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Tuesday, September 23, 2008
“Credit Card Bill of Rights” Passes One Hurdle
FOXBusiness
The House of Representatives passed a so-called Bill of Rights Tuesday for American credit card holders, which now sends the legislation on to the Senate.
This is seen as a move to protect “Main Street” families who are facing unfair practices in the credit card industry, according to a statement issued by Speaker of the House Nancy Pelosi (D-Calif.).
The bill will prevent credit card companies from increasing interest rates on customers’ existing credit card balances. Interest rate increases are allowed only after a cardholder is late beyond 30 days. Credit card companies must now notify customers of increases in interest rates 45 days beforehand, and companies can no longer perform “double cycle” billing, which would charge customers interest on a bill they have already paid.
The bill also states that credit card companies can no longer use “misleading” terms in their advertising campaigns and establishes set definitions of terms including “prime rate” and “fixed rate.”
Credit card companies will also be banned from issuing cards to children under the age of 18 who are not emancipated minors.
U.S. credit card debt is higher than ever, at almost $1 trillion, and the average credit card debt per household at $9,840 as of 2007. This is up approximately threefold from where it was in 1990.
In 2007 alone, credit card issuers earned $18.1 billion in penalty fees for overdue credit card payments and balances. This figure was up more than 50% since 2003. It is estimated that in 2008, credit card companies will earn over $19 billion in profit.
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If you¿re like the vast majority of the population, buying a home is the largest personal investment you will ever make. You're buying something that¿s many times your yearly salary with the intention of holding onto that home for many years.
The bank you're going to get the money from to buy that home knows that, too. And if you're going to get a mortgage on a home, the bank wants to know how you're going to pay for said house.
Usually, you give a lot of paperwork to the bank, so the bank can tell if you're able to afford the house or not. You give them bank statements, credit card statements, letters from your employer stating your salary, tax returns, etc.
But, what happens if you may not be the perfect candidate for the home of your dreams? Or, you're buying too much home (the bank thinks you can afford a $200,000 home, you want a $230,000 home). Or, you don't have the money for a down payment. Or, you haven't paid your bills on time in the past. Or, the documents of how you make your salary are not 100% available.
Enter the subprime mortgage. Subprime mortgages are loans given by banks to people who may fall under any one of those above conditions, or others. Why would anyone want a subprime mortgage? Well, homebuyers get subprime mortgages because they get to buy the home they want. Banks give subprime mortgages because they can charge people more money for that mortgage. Remember, the difference in interest rates on a $200,000 or $300,000 home can mean the difference between hundreds of dollars in interest payments.
Still there¿s risk for both the person getting the mortgage and the bank granting it. When the playbook works, the value of the house rises. So, even if Joe Q. Badcredit couldn't afford the house he bought in 2001, at last resort Joe or the bank could sell the home, make a bundle off its increased value, and the bank could get its money back.
The playbook goes out the window, though, when home prices don't increase. Then homeowners run the risk of defaulting and banks lose money. At its worst, homeowners can lose their houses.
If you¿re in the market for a home, and the banker says you qualify for a subprime mortgage, it probably means you need to provide more documentation of how you¿re going to pay for that house. Or, you may be buying too much home. Talk with your banker about why you qualify for a subprime mortgage, and try to fix it.
