Archive for July, 2009

NEW CREDIT CARD HOLDERS PROTECTION BILL – Changes and Challenges

President signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 into law on May 22, 2009. Amending the Truth in Lending Act, the Credit Card Act of 2009 requires certain measures to be implemented by the credit card companies in order to comply the new law and help consumers, taking efffect on July 2010. Let me share the changes and challenges of this new law from my research.

Changes
Some changes to look out from the credit card companies:


– Require CC companies and banks to give customers a reasonable time, such as 21 days, to pay the bill before it is considered late.

– Bans double-cycle billing, which eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance.


credit card bill– Prohibits retroactive rate increases unless the cardholder is at least 60 days behind in paying the bill. If a person does fall behind and the rate on past buys is increased, lenders must restore the lower rate after six months if the cardholder has paid monthly bills on time.


– Requires lenders to post their credit card agreements on the Internet.


– Requires that customers receive 45 days notice prior to any change in the annual percentage rate (APR).  The notification must also inform cardholders that they have the right to cancel the account before the effective date of the rate increase. If a cardholder cancels the account, the cancellation cannot be considered a default on the account, and cannot trigger an obligation to repay the account in full.

– Prohibited from increasing annual percentage rates (APRs) that apply to existing balances unless specific conditions apply. An APR may be increased only if
1) the index on which the rate is based changes,
2) it is a promotional rate that has expired,
3) a cardholder fails to comply with a hardship workout plan,
4) the account falls 60 days past due.

– Requires anyone under 21 to prove that they can repay the money before being given a card, or have a parent or guardian promise to pay off their debt if they default. (Big blow for college students)


– Prohibits over-the-limit fees unless a cardholder elects to be allowed to go over a limit.


– Requires lenders to say how much time it would take and how much money in interest would be paid if only the minimum monthly payments are made.


– Requires that gift cards remain valid for five years. Under the Senate’s rule, retailers and others that issue Visa, MasterCard, American Express or Discover gift cards or certificates will have to print explicit dormancy fee information on the card. Sellers of the cards will also have to inform the buyer of the fee.


– Bans “pay-to-pay” fees, which are charged when someone pays the bill by phone or on the Internet.


– CC companies need your permission before allowing you the “privilege” of spending more than your credit limit and paying a fat $39 fee for that privilege.

Other features of the Credit CARD Act of 2009 include:

If different APRs apply to separate portions of an outstanding balance, the amount of any payment beyond the minimum payment due must be applied to the portion of the balance with the highest APR.

If the payment due date is a date when a creditor does not receive or accept payments by mail (e.g., weekends and holidays), the creditor cannot treat a payment received on the next business date as a late payment.

Credit card companies are prohibited from charging a fee based on the manner in which a payment is made (e.g., on line, by telephone).

Some of these reforms are already on track to take effect in July 2010, under new rules by the Federal Reserve.

Challenges

The new law will be a savior for many credit card holders who are facing credit card debts with high fees  during this tough times. But for people who pay off their bills in full each month, and milk card rewards programs for everything they’re worth, there is some cause for concern. After Home affordability and stability plan, this new law is passed to help distressed credit card holders affects consumers who act and does thing right. They might be less in percentage compared to the other group but still a reasonable crowd not really happy about this change for certain reasons.

1. These restrictions will cost more expenses for the credit card companies. To compensate, there are chances of them assessing annnual fees and increase or add other fees.

2. Good credit customers are offered happy rate of 0% APR which already vanished the scene and will never been for a long time to come.

3. With added restrictions, it is going to be hard to get credit cards, which might  make more people strapped for money in this tough times.

4. Stripping reward programs – For months now, the card companies have been threatening to cut rewards programs sharply to make up for revenue lost because of the new restrictions. So will credit card companies kill reward programs or drastically scale most of them back? Of course not.


“If you strip away the reward component of a credit card, it’s essentially a commodity,” said Rick Ferguson, editorial director at the loyalty marketing company LoyaltyOne. “The reward is what gives it its personality. It works from a branding perspective as well as a mechanism to influence customer behavior and consolidate spending on a particular card.”

In all, I would say, this new credit card protection bill has lot of good measures packed to help all credit card holders whether they going thru tough times or not. It is very good step forward and should be welcomed but we will have to wait and see how it plays out in the field.

Image source: abcnews.com

ING DIRECT Homeownership Survey

I was contacted by ING DIRECT Corporate relation office and requested to share this informative public survey results. It is an eye opener bringing facts about Home ownership from real people.

Americans blamed low, no money down mortgages for economic downfall.

Wilmington, DE – Despite the mortgage crisis, two-thirds (67 percent) of Americans agree that homeownership is still an “aspirational” symbol of the American Dream, according to a recent ING DIRECT survey. But as lower housing prices are prompting Americans to revisit the housing market, the new survey also shows a lesson learned from the mortgage meltdown: save for a down payment.


More than four in 10 (42 percent) Americans think homes purchased with a bigger down payment in recent years could have reduced the number of foreclosures and prevented some of the current economic downturn, according to the survey.  With a larger down payment, Americans can move into their new homes with a lower interest rate, reduced debt and owe less interest over time.  In recent years, too many no-money-down mortgages were offered to homebuyers who could not afford to keep paying their mortgages after their homes lost significant value and the economy slowed.


