What a shame. For people who handle credit responsibly, new credit card regulations that went into effect Feb. 22 actually hurt more than help.
I’ll tell you why, and what we can do.
The new rules, part of the Credit Card Accountability, Responsibility and Disclosure Act passed by Congress last May, are intended to protect cardholders and end abusive industry practices.
For example, card payments must now be applied first to the highest-interest rate balance. "Double-cycle" billing, which results in higher interest charges, is no longer permitted.
Interest rate increases on existing balances are for the most part prohibited, as are rate increases on new purchases the first year on a new card. After the first year, card issuers must give 45-day notice before raising rates on new charges.
That’s all terrific, but it does nothing for financially prudent people who pay their balances in full each month. Instead, the law is prompting card issuers — who need to make a profit to be able to grant us credit — to raise other fees for everyone to make up for an estimated $12 billion in lost revenue.
In essence, "those who manage their credit well will end up paying for those who don’t," said Nessa Feddis, an American Bankers Association vice president.
To be fair, some new rules benefit everyone, including prohibiting fees for the way bills are paid (such as by telephone) and eliminating confusing cut-off times for receipt of payments. (For a rundown of the rules, check out the Federal Reserve’s website at www.federalreserve.gov/creditcard)
Still, by making it more difficult for card issuers to charge more to those who pose a higher risk of default — and defaults are running about 10 percent — the new rules lead to an inevitable result.
"Everybody is going to feel the higher cost," said Kenneth Clayton, a senior vice president for the bankers group. Examples include more annual or inactivity fees, fewer or reduced rewards programs and, for those who carry a balance, higher interest rates.
"We seem to be going from a marketplace in which a relatively few cardholders got into deep trouble to one in which the misery is more evenly spread," said Adam Jusko, founder of IndexCreditCards.com, a card information and comparison site.
Even those with outstanding credit are being affected. "I am livid," said a reader whose Citi card will start charging a $60 annual fee (more on that later). "I canceled it immediately," he said. "Here I am with an 800-plus credit score and this is how they treat me?"
That’s the way indeed. "The new law does not address or cap non-penalty fees like annual fees or inactivity fees, which may become more common for those who do not carry a balance," said Ben Woolsey, director of consumer research at CreditCards.com, another consumer-oriented website.
"Fees, fees and more fees" are an unintended consequence of the new rules, said Bill Hardekopf, CEO of LowCards.com, another card-comparison site. Bank of America, for example, added an annual fee of $29 to $99 on some accounts, and Fifth Third Bancorp imposed a $19 inactivity fee if a card is not used in a 12-month period. Citi will begin charging the $60 fee to some customers in April but will waive it if they charge at least $2,400 a year.
What to do? Comparison-shop for the best deals — there are still many — using the sites mentioned above. As Clayton of the ABA said, "no customer is a prisoner to their card," and a customer can switch to a better one.
fast cash loan is fast becoming a viable financial option for consumers who need a few extra dollars.
Seven years and two jail convictions later, the Pentagon on Wednesday unveiled its latest attempt to get a $35 billion contract for refueling planes off the ground.
But within moments, the proposal was at risk of a crash and burn after a major contractor considered withholding its bid because it believed the terms unfairly favored its competitor.
And with thousands of jobs at stake for Alabama, the state’s two senators weighed in as well, saying the latest proposal appeared to do little to satisfy Northrop Grumman Corp.’s concerns that the terms were skewed against its larger, more expensive plane.
On Wednesday, the Pentagon publicly released its final bid request for the job flexcheck cash advance. The bid involves building 179 tankers, but the job could be expanded. A final contract is to be awarded in September.
Northrop said in a statement that it would review the complex proposal before commenting. A Northrop pullout would leave Boeing Co. as the lone bidder on one of the most protracted and expensive contracts in Pentagon history.
The Pentagon’s senior leaders on Wednesday defended the proposal.
"We believe that both offers are in a position to win," Air Force Secretary Michael Donley said.
Treasurys mostly rose Wednesday after the Federal Reserve announced plans to hold interest rates steady and the market absorbed an auction of $40 billion in U.S. debt.
The Fed said in a policy statement that it sees signs that economic activity has "picked up" but warned that high unemployment could dampen the recovery.
The central bank said it would "gradually slow" its purchases of $1.25 trillion in mortgage-backed securities and $200 billion worth of federal agency debt by extending the program by three months.
The program, which was originally expected to finish at the end of the year, will be completed in the first quarter of 2010, the Fed said. The agency also reiterated its plan to wind down a plan to buy $300 billion worth of Treasurys in October.
As expected, the Fed left its benchmark interest rate unchanged near zero percent and stated that rates will remain at "exceptionally low levels" for an "extended period" of time.
