Collecting is OK, but must be transparent, guidelines say

By Martin Merzer

They say only two things in life are certain — death and taxes. But here’s another: If someone dies with an unpaid balance on his or her credit card account, or while shouldering any other form of debt, a relative or friend is going to get a call or a letter from a debt collector.

Struggling to find a middle ground between the rights of creditors to collect debts and the grief and vulnerability of spouses and others mourning the deaths of loved ones, the Federal Trade Commission is issuing new guidelines intended to modify the behavior of debt collectors who contact relatives or friends of the recently deceased.

At the same time, however, the FTC’s guidelines widen the universe of people who could receive such calls or letters, making it all the more important that anyone on the receiving end of those communications understands his or her legal rights and obligations.

“There are debt collectors out there who follow the obituaries and they search to see if the person who died has a wife or a husband or kids and they immediately start hounding them,” said Jerome S. Lamet, a Chicago attorney who worked for the FTC and whose law firm has represented thousands of widows and widowers who felt victimized by what Lamet calls “terrorist collecting tactics.”

Representatives of the debt collection industry (they prefer the term “accounts receivable industry”) say that the vast majority of their agents behave honorably, treat debtors respectfully and work within a generally accepted and federally monitored framework of rules and regulations.

Rules vary by state
But before we dive more deeply into the give and take between debt collectors and consumers and their representatives, here are a few more aspects of the issue to keep firmly in mind:

First, everything you are about to read depends on the state in which you live and the state of your estate. Laws regarding these matters vary greatly from state to state and depend to some extent on how the deceased handled his or her end-of-life financial affairs.

• Generally speaking, family members (and, of course, friends) are not obligated to pay — out of their own pockets — the debts solely acquired by a deceased relative or friend.
• If, however, a family member or friend co-signed a credit card or loan application with the now-deceased person, that relative or friend likely is obligated to repay the debt.
• If the deceased left a will and the estate has gone to probate, debt collectors can attempt to satisfy their claims from the assets of that estate. “Most debts incurred in life do not simply vanish upon death … ,” the FTC wrote in its 33-page “Statement of Policy” issued on July 20, 2011. “Regardless of whether the decedent was current or delinquent on a bill at the time of death, creditors and collectors, for a period of time, generally are permitted under state law to seek to recover from the decedent’s estate.”
  This is one reason why many attorneys now recommend that the elderly and infirm do not leave behind wills that can go to probate. Instead, they often recommend the establishment of trusts and other legal entities other than wills that can control assets after a person dies. At the same time, some states have streamlined the probate procedure to the point where the vast majority of once-probated wills no longer take that route.
• Assets that are specifically bequeathed to individuals or that were owned jointly by the deceased and a spouse (or any other person) generally pass to that person outside of the estate and thus are usually beyond the reach of debt collectors.
• Adding to the potential complexity, in the 10 community property states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, assets accumulated during a marriage generally are considered joint property and also can’t be touched by creditors. “There is no single set of laws and procedures that governs the resolution of a decedent’s estate in all or even most states,” the FTC noted. “Indeed, even individual counties in some states have their own requirements.”

So, right about now, you are thinking: “If I ever find myself in this situation, if I ever get a call from a debt collector about someone else’s debt, I have to be careful and I have to get some help.” Right on both counts.

Relatives vulnerable
Consumer advocates and attorneys say that if a widow, widower, child, friend or anyone else close to the deceased should say absolutely nothing of consequence if they receive a call or letter from a debt collector about the decedent’s debts. Nothing. Nada. No matter how banal or benign the question might seem — because it could open the door to an ongoing relationship that eventually carries the survivor into inappropriately paying off someone else’s debt.

“Debt collectors are keenly aware that survivors are particularly vulnerable after the death of their loved one,” the AARP told federal regulators as the guidelines were being considered. “Collectors encourage decedent’s creditors to use the time of grieving to establish a customer relationship with the decedent’s survivors in order to recover on the debt from the estate.”

