? Especially in this economy!

Currently the cost of money for the banks is next to nothing, but they loan it out charging consumers as much as 30%. That is quite a spread!

The argument I hear for high interest rates is often one of risk. The banks use available data from resources like your credit report which may (or may not) suggest that your behavior reflects a higher risk of default. This risk data is then used, by applying some twisted logic, as justification for increasing your interest rates. Let’s see… some arbitrary or even actual data shows an account holder is at higher risk for not being able to make one of their payments and so the bank’s solution is to increase your rates making your payment higher than those at a lower risk. Gee, that’ll assure timely payment! How’s that working for ya Mr. Banker?

Judging from the increase in bankruptcies, delinquencies and charge offs… Not so much!

Obviously, the current job market is adding to the payment pressure consumers are under, but even those who are employed are often just one interest rate increase away from the edge of a financial cliff. I speak to them daily.

This Bloomberg article from yesterday: A CLUE, shows that some in a position to affect change, via the proposed legislation, actually get it.  It doesn’t take a crystal ball to see that a cap on interest rates will provide for a future where consumers can actually afford to borrow, spend, and successfully pay back their debt, thereby assisting in an economic recovery. There are lawmakers who possess, or are willing to borrow from their constituents, the backbone needed to support a return to sound lending principles.

Yes, I understand that we are approaching an election cycle and perhaps there is a desire by politicians to look good at home, but this legislation has never been more relevant than it is today.

Let’s hope it gets the traction it needs this time!

The FTC announced this week that it had filed lawsuits against three companies: Economic Relief Technologies LLC, Dynamic Financial Group (U.S.A.) Inc., and JPM Accelerated Services, http://www.ftc.gov/opa/2009/12/robocall.shtm. The lawsuits, which were filed in Florida, Georgia and Ilinois, allege that the companies have been marketing worthless credit card interest rate reduction programs to consumers via automated phone calls, also known as ‘robo” calls. According to the FTC, not only have the companies failed to deliver on their promises, but their calls have violated the federal Telemarketing the Do Not Call Rules.

Telemarketers working for the three companies told consumers who were interested in the program that the program would allow them to save thousands of dollars in interest within a short period of time and would make it possible for them to pay off their debts faster. Consumers were also told that to achieve these benefits they would have to pay as much as $1,495 up-front, but were promised that if they did not save a “guaranteed” amount — usually $2,500 — they could get their up-front payment back. Few consumers ever received a refund however.

Consumers who want to learn more about their rights and responsibilities regarding pre-recorded telemarketing calls, should read the following two FTC alerts: New Rules for Robocalls and Reining in Robocalls, which can be found at http://ftc.gov/bcp/edu/pubs/consumer/alerts/alt162.shtm and http://ftc.gov/bcp/edu/pubs/business/alerts/alt161.shtm.

Consumers should know that they have just as much likelihood (if not more) of successfully reducing their interest rates with their creditors on their own rather than by paying someone to attempt to do it for them. If you try it on your own and you hit a brick wall, do not get discouraged. Try again a week or so later and you may have success.

One little tip for those consumers whose high interest rate credit cards may force them to make a payment late: Missing a payment by as a little as a week or two will often give your account a different status that will qualify you for interest rate and minimum payment reductions that were curiously unavailable to you prior to your late payment. However, I must stress that this strategy for getting such reductions is only appropriate for someone who was already unlikely to be able to meet the minimum payment requirement.

President Obama has signed the Credit Cardholder’s Bill of Rights, a set of rules that will change the credit card industry.

We don’t want to be cynical, but when we read news story after news story that “this sweeping legislation would reform and revolutionize the credit card industry” … we were not exactly, well, believers. After all, the credit industry has been rigged against consumers for a long time with thousands facing card cancellations, jacked up interest rates and hikes in fees as we speak.

So we dug into the law to find out if this is actually good news for us consumers or another toothless attempt from Washington that will fall flat.

Here are the major components of the new law, starting with the three provisions that have already gone into effect.

