The Credit Card Accountability, Responsibility and Disclosure (CARD) Act

President Obama signs the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 

President Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act on May 22, 2009, which provides a sweeping overhaul of how consumer credit is handled by credit card companies. The bill provides strong and reliable protections for consumers against what some have considered unfair and deceptive practices by certain financial institutions.

The new law will go into effect in about 9 months. Below are the key elements of the bill:

President Obama summarized these new changes by saying, “We’re not going to give people a free pass; we expect consumers to live within their means and pay what they owe.  But we also expect financial institutions to act with the same sense of responsibility.”

For more in-depth information on this new bill, please visit:

http://www.whitehouse.gov/blog/A-New-Era-for-Credit-Cards/

http://www.creditcardreform.org/learn.html

http://www.creditcardreform.org/pdf/dodd-summary-509.pdf

Credit Card Charge-Off vs. Credit Card Write-Off

 charge off vs write off

 

 

 

 

 

 

 

 

 

A charge-off and a write-off sound a lot alike, but they are two very different things. 

Charge-Off

The term “charge-off” equates to when a credit card account reaches 180 days past due. At that point, the credit card company is required to reclassify the account for accounting purposes. Specifically, from a performing asset to a non-performing asset for the bank.

 However, even though a credit card account has been reclassified as a charged off account, the credit card company still reserves the right to pursue collection of the outstanding balance.When a person hears the term “charge-off”, they often mistakenly think that they’re in the clear and that their debt will be forgiven. Not so. If only it were that easy. As mentioned above, a charge-off is simply a reclassification of the debt, and unfortunately you still owe the money even if the account has charged off.

Credit card companies handle charged off accounts in a variety of ways:  

Write-Off

A “write-off” on the other hand is when a creditor forgives a portion of the balance that is legitimately owed. For example, if you owe $15,000 and a creditor agrees to settle the account for $0.50 on the dollar, they write off $7,500.

Debt Collectors And Charge-Off

When an account charges off, the credit card company will place a derogatory mark on your credit report as a way of penalizing you for not paying as agreed. This is standard procedure.

When attempting to collect an outstanding debt prior to the charge-off point (i.e. 180 days) debt collectors often make a big deal about the “ramifications” of having a charge-off appear on your credit report. They often try to create the impression that you’ll be ruined financially if a charge-off shows up on your credit report.

Naturally if you have the ability to pay, then you should honor your obligations. But if you’re having financial difficulties and you just don’t have the money to pay, then you can’t pay. It’s that simple. If your credit report gets dinged in the process, so be it. Life will go on. It’s not the end of the world.

In summary, you don’t need to be intimidated by a debt collector threatening you with the “dreaded” charge-off on your credit report, because now you know that charge-off is merely a *reclassification* of the debt that signifies that an account is at least 180 days past due.

Reference:

Office Of The Comptroller Of The Currency – Comptroller’s Handbook, Credit Card Lending
http://www.ffiec.gov/ffiecinfobase/resources/retail/occ-comptrollers_handbook_Credit%20Cards.pdf

Credit Card Bailout … Your Lucky Day?

During the past several weeks, one question that clients and prospective clients have been asking me every single day is, “What effect is the current financial crisis in the U.S. (as well as the rest of the world) going to have on my ability to obtain a settlement for less than full balance with my credit card company?”

My reply >> ”It’s probably not going to change much at all, at least for the foreseeable future.”

As I probe a little further and delve beneath the surface, what I believe many people are asking me in a roundabout way is …

1. Do you think that maybe my credit card company will go bankrupt like Lehman Brothers and I could get off not paying anything?

2. Do you think that maybe the banks are hurting so much for money right now that they would take just about anything they could get, and maybe I could lucky and settle my account in full for say $0.10 on the dollar?

3. Is there some provision in the recent $700 billion government bailout package that allows for credit card debt relief for consumers?

I wish I had better news for you, but unfortunately the answer to all three questions is no.

For the past decade I’ve witnessed peaks and valleys in the strength of our economy, although nothing like we’re presently going through, and the effect of a credit card company’s willingness to grant debt relief on outstanding balances has been negligible. Strange, but true. It’s stayed pretty consistent in good economic times and bad.

