Here is another interesting example of the continuing credit crunch caused by looming “progressive” federal legislation. In light of American Express laying of 7,000 employees I thought the posting of this article is timely.

-TS

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The US House and Senate aren’t expected to vote on credit card regulations until early next year. The Fed’s rules, currently being reviewed by the industry, could take effect around that same time. But lenders seem to be preparing for the worst-case scenario: an outright ban on some practices.

To get ahead of rules that would hamper their ability to reprice accounts, for example, many firms are jacking up interest rates. A survey of major issuers by consumer advocacy group Consumer Action found that 37% of firms have raised rates across the board, even for borrowers with relatively pristine credit records.

“In anticipation of a federal crackdown, credit card companies are scouring their portfolios and tightening credit,” says Tower Group’s Moroney.

Even consumers like Michael Polemeni, who miss only a single payment, can find themselves in the crosshairs of credit-card companies. The independent computer specialist relied heavily on his credit cards for child support payments and business expenses. He has recently sought out cash advance loans as well.

Polemeni generally made more than the minimum payment each month, carrying a $2,000-or-so balance. But in July he missed a payment, and Providian, owned by Washington Mutual, jacked up his rate from 9% to 30%. “I was shocked because I am a very good customer,” say Polemeni, who paid off the full balance immediately. WaMu didn’t return calls for comment.

Not everyone will be able to pay down their debts like Polemeni. And that leads to a vicious cycle: As credit-card companies raise rates, more consumers fall behind on their payments, which then hurts the issuers. Says Innovest’s Larkin: “We are going to see the banks massively hit.

Clint Says read with some interest a statement from the North Side Community Federal Credit Union, located in the fair city of Chicago. North Side has caught the vision of how to better offer payday loans, cash advance loans, and other short-term credit products as its introduced its “PAL” program. Here are the details of their payday loan alternative:

-Average loan is $500 ($75.00 of which the credit union doesn’t allow the borrower to use, so the true principal loan amount given to the consumer is $425.00.

-An “reasonable” APR of 16.5% (why are the payday guys out of business yet? Let alone subprime credit card providers?)

-A $30.00 “application fee” (Why doesn’t this get rolled into the APR?)

-Hopeful borrowers must attend 4 financial education seminars (Can you see someone who needs an emergency loan waiting around to complete the four part series? Me neither).

Of course, the program superficially looks good to consumers, and why not? 16.5% APR verses a 391% APR product? You would have to be a fool to choose the more expensive loan. The question that interested policy makers and informed consumers should ask is, “why does the program have fewer than 1,000 participants in a city of nearly 3,000,000 individuals?” I can assure you its not because the credit union lacks a decent marketing budget.

In a press release from NSCFCU about the PAL program a couple of years ago, the organization, which relies heavily on bounced check and courtesy overdraft charges (60% of fees according to a recent article by Forbes Magazine) bemoaned the fact that at the time it was only charging those in need of short-term loans a $10- application fee, to quote the release:

“We currently charge only a $10 application fee for the loan. Increasing this fee to $20 would at least help cover our costs of the program.”

Since then, the program has increased is self proclaimed innocuous “application fee” from $10.00 to $20.00 and then to $30.00. Does the $30.00 fee cover the program costs? A look at the NSCFCU loan product using a comparative APR will shed more light on the application fee.

Remember the terms of the loan? $425.00 in principal, 16.5% APR, and a $30.00 application fee. To calculate the APR we need the duration of the loan. The vast majority of cash advance loans are repaid in 13 days (NSCFCU gives a borrower up to six months, but verifiable consumer behavior shows the majority of these loans are paid in full after two weeks). When calculated on a a two week basis the credit union payday alternative loan’s APR is 231.02% compared to a payday loan of 391%. Payday lenders have claimed that at the interest rates they charge they receive a paltry 6.6% net profit or the same as an average Fortune 500 company in 2007. Patrons should not be surprised when the CU asks for an increase in the “application fee” from $30.00 to $40.00 in the near term to help them break even.

Regardless, the alternative loan product remains somewhat cheaper, but why the continued lack of interest?