1. Banks must mail your bill at least 21 days before the due date.
2. Banks must provide at least 45 days notice before implementing any significant increase in fees or interest rates.
3. Banks are prohibited from increasing fees and/or interest rates without informing you, the cardholder, that he/she has exceeded their credit limit or has missed a payment.

Be sure that you check your statement’s due date to ensure that you are getting the required additional time to pay your bill.

Now let’s look at the rest of the provisions, which don’t kick in until February 2010.

Existing Balances

Issuers cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent. If a customer is delinquent and the rate is raised, the rate must be lowered again if the cardholder pays the minimum balance on time for six months.

In response to this provision, we expect credit card issuers to increase rates for customers who carry balances right away, so pay the balances off ASAP if you can. Otherwise, be sure to make payments on time.

Teaser Rates

Issuers cannot raise interest rates for the first year after an account is opened and promotional rates must last at least six months.

Some limits on teaser rates are great, but the onus is still on you to be aware of when your low rate expires!

Payments

A consumer payment above the minimum applies first to the balance with the highest interest rate.

This is a no-brainer that should have been this way all along. This change alone will save consumers big bucks in interest!

Over credit limit fees:

Issuers cannot charge “over-limit” fees on credit cards unless the consumer has signed up to allow such transactions.

Save your money. If possible, use only 20% or less of your total available credit limit across all of your credit cards combined. Your credit rating will thank you.

Minors

For consumers under 21 years old, a credit card issuer must get the signature of a parent or another party to take responsibility for the debt, or it must obtain proof that the under-21 consumer can repay credit.

We hope this new rule will go a long way toward stemming the growing tide of college students who are in debt over the head. We recommend you help your college student get an “emergency only” credit card with a set credit limit.

Fees

Issuers cannot charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service.

Disclosure:

Cardholders must get 45 days notice of change in terms.

It’s always been critical to read both the small print in your current agreement (or new ones sent along) and all inserts in your credit card bills. With this new rule, you won’t have the credit card company to blame if you miss an important change to your card rules.

Gift Cards

All gift cards must have at least a five-year life.

The new law also tackles some sneaky gift card tricks. It eliminates the practice of declining values on gift cards and hidden fees that punish cardholders for not cashing cards within a certain amount of time.

The gift card industry racks up billions of dollars for retailers and issuers every year. And millions of dollars worth of gift cards go unused each year.

Who doesn’t have a gift card stuck away somewhere that they haven’t yet used? Use it!

Not-So-Rewarding Programs

As you can imagine, the credit card industry is NOT happy about these changes.

They claim these rules will make it harder for consumers to get credit, that cardholders who pay their balance in full will see higher fees, and that rewards programs may be canceled.

We’ll see on the first two items.

We do believe we’ll see changes to many of the “rewards” programs currently offered as companies tighten their belts.

Take a hard look at any rewards program in which you participate to calculate if it makes sense to cash in the points now in case the purchasing power declines or the program is canceled or changed.

Score One for the Little Guy

Bottom line: This new regulation is a step in the right direction and will end many abusive practices.

Be a vigilant consumer … you are the ultimate police dog to ensure that your credit card issuer is complying in every way with the new legislation.

Here’s more help taming the debt beast and living credit smart:

• 7 Simple Steps to a Higher Credit Score
• 10 Steps to Debt Free Living
• Important Changes to Your FICO Score

Ken and Daria Dolan have spent 20+ years helping people like you live debt free and credit smart.   Read their newest report, “8 Secrets Your Credit Card Company Won’t Tell You,” FREE!

Banks in the process of lending, know that a percentage of accounts will not perform, meaning some accounts will default and go unpaid. There is a multi-billion dollar industry built around the known fact that not everyone will be able to repay their debt. This collection process is centered on a lenders effort to “lose the least”. The tools and mechanisms in place for this “lose the least” effort are by and large, predictable.