Given the challenges facing the economy, the Fed said it anticipates inflation to remain "subdued for some time."
"The statement was pretty much as expected," said Steve Van Order, a fixed income strategist at Calvert Funds, adding that the market is now gearing up for another big auction on Thursday.
Earlier Wednesday, the government sold $40 billion worth of 5-year notes in the second of three auctions this week that total a record $112 billion.
The U.S. received nearly $96 billion worth of bids at Wednesday’s auction — 2.4 times the amount that was up for sale. That brought the bid-to-cover ratio down from 2.51 in August, when 5-year notes were last auctioned. Indirect bidders, including foreign central banks, bought 44.5% of the notes sold on Wednesday.
On Tuesday, the government drew strong demand at its sale of $43 billion in 2-year notes. On Thursday, it will auction $29 billion worth of 7-year notes.
Bond prices: The benchmark 10-year note was up 7/32 to 101 22/32, and its yield fell to 3.41% from 3.45% late Tuesday. Bond prices and yields move in opposite directions.
The expiring 5-year note rose 7/32 to 100 and its yield fell to 2.37%. At Wednesday’s auction, the new 5-year note that will be quoted starting Thursday was priced at 99-18/32 and its median yield was 2.39%.
The 30-year bond rose 1/32 to 105-5/32, and its yield eased to 4.19%.
The 2-year note fell less than 1/32 in price to 99-2/32. Its yield rose to 1% from a median yield of 0.99% at Tuesday’s auction.
The yield on the 3-month bill 1%.
Recession-weary Americans aren’t gambling the way they used to — and that could be a problem for many U.S. states already struggling with record budget gaps due to the weak economy.
State revenues from all sources of authorized gambling fell 2.8% in fiscal 2009, according to a report from the Rockefeller Institute of Government released Monday. It was the first decline in data going back at least 20 years.
"It’s not a huge decline, but it’s sobering," said Mark Marchand, director of communications for the Rockefeller Institute.
Lottery income, the largest source of state gambling revenues, fell 2.6%. It was the first annual drop in lottery revenue going back to 1970, according to the group.
Income from casinos fell 8.5%, while revenue from pari-mutuel wagering, which includes dog and horse racing, sank nearly 15%.
However, revenue from race tracks that also host electronic gambling machines such as slot-machines, or "racinos," increased by 6.7%, largely because of new racinos opening in Indiana and Pennsylvania, the report said.
Lucy Dadayan, a Rockefeller Institute senior analyst, said the decline in gambling revenue is a red flag for states planning to expand gambling activities to help pay for social services.
"Expenditures on education and other programs will generally grow more rapidly than gambling revenue over time," Dadayan said in a a statement. "Thus, new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, long-term budget imbalances."
Over the past year, the report said 25 states have proposed or considered expanding gambling activities, according to the report.
The decline in gambling revenues comes as the U.S. economy struggles to recover from one of the longest recessions on record. The report said the drop in gambling revenue was "likely influenced by the current economic downturn."
Of the 41 states with major gambling revenue, 28 states reported declines over the year, with 14 states reporting decreases of more than 5%, according to the report.
However, the study did not include income from Native American casinos, which are active in 32 states, because comprehensive data were not available.
Twelve states showed growth in revenue collections from the major sources of gambling.
While the report said gambling revenue plays a "relatively small" role in state budgets, this year’s drop comes after several years of sustained growth.
Overall gambling revenues increase by 60% over the previous decade, from $15 billion in fiscal year 1998 to $24 billion in fiscal year 2008, according to the report.
During that same period, state revenues from gambling activities amounted to no less than 2.1% and no more than 2.5% of state-generated general revenues.
NEW YORK — Coming off its worst year in three decades, the market for initial public offerings is starting to show signs of life.
Eight companies are looking to raise as much as $3.7 billion when they go public this week, the most activity the U.S. IPO market has seen in a single week in nearly two years and a clear sign that Wall Street’s appetite for risk is returning.
IPOs all but dried up in 2008 as investors shunned the traditionally risky bets and moved into safer assets like cash and Treasurys as the stock market tumbled.
Only 43 companies completed IPOs in the U.S. last year, down from 272 the year before and 221 in 2006, according to Renaissance Capital’s IPOHome.com. It was the slowest year for IPOs since 1978.
The IPO market has trudged along so far this year, with 22 companies raising $5 billion in capital. This week’s heavy load of offerings could mark a turning point in the market — if all goes well no teletrack payday loans.
"The IPO market has windows that open and close, and right now the window is open to get deals done," said Sal Morreale, an institutional salesman with Cantor Fitzgerald in Los Angeles.
The number of companies preparing to go public has been gaining pace since early July. There are now 89 companies in the IPO pipeline, up from 29 in March.