With those assertions in mind, the FTC reviewed thousands of taped phone calls between debt collectors and mourners — and it didn’t like a lot of what it heard.

“Some collectors attempt to recover by cold-calling relatives, asking whether they are the ‘person handling the final affairs’ of the decedent or are the decedent’s ‘personal representative,’” the FTC reported. “In some cases, collectors ask whether the family member with whom they are speaking has been opening the decedent’s mail or paid for the funeral. Some collectors treat an affirmative response to such questions as sufficient proof that these relatives are responsible for resolving the decedent’s estate.”

That’s often not the case at all. And then it gets worse, with the collectors asking a series of highly detailed questions about the deceased’s finances. And then… it gets much worse.

“Finally, in some cases, collectors ask relatives to make a ‘voluntary’ or ‘family’ payment,” the commission said. “For example, some collectors state or imply that the family has a moral obligation to pay the decedent’s debt, or that the decedent would have wanted the debt to be paid.”

Representatives of the debt collection industry have an entirely different view of how these contacts transpire.

“From our perspective, the most important element is clear and full disclosure without misrepresentation to those with whom a collector communicates,” Greg Hogenmiller, vice president and deputy general counsel of West Asset Management, a large, Omaha, Neb.-based debt collection/accounts receivable agency, told the FTC. “By its nature, this is a very sensitive form of debt collection because often the family members or friends of the decedent are still grieving at a time when they are also trying to sort out financial matters which they may or may not have previously had any involvement with.”

New FTC guidelines
It is this divide that the FTC sought to bridge with its new guidelines, which take effect on Aug. 29, 2011. Here are some highlights:

• Debt collectors may communicate with a deceased person’s spouse (or parent or guardian, if the deceased was a minor), the executor or administrator of the estate, or anyone else who is authorized to pay the debts from assets in the estate. Debt collectors also may communicate with family members and others to locate someone who is authorized to pay the deceased person’s debts from the estate. The commission said this was in the best interest of everyone involved because it could help prevent some estates from going through the lengthy probate process.
  “The commission has learned that, to recover on a decedent’s debts, some debt collectors contact the decedent’s relatives, although these relatives may have no authority to pay the debts from the decedent’s estate and no legal obligation to pay the debts from their own assets,” the regulators wrote.
  “The commission recognizes, however, that imposing unnecessary restrictions on a debt collector’s ability to collect a decedent’s debt from the person authorized to pay those debts may instead cause some debt collectors to seek to recover by invoking the probate process, imposing substantial costs on the estate and delaying the distribution of assets to heirs and beneficiaries.”
• At the same time, however, debt collectors may not mislead individuals into believing that they have the authority — or, worse, the obligation — to pay the decedent’s debts when they do not.
• “A consumer in this vulnerable condition may mistakenly identify himself as the person with whom the debt collector should be speaking,” FTC Commissioner Julie Brill said in concurring with the panel’s decision. “Worse still, he may end up feeling as if he has an obligation — legal, moral or otherwise — to pay the debt from personal funds, even though debt collectors cannot legally ask him to do so.”
  She said the policy is crafted to limit potential abuses. Debt collectors, for instance, must specifically mention that repayment must come from the deceased’s estate and that the person being contacted is not required to repay the debt out of his or her own pocket or with assets jointly held with the deceased.
• Debt collectors seeking to identify someone who is authorized to pay the deceased person’s debts from the estate may not use the word “debts.” Instead, they can say they “wish to discuss payment of the deceased person’s bills.
  “Such a reference balances the legitimate needs of the collector with the privacy interests of the decedent,” the FTC ruled.
• Debt collectors may not contact family members and others “at unusual or inconvenient times or places.” On the other hand, they do not have to observe any sort of “cooling-off period” in the immediate aftermath of a person’s death.

“The FTC recognizes that many family members may be vulnerable emotionally and psychologically in the aftermath of a relative’s death,” the commission concluded. “But the record does not indicate a significant incidence of calls by collectors immediately following the debtor’s death.”