The requirement to go through weeks of financial seminars although noble and good, is unrealistic for many people who rely on short-term loans to help meet unexpected financial issues. All people who use cash advance loans are employed. Many work two jobs to get by. The last thing these working and middle class people have time for when they are in a bind is a four-week series taught by someone who looks down on the way they have handled their finances. What the credit union doesn’t realize or simply don’t care about, is these classes create a burden more costly that what they would pay at any online cash advance or payday loans provider. Time in many instances is more precious than saving a few dollars (the cost difference between most payday alternatives and cash advance products).

Payday advance and pre-paid VISA card providers have and will continue to succeed in their mission to provide short-term credit at reasonable prices because they have put themselves in the shoes of their borrowers.

There have been some recent stories listed on Bankrate regarding Credit Card issuers (and the banks that fund them) reducing credit limits and increasing APRs on consumers due to the lack of liquidity and the increased risk involved in today’s consumer credit market. Some borrowers are even finding their accounts canceled by the credit card providers as well. Below are a couple of testimonials as found on several websites:

-TS

90 % REDUCTION
I received a Macy’s Visa back in 2005 that I didn’t even recall applying for. The credit limit was $5,000. Nevertheless, I didn’t use it until this year. I had planned a trip to Disney in Florida and wanted to use it then. I called to activate it and found out that my limit was reduced to $500. How drastic was that?!
– Patricia S.

THIS IS THE THANKS I GET?
My wife and I have faithfully paid our credit card payment every month for the last five years. Last week we received a notice from our bank that they were reducing our limit by half and that we would need to reduce our balance in 90 days or face over the limit charges. We’ve never been late on a payment and am ticked off that we may face losing our credit cards because others have been stupid with the way the utilized their credit cards. Because it will be difficult to make ends meet through the end of the year, we may need to utilize another credit card’s cash advance line or even use a title loan. This is the great service we should expect from our bank after five years of banking with them.

-Jason W.

BRUISED CREDIT SCORE
I am 49 years old and have been employed since 1993, when I graduated from law school. My wife and I have lived in the same home since 2000. Neither my wife nor I have any late payments on any obligation we have had over the last 10 years or more. We do, however, have a good deal of credit card debt, very nearly all of it at 4.99 percent interest or less. Our annual household income is over $90,000 and our total monthly debt payments, including my student loans, our credit cards and our mortgage, is about $2,400. My wife’s credit score was about 720 and mine about 690.

A few months ago, Bank of America advised rather abruptly that it was cutting our cards’ credit lines by a total of about $30,000. This increased our credit utilization ratio rather dramatically, and it has begun affecting our credit scores. My wife’s score has dropped by more than 50 points and mine by an even greater amount. In turn, I believe other credit issuers will begin cutting our credit limits. We just received notice from American Express, for example, that my wife’s card limit through them will be cut by over $5,000. No doubt actions such as this will further depress our credit scores.

As a consequence of their actions, my wife and I are seriously considering severing our relationships with Bank of America and American Express. Although this sounds like the proverbial cutting off of one’s nose to spite one’s face, I don’t know what else to do to express my displeasure with these companies other than discontinuing their opportunities to profit from my patronage.
– Doug H.

I was driving into work this morning hearing about another example of the leftist radical organization, ACORN, conducting more illegal voter registration in battleground states. The show host had a person on defending ACORN workers actions. He tried to defend the organization by stating that the field workers signing up fictitious or multiple people are only doing so in order to get paid. It seems that ACORN pays or bonuses their field workers on the number of registrations they collect. The question is, why is this practice legal at all? This election cycle has provided ample proof that paying individuals to get people to register to vote is a poor idea. Especially when such registrations can lead to voter fraud and jeopardizes the legitimacy of the American democratic voting system of “one person, one vote.”

The repeated examples of voter registration fraud suggests that it is time for government to step in and protect the integrity of the system. State legislatures should seriously look at establishing statutes that prohibit individuals from receiving any compensation for registering people to vote and organizations from paying individuals to register to vote. It may be worthwhile to only allow the government to sponsor and organize voter registration drives. We have seen too many examples of what can go wrong when such efforts are incentivized. Our democracy is to valuable to be cheapened by paid voter registration efforts.