Once an account becomes seriously delinquent, the odds of ever being paid another penny on it decrease dramatically. Creditors have the option of accepting less than the balance in satisfaction of the entire debt, or drop the account into the collection pipeline and see what they get on the other end. This pipeline consists of 3 options, assign, sue or sell, or what I jokingly refer to as A-S-S.

I could write several chapters on each of these collection pipelines, but the purpose of this post is to focus on the math your creditor has to work with when you are unable to pay them.

Assigning your debt:

Assignment collectors are companies who, on behalf of the creditor, are attempting to collect on unpaid balances. Generally, whatever they collect, they are paid a percentage. Credit card issuers will grade the performance of those they assign debt to and will continually award collection files to the best performers, the companies who get them the most money. Assignment of debt also has different tiers. You may be contacted by one debt collection company for a few months, then a different one after 90 days, and even another one 90 days after that. The collector’s job is to get as much as they can for their client, the bank, and to secure the best return for themselves on their performance based fee. Assuming the collector is able to collect 50%, the creditor may see a return of as much as 35% of the assigned balance. This number is a moving target, and will likely be different per account, per portfolio, per tier, per creditor.

Being sued to collect your debt:

Creditors select accounts for immediate referral to law firms in order to collect. Some law firm’s collection attempts will be very similar to an assignment collector where the firm is paid a performance fee just like assignment collectors. Others may start off with that appearance, but will then begin legal process in order to collect. Attorneys who sue in order to collect will generally add legal fees to the final judgment amount. Most law suits for unpaid credit card debt go uncontested and default judgment is entered against the debtor. The judgment itself is a piece of paper, but with legal enforcement implications that allow for collection of the debt via lien, levy and garnishment. Being sued in order to collect has its own costs that will vary, with no guarantee the judgment can be collected on. For your creditor, this means higher cost’s with an unknown return (rest assured the return as an aggregate justifies the expense enough to keep this part of the pipeline in tact-otherwise it would no longer be supported).

Selling your debt:

There are different tiers of debt sales. Your account can be sold several times and will have a different value at each sale. I want to focus on the sale done by the original creditor, who you opened your account with. Five or so years ago, while attending a collection industry seminar, I sat down briefly with a VP of risk management for the now defunct WAMU, who told me at that time, WAMU was catching bids of 15 cents on the dollar for freshly charged off debt (that number was consistent with the daily updates I was seeing from industry newsletters I receive). Charge off generally means the creditor is no longer expecting to be paid and is recording the debt amount as a loss. That was then and this is now. In the current economy, portfolios of charge off debt are being bid at 8-9 cents.

When your debt is purchased, the buyer will then subject the accounts it purchased to the A-S-S principle described above. The buyer has risked their capital with an expectation that they will be profitable by making an ASS of themselves. Sorry, couldn’t help myself.

Historically, the percentage of non-performing credit card assets has been low, less than 5%. In today’s economy, that number has skyrocketed to all time highs. Default on mortgage debt, commercial debt, revolving unsecured consumer debt (credit cards) are all approaching, or have surpassed any prior precedent.

Focusing on unsecured credit card debt; how has all this affected settlement? Well, look at the math. Your creditor will often “lose the least” be reaching agreements with those in serious delinquency before they drop it into the collection pipeline. This is why settlement works, whether 10 years ago or today.

With these increased portfolio losses at all time highs, banks would prefer to work with the consumer in order to lose the least. Consumers, whose financial situation suggests settlement is a good option to pursue, will find by working directly with their creditors they will often be in the position to save the most.

There are a few of the larger card issuers with whom the best savings will not be achieved until the account is placed with outside collection, but for the most part, reaching an agreement with the original creditor is in the best interest of the bank and the consumer. It is why our focus at CRN is to design an individualized plan that will get our members out of debt in the quickest way possible. Yes, our approach is one of the most aggressive in our industry. We are the crash diet of debt reduction.

To learn more about how you can drastically reduce your debt weight; visit Consumer Recovery Network.

By: Michael Bovee

CRN President