Consumer advocates want more
Still, the guidelines don’t go nearly far enough for many consumer advocates and legal representatives.

Lamet, for instance, said the burden should fall on debt collectors when it comes to identifying who — if anyone — can be tagged with the deceased person’s debts. Court record and other documentation should be researched, he said. Cold calling by debt collectors should be ruled off limits.

“They should be required to find out whether or not this individual they’re calling is responsible for the debt before they call,” Lamet said. “If not, they should not be permitted to call these people. Allowing them to call and put the burden on the consumer to determine whether they owe that debt is very, very  weak.”

He and other consumer advocates advise people receiving such calls or letters to, once again, say nothing of substance during the initial contact. Then, they should seek assistance from a local credit counselor or attorney, or at least do their own research by reading carefully through the FTC’s new guidelines or its consumer advisory.

Leading representatives of the collection industry, however, said the new guidelines seemed fair and balanced to them.

David Cherner, corporate counsel at ACA International, an association that represents 5,000 debt collection companies and other entities worldwide, said it “strongly supports the FTC’s policy statement to bring clarity to the complexities involved when collecting on a decedent’s debt.”

“The FTC’s policy statement provides essential clarity, which is helpful for debt collectors to continue engaging in decedent collection while being mindful and noting the appropriate precautions debt collectors must consider when communicating with consumers regarding a very sensitive matter,” he said.

Regulators approve
The North American Collection Agency Regulatory Association, which represents collection agency regulators in 25 states and Canada, endorsed the FTC’s action.

“We are in favor of this policy statement and believe that it certainly provides clear guidelines in the collection of these sensitive financial obligations,” said Kelly Mack, the group’s president and a lead financial examiner for Maryland’s commissioner of financial regulation.

Mack said the group believes the moves “are tailored to effectively collect these type of debts and at same time protect the grieving parties from feeling obligated to personally settle the financial affairs of their deceased loved ones.”

The group, however, urged regulators at all levels, to remain diligent, given the past performance of some in the debt collection industry.

“We are hopeful that the FTC and state regulators will aggressively police the new standards to ensure that collection letters and phone calls do not have the effect of pressuring relatives of the decedent to personally pay debts for which they are not legally liable,” Mack said.

“I believe the most important single thing, beyond discipline and creativity is daring to dare.”- Maya Angelou

Out of touch or out of their mind? Maybe both!

In a recent survey conducted by a BIG benefits management company (a management and human resource consulting firm), they asked 365 CEOs and sales management executives, “What are the three key factors that separate high performing sales professionals from moderate to low performing sales professionals?”

Both CEOs and C-level sales executives (all people who don’t sell, but rely on their salespeople to produce sales so that they can get paid), ranked “self discipline/motivation” as the most important.

Next in line were, “customer knowledge,” “innate talent/personality,” and “product knowledge,” and further down the list were “experience” and “teamwork skills.”

Totally bogus.

These are qualities of corporate greed, not value, service, or help – the three things that customers require to give business and maintain loyalty.

MAJOR DUH: When “survey” companies ask questions of people, why don’t they ask the people actually doing the work?

I’m a writer, but I’m also a salesman. I make sales and sales calls every day. If you’re interested in the most important factors of a high performing salesperson, let me give you a realistic list of success characteristics.

1. Perpetual, consistent, positive attitude and enthusiasm. This is the first rule of facing the customer, facing the obstacles, facing the competition, facing the economy, and facing yourself.

2. Quadruple self-belief. Unwavering belief in your company; unwavering belief in your product; AND unwavering belief in yourself are the first three rules. But fourth is the most critical of the self-beliefs. You MUST believe that the customer is better off having purchased from you.

3. Use of creativity. Creativity to present ideas in favor of the customer, and creativity to differentiate you from the competition.

4. Ability to give and prove value. To prove the value of your product or service, and your ability to give value beyond the sale to the PROSPECT so you can earn the order, the reorder, and the loyalty.