-TS

Clint Says had the opportunity to attend a conference this weekend where financial service centers owners and executives were shown new and “exciting” products and services that await those looking to add to their list of services provided. In addition to credit cards, pre-paid debit cards, cash advance loans and other financial service products, there were a couple of interesting services that reveal the signs of the time namely the “cash for gold” business. The premise is simple. One can turn in their scrap jewelry or unwanted precious metals and in return get cash. The advantage to those horrible “Cash4Gold” commercials is that the person knows up front what they will receive and the amount received is normally twice as much as they would receive over mailing the unwanted jewelery to an unknown PO Box. Still it is interesting that people are in a position where they need to sell off their gold to get by. I’m certain that as the economy improves, the need for such service will diminish. However, it is interesting to see such services that show where we stand in today’s economy. I’d like to hear what everyone else thinks about this.

Here is an interesting article recently published in the Atlantic, a Northeastern liberal publication, that suggest that credit card debt is better than visiting the pawnshop or cash advance lender. She doesn’t spend much time on the downsides of credit cards or cash advance lending. Her primary focus is on the “virtues” of credit card debt. Dear readers, what do you believe?

-TS

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“The Case for Debt”

For many poor Americans, credit cards can still be a better deal than payday loans and pawnshops.

A couple of weeks after last Christmas, a newspaper reporter telephoned Todd Zywicki, a George Mason University law professor who studies bankruptcy and consumer credit. How, she wanted to know, were American families going to pay the huge credit-card bills they’d run up buying presents? Well, Zywicki responded, how had they paid their Christmas bills the previous year, and the year before that, and the year before that? “It never occurred to her that this was an old story,” he says.

Or, as we in the journalism business call it, an evergreen: always in season. Through good times and bad, Americans predictably rack up consumer debt, and that debt predictably generates public and private hand-wringing about how it will ever get paid. When two Federal Reserve economists examined all the New York Times articles on consumer credit from 1950 to 1995, they found that 60 percent were negative. The pessimistic tilt was even greater—topping 80 percent—when journalists generated their own stories rather than reporting on statements by politicians, business executives, or academics.

The evergreen story of people in debt becomes even sexier in an economic downturn, when debts inevitably get harder to pay. Witness a recent Times feature on “The Debt Trap,” described as “a series about the surge in consumer debt and the lenders who made it possible.” On the subject of credit, bad news sells.

Certainly politicians think so. “Over the past 15 years, average household credit-card debt has tripled. The typical family is now nearly $10,000 in the red,” said Barack Obama, decrying a “debt crisis” caused by “credit-card companies … pushing [consumers] over the edge.” At hearings last December, Senator Norm Coleman, the Minnesota Republican, declared, “This easy credit has gotten a lot of people in trouble.” He could have said the same thing anytime in the past century and been applauded for it. Today’s sluggish economy, home-equity- line-of-credit craze, and subprime-mortgage mess have amplified concerns about the general level of indebtedness. But while it’s true that, thanks in large part to declining home prices, American homeowners hold less equity in their homes than they used to, the subprime meltdown is less a problem of consumer credit than of new financial instruments and the difficulty of tracking mortgages that have been sold, then broken up and repackaged into derivative securities. And on closer examination, what looks like “unprecedented” consumer indebtedness turns out to have ample precedent, as do the anxiety and moralizing that accompany it.

Studying “Middletown” in the 1920s, Robert S. Lynd and Helen Merrell Lynd deplored the “rise and spread of the dollar-down-and-so-much-per plan,” which extended credit for such extravagances as cars, electric washing machines, and “$200 over-stuffed living-room suites … to persons of whom frequently little is known as to their intention or ability to pay.” In 1943, Jesse Rainsford Sprague, a defender of installment buying, nonetheless worried that the “temptations of easy credit” were luring young people to take out bank loans, rather than save, for vacations. Of one stenographer, he noted, “Had the young lady spent less on lip rouge and blood-red fingernail paint, she might have been in a position to pay cash for her holiday.”