A123 Systems — Apollo Commercial Real Estate Finance — Artio Global Investors — Foursquare Capital — Colony Financial — Select Medical Holdings — Shanda Games Ltd. — Vitacost.com
With Democrats and Republicans fighting a death match over health care reform, some small business owners fear that their priorities will get lost in the fray.
"Congress hasn’t approached health care reform from a small business owner’s standpoint," says Todd McCracken, president of the National Small Business Association. No one knows how the legislative battle will pan out, but here are three crucial health care issues to keep on your radar this fall.
The Penalty Box. What if hiring one more employee saddled your company with tens of thousands of dollars in federal fines? According to legislation before the House, businesses with payrolls as low as $250,000 would pay a 2% tax if they didn’t provide health insurance (that would rise to 8% as payroll grew to $400,000). And in early Senate legislation, firms that employ 25 or more workers would have to insure them all or pay a per-employee penalty. Those tipping points could discourage business growth.
The Senate Committee on Health, Education, Labor and Pensions addressed this problem in July, amending its version of the bill to exclude a firm’s first 25 employees — not just firms with 25 or fewer — from an annual fee of $750 per worker. So putting a 26th employee on the payroll would trigger only one $750 fee — not 26 of them.
More taxes, please. When did you last request more taxes? Never? Well, there’s a first time for everything.
Some entrepreneurs would like to see the federal government put a cap on the value of tax-deductible insurance. Under the current, uncapped system, big businesses can offer deluxe insurance tax-free, which helps them recruit and retain employees.
A tax on premium insurance would generate necessary funding for healthcare reform, limit plans that cover unnecessary procedures and level the playing field for small businesses. Also, Congress could grant self-employed taxpayers the same healthcare deductions as businesses.
Pool power. Small businesses and the self-employed don’t have the bargaining power of corporate behemoths. That could change if Congress gives entrepreneurs the right to form insurance purchasing pools. In 2008 and 2009 a bipartisan group of lawmakers introduced Small Business Health Options Program (SHOP) bills to allow such pools.
The global economic crisis will continue and countries must do more to adopt financial market regulations, International Monetary Fund Managing Director Dominique Strauss-Kahn told a German magazine on Saturday.
“The global economic crisis will continue, even if Germany and France had some good figures in the second quarter,” Strauss-Kahn was quoted as saying in an advance copy of an article to be published in Der Spiegel on Sunday.
Strauss-Kahn said he wanted to see more action from nations to curb bankers’ pay and tighten capital requirements in the banking sector.
“It is right to say that not enough has happened. I hope the Group of 20 meeting in Pittsburgh will bring new momentum,” he said. Leaders of the G20 meet later this month to try to agree on measures to help stop a repeat of the financial crisis.
Strauss-Kahn said the lesson of the financial crisis was that the market economy needed rules to function.
“Without new rules, there will be a return to the old behavior,” he said.
Governments needed to develop ‘exit strategies’ from the stimulus packages introduced to boost economies, said Strauss-Kahn, adding, however, that it was dangerous to think the crisis was already over.
“We need such “exit strategies.” We are working on them, but I would disagree with any …. demand to think about implementing them now,” he said.
Asked by the magazine how liquidity that had been pumped onto the markets would be withdrawn, Strauss-Kahn said a combination of higher interest rates and ending direct intervention of central banks would be needed.
He also said the IMF had sufficient resources for now but that if the body were to take on additional responsibilities to coordinate a financial safety net for countries in financial difficulty, it would need a further financial boost.
(Reporting by Madeline Chambers; Editing by Andy Bruce)
The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Indeed, the MBA survey reported that prime, fixed-rate mortgages accounted for nearly one in every three foreclosure starts. That’s way up from a year ago, when only one of every five foreclosure start involved a prime loan.
That bodes ill for the future health of the mortgage market. Prime loans make up two-thirds of the mortgage market, and if delinquencies among these mortgages continue to proliferate, the number of foreclosures will soar free credit report instantly.
Brinkmann forecasts continued delinquency and foreclosure increases until the economy starts to recover. He predicts that job losses will peak by mid-2010, as will delinquencies, and foreclosures will start to fall about six months later.
Problem areas
The so-called "sand states" continue to contribute disproportionately to the mortgage meltdown. Four states — California, Florida, Arizona and Nevada — accounted for 44% of all foreclosure starts during the quarter.
"Issues related to the deteriorating economy and deteriorating home prices in those states have driven their delinquency problems]," said Brinkmann
In Florida, 12% of mortgages were somewhere in the process of foreclosure, the highest in the nation; another 5% were at least 90 days past due as of the end of June.