5. Ability to promote and position. Personal use of the Internet to blog, ezine, utilize social media, and achieve Google top ranking, so your customers and prospects will perceive you as a value provider and a leader in your field.

If you’re thinking that our economic crisis was in some way the fault of homeowners who couldn’t afford their mortgages, please consider the following:

At the end of 2007, there were roughly $1.4 trillion in sub-prime mortgages in this country.

If “irresponsible sub-prime borrowers,” caused the meltdown, then $1.4 trillion would have solved the problem in its entirety, right?  Because that’s all the sub-prime loans there were.

But, between the Federal Reserve, the FDIC and the Treasury over $13 trillion has been pumped into financial institutions to fix the “housing correction,” which is what Hank Paulson was still calling our economic collapse as of November of 2008.

At the end of 2008, there were $11.9 trillion worth of mortgages in this country.  So, with $13 trillion, the government could have paid off every single one… and still had a little over a trillion dollars left over.

But there’s a lot more to the economic problem than that, explains Nomi Prins, my new favorite financial uber-genius and author of “It takes a Pillage.” Wall Street had been playing the leverage game… somewhat like they did in the 1920s, I suppose… but on mega-steroids.  Leverage means borrowing on assets, and Wall Street banks were leveraged by 30:1, commercial banks by 10:1, not including their “off-the-balance-sheet” holdings, which could make their leverage ratio significantly higher in many cases.

So… in “Pillage,” Nomi Prins explains in terms anyone can understand that factoring in the leverage at 11:1, we’re looking at a $140 TRILLION economic problem… yes, you read that correctly… that’s trillion, with a ‘T’.  Our Wall Street bankers, through the abuse of the securitization process and excessive amounts of leverage, created a potential tab of $140 TRILLION for the people of this country to pick up.

Securitization is the process of packaging loans into securities that are then be sold to investors, called Asset Backed Securities (or ABS).  Inside a given ABS, you might find 10% real loans and 90% bonds backed by those real loans.  Or there could be only 5% real loans.  The mortgage payments we all make are used to make payments that flow through the securities and to the investors who then invest by buying pieces of the ABSs.

“It takes a Pillage” is a book that’s absolutely jam packed with “Aha!” and “OMG!” moments, but one shines above the rest… What caused the financial crisis were the securities, or the “bonds”… not the loans.

We’re talking about a system that took on $140 trillion in debt on the backs of just $1.4 trillion in real loans.  And it may be much more than $140 trillion, we don’t really know because we’ve allowed the market to remain unregulated.  The $1.4 trillion is based on leverage at 11:1.  It could very well be some multiple of that amount.

Issuers of ABSs, who were Wall Street’s investment banks earned about $300 billion for packaging and selling these “assets,” packaging the CDOs we’ve all heard about paid the best.  Who bought ABSs?  European and the global banks, insurance companies, and pension plans bought a whole lot of them.  And they bought them with borrowed money.

They bought them because Wall Street told them they were safe… triple A rated… and even better they could be insured with Credit Default Swaps, too!  What was not to love?

Hundreds of trillions in “structured assets”, ABSs, MBSs, CDOs, CDOs Squared, and of course synthetic CDOs, which are entirely, made up of credit default swaps, all deriving their value based on $1.4 trillion in mortgages.  All of those structured investments, once demand for them abruptly dried up, are what we came to know as “TOXIC ASSETS.”

Prins makes it very clear that toxic assets are not the same as defaulted sub-prime loans.  The fact is, Nomi says, that every single sub-prime loan in the country could have defaulted and all of the homes attached to those loans devalued to zero… neither of which happened… and the banks in this country would not have become insolvent… not even close.

The toxic assets lost their value starting in the summer of 2007, not because sub-prime loans defaulted, but because no one wanted to buy them anymore.  After Standard & Poors and Moody’s lowered their ratings on just 1% of the MBSs outstanding on July 10, 2007, investors no longer trusted the triple A ratings.  If some bonds were improperly rated, the thinking went, what about all the others?