“As the result of the consumer credit explosion, the total private debt is certainly greater than the combined private debt of man throughout history. Never have so many owed so much,” declared Hillel Black in Buy Now, Pay Later, published in 1961—more than a decade before using bank credit cards like MasterCard and Visa became common. Employing the big, scary numbers and dizzying examples typical of such critiques, Black elaborated:

Currently about one hundred million Americans are participating in the buy-now, pay-later binge. Furthermore, they can, if they wish, do anything and everything on credit. Babies are being born on the installment plan, children go through college on time, even funerals are paid for on what the English quaintly call “the never never.” Through debt people are buying hairpins, toothpaste, mink coats, girdles, tickets to baseball games, religious medallions, hi-fi equipment, safaris in Africa … The result has been a consumer credit explosion that makes the population explosion seem small by comparison.

Black was right about the trend but wrong about its significance. The expansion of consumer credit is one of the great economic achievements of the past century. One institutional and technological innovation after another has made borrowing easier and cheaper for rich and poor alike. With each development have come fears—sometimes fueled by the unforeseen problems that inevitably accompany new practices—that this is the change that surely will lead to disaster. Yet a half century after Black’s warnings, doomsday has not arrived, the “consumer-credit explosion” continues, and most consumers are much better off.

Gone are the up-front fees and intrusive interviews that used to be standard before taking out personal bank loans or establishing store credit. Except for those offering airline miles, most credit cards no longer have annual fees, while intense competition for new customers—think of all that annoying junk mail—has driven down the average interest rate, from 17.4 percent in 1992 to 13.1 percent in 2007. Today’s consumer credit is flexible, convenient, impersonal, and (excluding car loans and mortgages) largely unsecured. With a credit card, you can rent a $40,000 automobile, buy goods online from complete strangers, finance a business, make ends meet while you’re out of work, purchase a $5,000 wedding gown or a 10-cent photocopy—all without completing any forms or explaining yourself to anyone. And despite recent legal revisions, even bankruptcy is less painful than in the days of buying on time. If you default on your Visa bill, nobody comes to repossess your refrigerator or auction off your shoes. The biggest penalty you’ll face is trouble getting future credit.

So why do we worry so much? For starters, the very success of consumer credit makes us uncomfortable. As borrowers, we may feel guilty about running up debt, anxious about making payments, and resentful of the constraints that old obligations (and old credit records) impose on our current choices. We may find it too easy to buy things we may later regret. In theory at least, we might prefer the days when paternalistic—or snobby—salesclerks checked our spending. “Our store manager’s duty is to protect the buyer from unwise expenditures,” wrote the retailer Julian Goldman in 1930.

If a woman patron selects a gown or a wrap which is beyond her means, the store manager advises against the purchase. He knows, because the customer—conforming to the rule from which there is no deviation—has confidentially explained her circumstances in full detail … The friendly, intimate, patient, personal interview is the key to our sales operation.

On second thought, why should your economic choices be the store manager’s business? Practicality aside, anonymous databases and credit scores are a lot less intrusive.

When credit is cheaper to use and easier to arrange, people do use more of it. Hence those big, scary numbers, which grow along with the economy and the population. Contrary to a common perception, however, the people driving up the totals aren’t primarily the financially strapped. They’re “high-wealth consumers in their prime earning years,” observes Andrew Kish, an economist at the Philadelphia Federal Reserve. Almost half the growth in debt between 1989 and 2004 (the most recent year for which data are available) came from the highest-income 20 percent of American households. (By contrast, the bottom 20 percent held about 3 percent of consumer debt—an increase from 1.9 percent—and accounted for a bare 4.5 percent of the growth.) If the rich are getting richer, it makes sense that they’re also running up more debt. They can reasonably expect to pay it.

These affluent families also account for half of the outstanding consumer debt. So the $10,000 average that Obama cited isn’t in fact owed by the “typical” family with an average income. That figure is calculated by spreading the much larger debts of the rich over the population as a whole. All by herself, Cindy McCain owed at least $200,000 on two American Express cards, according to her husband’s campaign disclosure documents. That sounds terrifying until you realize that this wealthy woman pays her monthly AmEx bills in full.