Certainly there have been periods where various credit card companies and collection agencies go through a temporary cash crunch, so they might temporarily loosen their settlement guidelines just to get some quick cash in the door. But the key word here is temporary. Remember, financial institutions are not in the business of permanently taking large losses.

What I continually tell people is that if you are having financial difficulties and you are seeking debt relief by attempting negotiated settlements with your credit card companies for less than full balance, you need to make that decision based upon how things are today regardless of what events may or may not happen in the future. If some massive bailout occurs in the future regarding credit card debt relief, that’ll be a bonus and you’ll certainly hear about it on the evening news.

If our global financial crisis worsens, things might change dramatically regarding credit card debt relief. But if things do dramatically get worse, I think we’re going to have more serious problems to deal with than outstanding credit card debt.

For now, though, it’s still business as usual with regard to credit card debt relief.

When It’s OK To Do Nothing

In our fast-paced Western culture of go-go-go and do-do-do it’s tempting to think that all problems can be solved by being proactive and *taking action*. However, that’s not always the case, especially when dealing with financial problems.

As the saying goes, “You can’t squeeze blood from a turnip.” And with regard to creditors, they can’t take what you don’t have. Therefore, there are some unique situations where sitting idle and *doing nothing* (at least in the short term) might be the way to go.

Here are two examples …

Example #1:

Let’s say you’re presently unemployed and you have few or no assets to your name. Thus, there’s no wage for a creditor to garnish and there’s no car or property for them to seize. A creditor could huff and puff and do their best to intimidate you, but if you find yourself in a situation like this there’s not a whole lot that a creditor could do to you to really hurt you financially.

Example # 2:

Let’s say you’re retired and your only source of income is a pension or social security check. In most cases, this type of income is off limits to creditors. But what if you’re a homeowner? Ok, fine. A creditor could sue you and get a judgment against you, then they could attach a lien to your house. But they won’t get any money from you unless you sell your home. So if you don’t plan on moving any time soon, that lien could sit there for *years* before the creditor collects a dime.

The concept we’re talking about here is being “judgment-proof”. Yes, it takes some intestinal fortitude, but ultimately your creditors can only do so much if there’s nothing there (financially) for them to go after.

Now please don’t take this the wrong way. I’m not suggesting that you deliberately do things to try and screw your creditors out of the money that you rightfully owe them. Not at all.

But what I am saying is that if you’re going through a rough patch financially, there are some unique situations where you’ll temporarily be just fine by *doing nothing*, and it won’t cost you a dime. Certainly you are going to want to straighten things out eventually. But sometimes the best course of action in the immediate moment is simply to sit tight, remain calm and do nothing.

Naturally if you are *working* and/or you have some *assets* that creditors could go after, that’s a different story. In other words, if you are gainfully employed or you have assets that could be at risk you might need to actively pursue a solution to your present financial dilemma while you still have the opportunity to do so. (Translation: Don’t become a sitting target for your creditors.)

In most cases you will need to be proactive and take action to solve any financial challenges you are faced with. However, as described above, there are some unique situations where you’ll be just fine by doing nothing.

The Effect Of Difficult Economic Times And Its Impact On Debt Settlement

During the past couple weeks, numerous people (both clients and colleagues) have posed the following question to me:

With the U.S. and global financial markets presently experiencing a lot of stress and turmoil, how do you think that’s going to affect credit card companies’ willingness to settle for less than full balance on delinquent accounts? 

At first glance you might be tempted to say, “Gee, in difficult economic times with so many people struggling financially and unable to pay their bills, credit card companies would probably be very eager to accept just about anything they could collect.” However, my experience actually suggests just the opposite.

What I’m saying is that when we are in a challenging or recessed economy, it is common for large financial institutions to actually be less willing to write off a substantial portion of the debt that you might owe just because profit margins aren’t what they used to be (when the economy was booming).  In other words, when profit margins are down they just can’t be as generous in writing off large amounts of debt.

Now that’s not to say that you still can’t obtain settlements for less than full balance on delinquent accounts when we’re in a tough economy. Quite the contrary. It’s just that you might have to work a little harder because creditors might put up more resistance than usual because their coffers are not as full and there’s less margin for error. When the economy rebounds, it’ll more than likely return to business as usual.

Just my opinion and observation after working in this industry for over 12 years.

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