I’ve read just about every book on the meltdown that’s been published in the last two years.  From “Too Big to Fail,” to more recently, “Crash of the Titans,” which is about Bank of America’s acquisition of Merrill Lynch, and “It takes a Pillage” filled in so many blanks for me I couldn’t possibly count them all.  Nomi is a very down to earth person too, and it makes reading her easy like Sunday morning.  She’s snarky at certain moments, but she delivers it straight most of the time so you won’t get distracted.

I read her book and was on the phone the following morning with my friend in New York, Danny Schechter, who produced the movie, “Plunder – The Crime of Our Time,” which is all about the housing meltdown and foreclosure crisis and if you haven’t see it yet, you really should order a copy on Amazon right away.  Nomi appeared in Danny’s film a, so I knew he could put me in touch with her, and she responded to my email right away.  (She’s even agreed to an interview, so look for a podcast coming soon, I hope.)

Nomi is smart… I mean scary smart.  Like, I’ve always been considered smart too… near the top of my various classes, 1380 SAT scores about a hundred years ago, if that means anything, but Nomi is so far off the charts that I can’t even believe it.  I don’t remember anyone like her in college or graduate school.  Talking to her is like talking to a walking encyclopedia of the financial history of the United States… but one that speaks English like the rest of us.

By the summer of 2006, the housing bubble had popped.  Greenspan had raised interest rates 17 times in a row by then.  But, starting on that July day during the summer of 2007, before most people had any idea what was happening, the bond/credit markets froze solid as money stopped moving… banks started hoarding cash and soon no one would be able to get a mortgage or refinance one… and housing prices started to fall fast.

After that, anyone that had bought a home during the preceding years found himself or herself increasingly underwater.  One couple I know, with an 850 credit score by the way, lost a home to foreclosure and filed for bankruptcy.  He was a very successful dentist and she a hospital administrator.  Their crime?  They got caught buying a home… and selling one at the worst moment in US history.

So, our government pumped $13 trillion into banks, financial institutions and others in this country since the fall of 2008.  We allowed just about any business that wanted to become a “Bank Holding Company,” so they could qualify for the federal bailout programs.  (As an example, did you know that American Express Travel Services became a BHC in order to receive $4 billion in taxpayer dollars?  Why? What do they do?  Arrange vacations for rich people?  Were “they too big to fail,” too?  Nomi covers it in “Pillage.”)

And today, the only mortgage lending in this country comes from the federal government… Fannie Mae, Freddie Mac and the FHA.  So, we’ve already nationalized mortgage lending in this country.  We had no choice but to do that because if we didn’t, there would be no mortgage lending in this country.  Citibank and Bank of America have been nationalized too… I know we don’t call them “nationalized,” but they ARE both nationalized.

(Citibank, for example, has been given over $400 billion in government loans and loan guarantees.  BofA has been received over $200 billion. We still guarantee Goldman Sachs bonds… meaning we are co-signing for their debt.  Want to see the numbers in detail, visit the “Reports” tab on NomiPrins.com… you won’t believe it.)

General Motors had to come to congress for a loan at the end of 2008… why?  Well, for one thing, in 2008, they missed their forecasts by 2.4 million cars… we couldn’t finance one so we couldn’t buy one.  And the bond market was broken, so they couldn’t issue bonds as they normal would.  We lost tens of thousands of jobs when they filed bankruptcy.

Unemployment started rising as we stopped spending.  And we entered a deflationary spiral… the same one we’re in today.  There’s no double dip, it’s the same “dip.  The reason they can say that the recession ended was because of the trillions we were pumping into the system.  Among other programs, the fed bought $1.5 trillion in mortgage-backed securities between 2009 and 2010, but that’s over now, and the downturn is back in the game.

We’re just about at the end of QE2 now, and we don’t have any more stimulus money to artificially stimulate our economic situation… so things are already returning to their downward slide.  Home values nationally have fallen 57 months in a row… and they’ve fallen faster and further than during the Great Depression.