“Owning a home is an opportunity, not an entitlement,” said Arkadi Kuhlmann, President of ING DIRECT USA.  “Sadly, that message has been lost in translation over the past several years.  Don’t trade your future for the instant gratification of owning a home you can’t afford in the long run.  It you want to own a home, save for it, and our survey shows that Americans agree. ” 


With low mortgage rates, more than 40 percent of American homeowners with a mortgage may refinance this year, according to the survey. Homeowners surveyed also indicated that they are seeking new options from the 30-year mortgage product.  Nearly four in 10 (37 percent) Americans said they are likely to consider a mortgage that allows borrowers to make bi-weekly mortgage payments at no charge.  Making payments every two weeks instead of once a month allows homeowners to pay off their mortgage faster.  


“For a saver, there is nothing more rewarding than finally becoming mortgage-free,” said Kuhlmann.  “Americans want home loans that eliminate years of payments and give them the freedom to own their homes sooner.”  
 
The national online survey was conducted within the United States by Harris Interactive on behalf of ING DIRECT between May 20-22, 2009 among 2,122 adults age 18+, 1,514 of whom were homeowners. No estimates of theoretical sampling error can be calculated; a full methodology is available.


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COBRA Subsidy – Is it helping?

It has been 4 months since Mr. Obama signed the Stimulus bill and made American Recovery and Reinvestment Act of 2009 in Feb 17, 2009. It encapsulates number of tax incentives, extension of unemployment benefits and more bail out options. Many of those incentives and benefits are still not properly adapted and implemented by the concerned parties due to the lack clarity in the process. I talked about the incentives in my previous blog post. In this blog post, I am interested just about the unemployment benefit extension, COBRA Subsidy program which I hear many unemployed people are having tough time getting credit. 

Like Home Mortgage Modification plan when many lenders were hesitant to signup because of the complex process which is creating borrower anxiety. COBRA subsidy also fall under same category where streamlined process is not in place and employers were still looking for more instructions the government to implement.

When  announced, it was meant to help unemployed workers by reducing their burden of paying health insurance upto 65%. Is it really helping? That’s a question to be answered by Obama office and we won’t go there. I did some research and collected details on COBRA subsidy to post this blog with facts and figures.

What is COBRA?

If you are laid off, you should be aware of COBRA. Employers are required to offer COBRA by federal law to let the employee keep their health insurance plan when they lay off. If you aren’t aware and don’t remember employer offering this option, please contact your employer immediately. The coverage typically is available for 18 months but employee will end up paying the full insurance premium(with no employer discount) plus 2% admin fee.

It is an expensive coverage but helps in great extent for individuals who may not be able to obtain new coverage due to preexisting conditions. If you paid for $300 as a health premium for your family, you will end up paying $1000 + 2% fee apx when accept the COBRA coverage after you are laid off.

COBRA Subsidy

Under the new ARRA 2009 act, the subsidy will cover 65 percent of premiums for nine months. There are some caveats as usual. The subsidy will apply to premiums paid for periods of COBRA coverage beginning on or after February 17, 2009. It doesn’t do any good for self employed who has their own individual health insurance plans.


For more details, check it out at irs.org

Does it really helps?


Many people are just getting by an average unemployment weekly benefit of merely $300- $350. With COBRA, people need to pay 100% of premium + 2% fee, cost comes around $900-$1200 per month for a reasonable plan. U
nder the new bill considering the subsidy, they’re still looking at spending close to $400 – $500 a month out of their pocket. It helps but not to a great extent. People are going to have to think long and hard about whether they can afford to extend their coverage under COBRA.

Loop Holes and Hassles

After reading comments from people on different sites, I summarized this section to bring to attention about some holes and hassles which is creating lot of frustration.

1. You might end up paying 35% of the premium from the day when you are laid off or lost your medical coverage not when you sign up for COBRA. If you lost the job in March and signed up COBRA in Jun 2009 because of process delay or any reasons. You still end up paying premium from the day you lost your medical coverage.

2. It can take months until you get information about COBRA subsidy from your employer. Be prepared to shell out 100% premium for those months which can be refunded or credit back as soon subsidy kicks in.

Help Available

I also found these information for people who are waiting for COBRA to kick in. If you don’t have COBRA yet, during emergency, a county hospital will take you in. You will get a bill, but once the subsidy comes in, you can submit the claim to your COBRA carrier to get it refunded. 

For prescription, You can try PPA – Partnership for Prescription Assistance. Go to their website, see if your Rx is on their formulary, if they are, download and fill out the form, have your Doctor complete the rest and mail it in to the address on the form. You should get an answer within 30-days for free or low-cost Rx drugs until you get your insurance.

Check out the lastest update about the COBRA subsidy posted on  U.S. Department of Labor website
. For more questions, you can also call their hotline at 866.444.3272(no charge).


Families USA, a non-profit healthcare advocacy group, has posted a page with detailed information about the subsidy.

More Resources

8 questions about COBRA Subsidy
www.retirementrevised.com

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