Like those of Mrs. McCain, some of the credit-card balances included in government statistics aren’t really debt at all. They’re temporary charges for convenience’s sake. Nowadays, credit cards are easier to use than cash—no fumbling for change while other shoppers wait impatiently behind you. Plus, companies offer rewards points and frequent-flier miles, and they give you a free float period if you pay your balance in full. So people who don’t need to borrow money use their credit cards as a convenience, running up charges over the course of a month and paying everything off when the bill comes due. Whatever they owe on the day that debt statistics are collected goes into the total figures on consumer credit. This “convenience use” grew from about 6 percent of total credit-card debt in 1992 to 11 percent in 2001, calculates Kathleen Johnson, a Fed economist. That growth was two and a half times the growth rate for credit-card borrowing overall.

Of course, rich people and families who pay their bills every month aren’t the only Americans with debts, and they certainly aren’t the ones whose sad stories make the news. But financial innovations have also made lower-cost credit more available to lower-income people. Even those much-criticized payday loans cost less than pawnshop loans or bounced-check fees. Credit cards are cheaper still.

And credit-card companies have changed their lending policies in ways that make credit more accessible—but also more complicated. Credit-card prices used to be “high and simple,” notes another study by the Philadelphia Fed. Everybody paid the same rate, regardless of credit risk. If you carried a balance but reliably paid your bills, you were subsidizing borrowers who weren’t so dependable. But because the interest rate wasn’t high enough to cover the riskiest potential customers, generally those with lower incomes or frequent unemployment, they were cut out of the credit-card market altogether.

Now, instead of charging everyone the same, companies adjust the interest rates according to customers’ credit scores. They also charge special fees for late payments, purchases that exceed a credit limit, foreign-currency transactions, phone payments, and so forth. This structure makes it profitable to extend credit to high-risk borrowers, including those with low incomes. It’s more inclusive, and arguably fairer, since it eliminates cross-subsidies. But it’s also hard to explain. Hence Obama’s complaints that credit-card contracts “have gone from being one page long a few decades ago to more than 30 pages long today.”

Of course, in the good old days of one-page contracts, politicians still decried easy credit and demanded more consumer information. Ever wonder why your credit-card agreement’s easy-to-read “Schumer Box” specifies a minimum finance charge of, say, 50 cents? You’ve probably never thought twice about that charge, but back in the late 1980s, then-Congressman Charles Schumer and his colleagues thought that telling consumers the minimum charge was very important.

And back in those good old days, of course, some people still couldn’t make their credit-card payments. Others worried that they’d never get out of debt. Still others felt guilty about buying luxuries even when they could afford them. Forms of credit may change, but credit anxiety, alas, does not.

Article by Virginia Postrel

Clint Says had the privilege yesterday listening to the former Democratic Presidential candidate, Sen. George McGovern in Las Vegas. Mr. Govern, an unabashed liberal politician, surprisingly spoke on the dangers of government taking too much control in areas of personal financial freedom. Especially, in the area of small dollar loans. Without the current access to these loans, middle income Americans would be forced to use more expensive alternatives such as bounced check fees (Which cost nearly four times as much as a cash advance fee. Overdraft “protection” fees are nearly twice as much as fees charged by Las Vegas Payday Loan providers.

The incoming democratic Adminstration has promised to place a 36% APR rate cap on all small loan products and in effect prohibit access to short-term, small-dollar loans. In light of the difficulty many Americans are having finding access to credit in the current market, why would Congress or the President want to limit access to these loans?

The liberal majority needs to learn the lesson the former leader, Sen. George McGovern, that economic paternalism is not in the best interest of Americans.

A very appealing statement comes out of the mouth of the democratic candidate for president when he speaks of taxes,  “95% of worker will have lower taxes.” Who won’t want that (At least 5% of taxpayers for one.) However, the truth of the matter is that 45% of Americans currently don’t pay taxes. So how could 95% of workers experience a tax cut when almost half don’t contribute to the fiscal well being of the nation?

Answer, 45% of Americans who currently pay nothing will receive a welfare check from Uncle Sam under Obama’s plan. Those who makes in excess of aprx. $45,000.00 will be giving more of their tax dollars to those who don’t pay dime one into the system. Actually, the breadwinners of America will not pay for the freeloaders, their children and grandchildren will be responsible for the freeloading of today some years from now.