The sooner we face the reality of the situation, the sooner we can start to rebuild our economy.  All we’ve done so far is pump money into insolvent financial institutions, while we’ve let the American middle class sink into an abyss from which we will not recover in my lifetime… and I’m turning 50 on Friday of this week.

You see… all that government spending, as we like to call it… is really US… we ARE the government… it’s OUR money the government is spending.  All those trillions are coming out of OUR pockets, and the pockets of our children and their children.  And a few hundred billion has gone into the pockets of our bankers in the form of bonuses… and no one even seems to care.

And still, all that many people want to talk about is how some homeowner must have been living beyond their means and deserves to lose their home.  Don’t bail out irresponsible sub-prime homeowners, right?

According to a study published by the Washington Post, most Americans do not understand what a credit score means or how their score will affect their ability to get a mortgage, car loan, or a credit card. This comes from a survey of 1,000 adult Americans commissioned by the nonprofit Consumer Federation of America and the lender Washington Mutual Inc. Also revealed was that the average American’s knowledge of credit scores has not improved since the last time the survey was conducted, two years ago. “Even those who have obtained their scores have serious knowledge deficiencies,” said Stephen Brobeck, the federation’s executive director.

• The percentage of those who know the purpose of credit scores, to show their risk of not repaying a loan, has risen from 27 percent to 29 percent since 2005.
• The percentages of respondents who incorrectly think that income, age and education influence their scores increased.
• In addition, many said they think their state of residence and ethnicity affect their scores. They do not. Their payment history and credit lines do.
• Perhaps most disturbing to those who commissioned the survey: Only 24 percent know that the minimum score typically needed to qualify for a low-cost mortgage is 700. “A credit score cannot be meaningful if you don’t know that information,” Brobeck said.
• Fair Isaac Corp.’s FICO credit score, the nation’s most widely used formula, ranges from 300 to 850.
• Borrowers with scores below 600 are typically charged high “subprime” loan rates. Those with scores exceeding 760 get the lowest rates. And each consumer has more than one score. Each of the three major credit bureaus, Equifax, TransUnion and Experian, generates a score

Can a quick swipe satisfy feelings of inadequacy?

By Kelly Dilworth

Trying to make it in the real world — and build a solid financial life when you’re just starting out — can often feel like a losing battle. This is especially true these days with high food and gas prices, sharply rising college tuition and health care costs and a steep unemployment rate. However, research shows that for some 20-somethings, it may just take a quick swipe of a credit card to feel like they’ve got everything under control.

A study from Ohio State, published in May 2011 in the Journal of Social Science Research, found that when young adults from poor and middle-class backgrounds used student loans and credit cards to finance their uncertain lifestyles, they felt a temporary but powerful boost in self-esteem and in feelings of mastery over their environment.

“Young debtors experience debt as empowering,” wrote the sociologists who researched and wrote the study — lead author Rachel E. Dwyer and Randy Hodson of Ohio State, and Laura McCloud of Pacific Lutheran University. When young people in their early to mid-20s take advantage of their access to credit, they feel that they have “prepared themselves to meet the future — at least until the full requirements of repayment ensue.”

The study’s conclusions were derived in part from interviews with 3,079 young adults ages 18-34 that were conducted on behalf of the U.S. Bureau of Labor Statistics for a biannual survey on American youth. The samples for the study were collected before 2005 — well before the impact of the recession may have caused young people to rethink the impact of their debt. However, the researchers say that the findings are a cautionary tale for young adults who use debt to purchase a lifestyle they couldn’t otherwise afford.

The road to debt When older adults think about paying down large amounts of debt, they often imagine feeling weak, powerless and out of control. However, some 20-somethings say that it’s liberating to be able to use debt to achieve a lifestyle they always wanted — and the interest that they pay later is worth the extra cost.

Take, for example, Meredith Blount, a 27-year-old lawyer in New York City. Blount grew up poor in a small town in Central Florida and knew from an early age that the only way to afford the education and lifestyle that she dreamed of was to purchase it with credit. “I had to come to terms with the fact that I had to take on a lot of debt to support myself in the way I want to and give back the way I want to,” says Blount.