Adding in 30 days and 60 days past due and Florida’s total delinquency rate comes to 22.8% — almost twice the national percentage. The next highest states are Nevada at 21.3%, Arizona at 16.3% and Michigan at 15.3%. California stood at 15.2%, but because it is such a large state, that represents nearly 900,000 mortgage borrowers.
"It’s hard to look at a national recovery," Brinkmann said. "We could have multiple bottoms with some markets recovering much faster than others."
The Federal Reserve Board Thursday recommended new disclosure rules for homeowners and compensation guidelines for mortgage brokers to correct some abuses of the recent runaway housing market.
Prospective borrowers would receive a one-page notice of key questions about their loan and see a graph comparing their interest rate to that of a low-risk borrower, the Fed said.
Mortgage brokers would not receive greater compensation if they put a borrower into a high-cost loan, under the rules cheap payday loans.
"Consumers need the proper tools to determine whether a particular mortgage loans is appropriate for their circumstances," Fed Chairman Ben Bernanke said during an open meeting of the board.
CIT and its many borrowers are in limbo.
A day after the cash-strapped small business lender had its bailout hopes deflated, CIT Group (CIT, Fortune 500) appeared headed for a bankruptcy filing.
Credit ratings agency Fitch cut its rating on CIT debt, saying a default appears "imminent or inevitable."
A spokesman for the New York-based company didn’t reply to a request for comment. CIT shares lost three-quarters of their value in trading Thursday and were fetching as little as 31 cents each at one point.
Though the century-old firm has sharply cut back its lending over the past year, a bankruptcy filing could add to the pressure on small businesses at a time when they have been shedding hundreds of thousands of jobs every month.
"Things don’t look good for CIT," said Jerry Reisman, a partner at law firm Reisman, Peirez & Reisman in Garden City, N.Y. "But they look downright perilous for the small businessman."
Small businesses — those employing fewer than 50 people — have cut 1.4 million jobs since December, according to data from payroll processor ADP’s latest monthly employment report. Small and midsize businesses — those employing fewer than 500 people — have lost 3 million jobs over the same period, according to ADP data.
Small and midsize businesses are among CIT’s chief customers, and a lack of access to credit could force many out of business, Reisman said. He said many CIT customers would have trouble getting loans elsewhere in the best of times, but their pain could be acute in a deep recession in which banks aren’t lending and sales have dwindled at many businesses.
"If you assume CIT customers tend to be a little riskier than the typical community bank borrower, then some of them won’t be bankable," said Bill Dunkelberg, chief economist for the National Federation of Independent Businesses.
According to several news reports, CIT is trying to line up a capital infusion from private investors. But observers were skeptical about the company’s chances.
Before Wednesday, Wall Street had assumed the government would provide support to CIT, given its earlier receipt of $2.3 billion in federal funds and its connection to small businesses. Investors took the Treasury Department’s decision not to do so as an indication that its books have taken a sharp turn for the worse no fax needed payday loans.
"Although we had originally thought CIT would have enough liquidity to survive through year-end, the recent negative press appears to have accelerated the liquidity drain with deposits fleeing and clients drawing down as much credit as possible before bankruptcy," Stifel Nicolaus analyst Chris Brendler wrote in a note to clients Thursday. "We think CIT’s poor credit quality ultimately led to its demise."
Complicating CIT’s outlook is the tepid market for lending to bankrupt companies, known as debtor in possession, or DIP, financing.
Getting DIP financing has become more difficult since the credit markets collapsed in mid-2007. Ironically, CIT has been a leading DIP lender. Last week it, along with GE (GE, Fortune 500) Capital and Bank of America (BAC, Fortune 500), provided a $100 million line of credit to retailer Eddie Bauer (EBHIQ), which filed last month for its second Chapter 11 reorganization in six years. A spokesperson from Eddie Bauer didn’t comment.
Mark Sunshine, president of First Capital, a lender in Boca Raton, Fla., said Treasury could support small businesses without bailing out CIT investors by providing DIP financing in the event of a CIT bankruptcy filing.
Sunshine said federal financing of the bankruptcy loan could enable an orderly workout at CIT over two years or so. Without such a backstop, he said, small business customers that sold their accounts receivable to CIT in exchange for upfront cash — a transaction known as factoring — could find themselves in the unenviable position of seeking repayment in court along with other creditors.
"Without Treasury, it isn’t going to happen," Sunshine, whose firm is a CIT competitor, said of the DIP loan.
Whether the problems at CIT end up taking another bite out of the economy will depend on how the company’s case is resolved. Dunkelberg noted in a report last week that data from the NFIB’s small business survey don’t support talk of a credit crunch — though that was before CIT’s brush with failure.
"This could certainly contribute to a constriction of credit, but we’ll just have to see how it plays out," he said.
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