Dollar Stretcher Guest Bloggers

Consumers Paid $32 Billion in Overdraft Fees in 2012

2013-04-03T20:34:00Z

by Bill Hardekopf

Consumers are once again paying more in overdraft fees despite regulations designed to protect them from these charges.

Last year, consumers paid $32 billion in overdraft fees, a $400 million jump from 2011 according to a recent study by Moebs Services. This 1.3 percent increase came almost entirely from a greater number of overdrafts rather than an increase in the price of the fee.

Overdraft volume during the first quarter of 2012 actually fell to an eleven year low, but the number of overdraft transactions during the last nine months of the year rose 4.4 percent.

In July 2010, the Federal Reserve required banks to receive permission from each checking account customer before the bank provided overdraft protection for ATM and debit card transactions. If consumers did not "opt in" for this coverage, then debit card transactions made at store level or withdrawals from an ATM machine for an amount greater than the account's balance would be denied and no overdraft fee could be charged.

But banks have stepped up the marketing of such services and appear to be quite effective at convincing consumers they need this coverage.

According to the Moebs study, 38 million checking accounts (approximately 26 percent) are frequent overdraft users. Somewhat surprising is that 20 million consumers use payday lenders for their overdrafts while 18 million use banks or credit unions.

This seems to be due to the affordability of an overdraft with a payday lender. The median charge for a $100 advance is $16 with a payday lender, a decrease from $17.50 in 2011. The average overdraft fee for a bank is $30 and $27 for a credit union.

Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

Paying Taxes with a Credit Card

2013-03-21T19:26:00Z

by Bill Hardekopf

When it comes to paying income taxes, the Internal Revenue Service doesn't really care whether you pay by cash, check, debit or credit card. A significant number of people have opted to pay with a debit or credit card since electronic payments were first authorized by the 1997 Taxpayer Relief Act.

While convenient, paying your taxes by a credit card can have significant drawbacks. If you charge your taxes and don't pay off your card balance in full, you will be subjected to your card's high interest penalties each month you carry a balance.

In addition, card payments to the IRS are processed by third-party providers. There are five companies that are approved by the IRS. They each charge a processing fee, ranging from 1.88 percent to 2.35 percent. No part of the service fee goes to the IRS. While this fee may be deductible, it can still add a significant burden to your tax bill.

If you feel you must pay be credit card, here are a few additional tips:

Find out your credit limit before you charge your taxes. Debt utilization is a major factor in credit scores. If you use too much of your available credit, you can lower your credit score.
Make sure your payment is treated as a purchase, not a cash advance. The cash advance APR can be as high as 25 percent with some cards, and the cash advance fee varies from 3 to 5 percent, depending on the issuer.
Payments can not be cancelled.
You can also pay with a debit card and the fee is much less expensive. Every IRS-approved e-pay service provider charges under $4 to pay by debit card.

Consumers Now Managing Credit Card Accounts Remarkably Well

2013-03-15T12:57:00Z

by Bill Hardekopf

A record number of consumers are paying their credit card bills on time as well as paying a greater percentage of their monthly balance. These were some of the findings from the February data from Fitch Ratings.

The delinquency rate on retail credit card accounts declined in February to 1.61 percent, the lowest level since Fitch began its prime index in 1991. Delinquencies are defined as a credit card account over 60 days late. This February figure is 65 percent below the peak delinquency levels reached at the end of 2009.

Another all-time record was reached on the monthly payment rates (MPR) on credit cards. This figure represents the rate at which cardholders are paying back their balances. In February, this MPR climbed 1.09 percent to 24.83 percent, the highest level since Fitch began tracking this number.

Charge-offs reached a six-year low. A charge-off takes place when an issuer stops trying to collect on a delinquent account. Fitch's Prime Credit Card Chargeoff Index declined from 4.18 percent in January to 3.88 percent in February. In addition, this February charge-off rate is 26 percent lower than February 2012 levels.

Forgiven Credit Card Debt May Be Taxable

2013-03-04T16:40:00Z

by Bill Hardekopf

If you negotiated a debt settlement in 2012 on the balance of your credit card account, you may surprised to find that you owe taxes on the debt that has been forgiven. The IRS views forgiven debt of $600 or more as taxable income and expects you to pay taxes on that amount.

Hence, if your debt was $1,000 and the creditor accepted $400, the $600 amount that was forgiven is considered taxable income.

If you have debt that has been forgiven, you should have already received a 1099-C form from your lender that shows the amount of the settled debt. This form is typically mailed in January, so contact your lender if you have not received this form. When your creditor files a 1099-C form with the IRS, the government already knows the amount of your settlement. According to USA Today, the IRS was projected to receive 6.4 million debt forgiveness forms in 2012 and another 6.5 million forms in 2013.