With the anemic state of the American economy (Yes, this includes the treasury of the United States) why on earth would we increase taxes on the majority of taxpayers, increase welfare to those who are contributing nothing in the first place, and then increase the size of the national debt? What has occurred fiscally in the last eight years under the Bush administration is not justifiable, however, two wrongs do not make a right. McCain has promised to decrease federal spending and balance the budget within five years, Obama will increase the debt burden of taxpayers substantially.

McCain remains a better choice for the American pocketbook.

-TS

Has anyone else seen this occurrence? It is interesting to note that as Barack Obama’s poll numbers move north that the stock market tanks. Yesterday, in a surprise movement, Sen. John McCain’s numbers began to tighten against Obama, 44% to 48% in Rasmussen and 45% to 50% in Zogby’s poll. With the solid prospect of a McCain victory, the markets took flight and rose 936 points. In today’s pollling numbers, McCain has flattened out or moved down a point against Obama and the markets moved sideways as well.

I am interested to see an overlay of Obama’s poll numbers against the declines in the market over the last few weeks and even months. The stock market has been an excellent predictor of things to come in the short term (6 months) financial markets. What is it about Obama that has Wall Street nervous?

First, Obama is clear about raising taxes for most of American. The rhetoric that only those making in excess of $250,000 a year is clearly false. Most Americans with a steady job are invested in the stock market with 401(k)s and Roth IRA, and mutual funds. Those invested in non-protected accounts (just about everything outside a Roth), will see their taxes raised under Obama’s plan to increase the capital gain rate from the current 10 or 15% level. Anyone who has any retirement plan or mutual funds will see an increase in their taxes. It is fair to say that Obama’s tax policies will be seen negatively by those involved with Wall Street. So as Obama moves up in the polls, expect to see Wall Street shrink under his proposed plan.

-TS

Thanks to our friends at the Heritage Foundation for this article on ACORN.

Say Anything notes that Indianapolis/Marion County seems to have more people registered to vote in 2007 then its actual adult citizen population. Even though they only had 644,197 voting age-eligible individuals, there were 677,401 individuals registered to vote, or 105% of the Census population.

It should come as no surprise to anyone that the registration list in Indianapolis/Marion County still has large numbers of ineligible voters – people who have died or moved away, are registered more than once, are not citizens or perhaps don’t even exist given ACORN’s activities there. After all, when the U.S. Supreme Court upheld Indiana’s voter ID law this year, it cited the lower court’s finding that Indiana’s voter rolls were inflated by as much as 41.4% in 2004. One of the main reasons for the inflated voter rolls was the National Voter Registration Act of 1993 or Motor Voter, which was the first legislation signed into law by newly sworn-in President Bill Clinton. As the Supreme Court recognized, Motor Voter has provisions “restricting States’ ability to remove names from the lists of registered voters.” In fact, its restrictions and notice provisions are so strict that many states simply stopped doing anything to clean up their voter rolls after Motor Voter became law.

Section 8 of Motor Voter does contain a provision requiring states to conduct a general program of “list maintenance” that identifies and removes the names of ineligible voters. However, the U.S. Department of Justice never filed a single lawsuit against any state to enforce this provision until 2005, when it finally filed a lawsuit against Missouri, some of whose counties had voter lists as high as 153% of their actual population. In 2006, Justice filed a similar lawsuit against Indiana and the state entered into a Consent Decree in which it agreed to finally start cleaning up it voter registration rolls.

Yet the Bush Administration and particularly its Civil Rights Division were subjected to withering criticism by Congress and many traditional civil rights organizations for filing these suits that were unfairly characterized as an attempt to supposedly purge minorities and “suppress voting.” It seems clear from this report about the voter registration list in Indianapolis/Marion County that they have still not fully complied with the requirement to clean up their voter rolls. All of us should be concerned about this because the larger the pool of invalid names on voter registration rolls, the greater the probabilities that fraudulent votes will be cast in those names by unscrupulous individuals in the upcoming election.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… I: wait… L: wait… C: wait… SD: wait…