Filing forgiven debt can get complicated because the forgiven amount may count as income on your tax return. It is a good idea to get help from a tax adviser when filing your taxes. To make filing easier, keep all paperwork and details of the conversations with the lender.

There are some exceptions to having to declare the forgiven debt as income:

Debts discharged in bankruptcy are not considered taxable income.
Mortgage debt forgiven due to foreclosure is not taxable. The 2007 Mortgage Forgiveness Debt Relief Act was set to expire after the 2012 tax year, but was extended through 2013 in the "fiscal cliff" negotiations that concluded in the first days of 2013.
Debts canceled when you were insolvent. If you are insolvent when the debt is canceled, some or all of the canceled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify. The exclusion only applies up to the amount that you are insolvent.
Non-recourse loans. A non-recourse loan is a loan for which the lender's only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
Amounts specifically excluded from income by law such as gifts or bequests count as exceptions to inclusion for gross income.
Cancellation of certain qualified student loans count as an exception.

If you received a 1099-C form and feel you qualify for one of these exceptions, it is your responsibility to explain to the IRS why you don't need to count this forgiven debt as income. You will have to file another form, Form 982, the Reduction of Tax Attributes Due to Discharge of Indebtedness, with your income tax form.

The IRS has a booklet that explains canceled debt. It includes examples and worksheets.

Some Unusual Benefits of Using a Credit Card

2013-02-27T15:25:00Z

by Bill Hardekopf

The credit card industry has faced a tremendous amount of criticism during the last four years. Politicians have imposed significant regulations and legislation on card issuers. Consumers continue to bash the high interest rates and fees associated with their cards.

But despite all the criticism, credit cards offer real benefits to consumers that are unmatched with other forms of payment. If you pay your credit card balance in full on time every month, your credit card may be the wisest way to make purchases. Here are some extra protections and benefits offered by credit cards:

Car Rental Loss/Damage Insurance

With a number of issuers, using your credit card can cover damage incurred when renting a car, so you may not have to pay for the extra insurance coverage that car rental companies try to sell. To be safe, be sure to check the description of this coverage in your Cardmember Agreement. You must be the primary renter and use your card for the rental. To be covered by the car rental loss/damage insurance, you must decline the collision damage waiver (CDW) or similar option when you are reserving and picking up your rental car. Coverage applies for the first 30 days, and is in excess to your other sources of insurance. You will be reimbursed only for losses and expenses not covered by plans. Coverage may not be available in some countries.

Typical exclusions include: items stolen from inside or outside the vehicle; person not designated in the rental agreement as an authorized driver; loss that occurs while driving under the influence of drugs or alcohol; racing or reckless driving; blowout or tire/rim damage that is not caused by theft or vandalism or is not a result of a vehicle collision causing tire or rim damage.

Price Protection

Price protection helps you get the best price you can find on the products you buy. Many issuers will refund the price difference if you find a lower price on the same item from the same manufacturer within a designated time period, typically 60 days. Many issuers will set a refund limit. The lower price must be in print, such as in-store flyer or an ad in a newspaper, magazine or catalog. Internet prices are usually excluded. You need to save both your receipt and also the original U.S. warranty that comes with your product. Standard exceptions include: internet purchases or advertisements; items subject to rebate or manufacturer's coupon or a refund; items sold at "going out of business sales or "close out" advertisements; and customized items.

Citigroup now offers Citi Price Rewind, a price protection service that helps consumers save money if the price of an item drops more than $25 during a 30-day period from the date of purchase. The entire amount must be made with your Citi card to qualify for a refund. Purchases made with a business credit card do not qualify. Chase will refund of the difference between the price you paid for an eligible item on the card and a subsequent lower advertised price for the same item within the first 90 days of purchase.

Purchase Protection

Purchase protection covers eligible purchases against accidental damage or theft for up to 90 days from the date of purchase. It can repair, replace or reimburse for up to the amount charged. For example, American Express coverage is limited to $1,000 per occurrence, and up to $50,000 per cardmember account per policy year. It is in excess of other sources of indemnity. Bank of America's Visa Signature card offers Purchase Security within the first 90 days of the date of purchase. Bank of America will replace, repair, or reimburse you for eligible items of personal property purchased entirely with your eligible Visa Signature card up to a maximum of $500 per claim and $50,000 per cardholder in the event of theft, damage due to fire, vandalism, accidentally discharged water, or certain weather conditions. If a retailer will not accept a return within the first 90 days of purchase, some cards, like Chase Sapphire, will reimburse you for the cost of the item purchased on your card.

Extended Warranty Protection

This protection extends the length of the free repair period under the original manufacturer's U.S. warranty up to one additional year. Capital One doubles the original warranty time period and duplicates the coverage of the original manufacturer's warranty up to a maximum of twelve months on most items you purchase. Citi duplicates the manufacturer or store warranty up to 12 months on most items you purchase and is limited to repair or replacement of the lesser of the amount charged to your card or $10,000. To receive Extended Warranty Protection, you must submit the store receipt, the credit card receipt, and a copy of the manufacturer's warranty.

Common Carrier Lost Luggage Coverage

If you purchase your common carrier tickets with your credit card, lost luggage coverage will cover you and your dependents for permanently lost, stolen, or damaged bags while checked with your carrier. Coverage applies after that carrier's liability coverage has been exhausted.

Coverage varies by issuer. Citi's coverage for checked bags is up to $3,000 per occurrence per covered person, up to $10,000 total. American Express' coverage is up to $1,250 for lost, stolen or damaged carry-on baggage, and up to $500 for checked baggage. This is in excess of the Common Carrier's liability and includes up to $250 of coverage for high-risk items, such as computers, jewelry and electronics.

Trip Cancellation and Trip Interruption Coverage

To get this coverage, you must purchase the trip entirely with your credit card. If certificates, vouchers, or frequent flier miles are used, any remaining charge for the trip must be paid entirely with the credit card. Coverage is typically limited to the lesser of $1,500 per calendar year or the original cost of the ticket.

If your trip is interrupted for a covered reason, you will be reimbursed for the travel on the carrier to return to your destination or to join your group at their current location. Exclusions include: pre-existing medical conditions; participating in bodily contact sports; non-emergency treatment or surgery; pregnancy and childbirth (except for complications). Coverage is limited to the amount not covered by another insurance or indemnity. Some cards offer this coverage for free while others may charge a premium.

Roadside Assistance

Some cards offer roadside assistance for lock-out, gas delivery, tire changes and jump-starts. The fees for the services are usually pre-negotiated and will be billed to your account. You will have to pay for all labor, fees, and parts. If you have a rental vehicle, call the car rental agency before you call your credit card company because many rental agencies have special procedures regarding emergency road service.

Medical Prescription Replacement Assistance

If medications are lost or forgotten, some card issuers will help you in obtaining new prescriptions. The costs are your responsibility.

Doctor Referral/ Emergency Medical Transportation Assistance

If you or another covered family member becomes injured or ill while traveling, some issuers can provide a global referral network of general physicians, dentists, hospitals, and pharmacies. They can also help arrange transportation to the nearest appropriate medical facility, and set-up and coordinate the transport. You are responsible for all costs associated with medical care and transport. In the case of a death, the Benefit Administrator can make arrangements for returning the remains of the deceased home.

Trip Delay

When a covered trip is delayed more than 12 hours due to a covered event, expenses incurred as a result of the delay, such as meals and lodging, are reimbursed. The Chase Sapphire Preferred card offers this coverage.

Baggage Delay

If your checked bags are delayed for a period of 18 hours or more by a common carrier, you will be reimbursed for the emergency purchase of covered essential items. The Chase Sapphire Preferred card offers this coverage.

Common Carrier Travel Insurance Coverage

Some cards, like the Citi/AAdvantage and Discover cards, offer up to $500,000 in flight accident insurance.

Hotel/Motel Burglary Insurance

This reimburses you for personal property stolen from your hotel or motel room. Your hotel/motel stay must be purchased entirely with an eligible card. MasterCard has this coverage.

Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

FTC Says 26 Percent of Credit Reports Have Errors

2013-02-19T21:59:00Z

by Bill Hardekopf

A report released by the Federal Trade Commission underscores the need for Americans to check their credit reports on a regular basis.

The FTC study found that 26 percent of consumers had a material error on at least one of their three credit reports. Of greater alarm was the fact that 5 percent of the consumers in the study had an error that, when corrected, placed them in a different credit risk tier and could result in paying a lower interest rate on their loans.

This was an eight-year study by the FTC which involved 1,001 consumers and reviewed 2,968 credit reports.

"These are eye-opening numbers for American consumers," said Howard Shelanski, director of the FTC's Bureau of Economics. "The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don't, they are potentially putting their pocketbooks at risk."

The report showed that consumers can get these errors reversed: four in five who filed disputes saw a change in their credit report.

Consumers can receive one free credit report from each of the three credit reporting agencies (Experian, TransUnion and Equifax) every year at AnnualCreditReport.com.

But a recent study by the Consumer Financial Protection Bureau found that only less than 20 percent of consumers check their credit report each year.

Data Shows Fewer Consumers with Subprime Credit Scores

2013-02-11T16:00:00Z

by Bill Hardekopf

According to some new research from Equifax, the total number of consumers with subprime credit scores is declining.

The latest data from the third quarter of 2012 shows there are about one million fewer consumers with a credit score below 620. This is a decrease of 2.1 percent versus year-ago figures.

Subprime consumers still make up more than one-quarter of the total scores in the Equifax database. However, the share of consumers with subprime scores dropped 0.7 percent from 25.9 percent to 25.2 percent.

The data also showed that 24 of the 25 top metropolitan areas had a drop in the number of customers with subprime scores. Houston is the only area where there was an increase in the number of consumers with a score below 620.

"The job market is improving and time is starting to heal the wounds of the Great Recession," said Trey Loughran, president of the Personal Solutions division at Equifax. "We are seeing a trend of consumers being careful and disciplined about their use of existing credit while also being cautious about using new accounts they have opened."

IRS Steps Up Efforts to Combat Tax-Related Identity Theft

2013-02-01T14:01:00Z

by Bill Hardekopf

Tax time is here: January 30 marks the first date that Americans can file their 2012 income taxes. This year, the IRS is tackling a problem that is growing rapidly, which is tax-related identity theft.

This type of ID theft occurs when thieves steal your social security number, file a false tax return, and collect your refund. Thieves usually submit these fraudulent returns early in the filing season, before the legitimate taxpayer files.

Tax-related identity theft incidents are exploding. According to the latest GAO Report, the IRS identified 47,730 incidents in 2008. That number grew five-fold in three years to 242,142 reports in 2011. Through just nine months of 2012, there were already 641,690 incidents.

This results in tremendous headaches for the people who have their identities stolen since it can take months to rectify the situation.

But it also causes incredible problems for the IRS. Last year, the IRS inspector general, J. Russell George, told CNBC that the IRS may issue up to $21 billion in fraudulent tax returns in the next five years.

In the past, the IRS has not had the manpower to keep up with this type of fraud. Thieves greatly outnumber IRS agents and are known to direct multiple fraudulent returns to one address, then change the address when agents catch on. One address in Lansing, Michigan received over 2,100 returns amounting to over $3.3 million in tax returns.

But the IRS is now stepping up their efforts to combat this tax-related identity theft.

The IRS has doubled the number of employees assigned to tax-related ID theft in the past year to over 3,000.
The agency has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.
The IRS has activated dozens of new identity theft filters.
A substantial increase in the number of identity theft investigations instituted by the IRS Criminal Investigations.
The IRS is working with over 130 financial institutions to identify identity theft fraud schemes and block refunds from reaching the hands of identity thieves.

The IRS also recommends that consumers take the following steps to protect themselves from identity theft:

Don't carry your Social Security card or any document(s) with your SSN on it.
Don't give a business your SSN just because they ask. Give it only when required.
Protect your financial information.
Check your credit report every 12 months.
Secure personal information in your home.
Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
Don't give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Credit Card Penalty Fees Fall for Third Straight Year

2013-01-29T18:07:00Z

by Bill Hardekopf

A new report shows consumers paid $17.8 billion in penalty fees on their credit cards last year, an 8 percent decline from the $19.4 billion in 2011.

According to the R.K. Hammer Card Penalty Fee Index, fees have fallen for three consecutive years, ever since the CARD Act was passed in May of 2009. That legislation put restrictions on the dollar amount of late fees and prohibited issuers from automatically charging an over-the-limit fee when a cardholder exceeded the credit limit; a fee can only be charged if a consumer "opts in" to allow these transactions to go through and pay the penalty.

Penalty fees reached $23.9 billion in 2009, but fell 6 percent in 2010 ($22.5 billion), 14 percent in 2011 ($19.4 billion) and now 8 percent in 2012.

While this is good news for consumers, issuers have found other ways to generate revenue that has been lost on penalty fees. According to the Hammer report, this includes fees for replacement cards, paper statements, inactive accounts, and customer service calls after the customer makes a certain number of such calls in one billing cycle.

Additional fees may be on the way in the future.

"We know of no card issuer not presently weighing its fee pricing options, or implementing higher/new fees, where permissible," said the company's chief executive, Bob Hammer, in a statement. "By how much and how soon, of course, varies widely by issuer and their respective strategy."

Older Americans Running Up Large Credit Card Debt

2013-01-21T17:02:00Z

by Bill Hardekopf

A troubling survey shows that older Americans are now carrying more credit card debt than younger people, mainly due to job loss and medical bills, not because of a lack of financial responsibility.

The study looked at 997 middle-income households that were carrying credit card debt for at least three months. Of the respondents, households age 50 and older had an average credit card balance of $8,278 compared to an average debt of $6,258 for households under age 50.

The Demos' 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households was done on behalf of AARP. The survey also found:

Half of the older households were carrying medical expenses, such as prescription drugs and dental expenses, on their credit card accounts.
34% of the older households were using their credit cards to pay for basic living expenses, such as groceries, utilities, and housing costs.
Job loss was a factor in running up credit card debt in nearly 25% of the older households.
But the older households have a much bigger heart than the younger households: 23% have taken on credit card debt to help other family members versus 11% of the younger households.

The study can be found at www.demos.org/publication/red-older-americans-and-credit-card-debt