Blount took on $410,000 in student loans in order to finance an undergraduate degree, a master’s degree in finance and a law degree from a prestigious university in Tennessee. “You have to get that education in order to be accepted into the real world,” says Blount. “At least in the real world I wanted to be in.”

Blount says that her access to credit also allowed her to accumulate invaluable experiences that helped broaden her perspective. For example, after college, Blount racked up about $5,600 in credit card charges that she mostly used to travel to India, Costa Rica, Spain and Peru. The experiences were worth the charges to her credit card, she says, and her income as a lawyer allows her to keep up with the monthly payments.

Blount says that she doesn’t regret most of her debt. However, experts worry that this kind of borrow-now, pay-later attitude can lead to frightening consequences for those who find themselves saddled with ballooning interest payments. This is especially true for those who never break the habit of using credit to fund their preferred lifestyle.

When credit becomes addictive
The researchers at Ohio State believe that young adults tend to use debt not just to exercise control over their circumstances, but also to increase their status in the eyes of others and to boost their self-worth.

For example, the researchers say, a young adult who is just starting out may use a credit card to purchase appropriate clothes for a job interview or to purchase entry into a fraternity or sorority that provides valuable social connections that can be used to get ahead. It isn’t until they reach their later 20s that they begin to realize the full impact of that debt.

Jason Eichacker, 31, of San Jose, Calif., for example, used debt throughout his 20s to help finance expenses that helped move him closer to his goals. “When I needed professional looking clothes or textbooks, I just put it on my card,” says Eichacker. To justify it, he told himself, “‘You know what, I’m going to make good money. I’ll be able to pay it off pretty quick.’”

Unfortunately, Eichacker’s habit of using credit to finance his aspirational lifestyle later spiraled out of control when he opened his own business and used business and personal credit cards to purchase what he needed. “When the business foundered, I had to declare bankruptcy,” says Eichacker. He now receives collection calls almost daily and his personal relationships have suffered as a result of his wrecked credit history.

Eichacker admits that self-esteem issues and an early concern with status and control over reaching his goals were at the root of his behavior. “It gets down to the picture in my mind of how I was supposed to look like,” says Eichacker. “I was more concerned with that than I was about how my credit would be down the line.”

Power and status matter, say researchers
Young adults’ desire to look good in the eyes of others and to feel more powerful than they are could also be a key reason why they are so willing to take on heavy debt loads, say experts.

“Desire to be as high in the hierarchy as possible creates a powerful psychological state,” says Adam Galinsky, a professor at the Kellogg School of Management at Northwestern University. And when we’re feeling like we’re low on the status totem pole, we find ways to compensate, including making status-based purchases that make us feel better and more in control.

Derek Rucker, also of the Kellogg School of Management, agrees. Rucker and Galinsky co-wrote a paper in 2008 that found that when consumers are feeling low on power, they compensate by spending more on high-status items.

“Buying things is a way to alleviate [a feeling of powerlessness]” says Rucker. “It might be only temporary, and so I continue to buy and that’s how I accrue debt. When consumers feel powerless, they spend in ways that help them accumulate power or at least the psychological feeling of power.”

Those findings correlate with the Ohio State study, which found that young adults who felt the most empowered by their ability to take on debt in order to buy experiences or things were from a low-income or middle-class background. Those from an upper income bracket, in turn, appeared to get no psychological benefit from their debt.

“The wealthiest young people have the most resources and options available to them, so debt is not an issue for them,” Ohio State’s Dwyer explains in a press release. “The groups that most need the debt — the middle and lower classes — get the most benefits to their self-concept, but may also face the greatest difficulties in paying off what they owe.”

Mixed messages on credit and debt
Many young people have also learned that they need credit — and a solid credit history — in order to live a normal, middle-class lifestyle. The problem is they sometimes conflate their ability to access credit and build a good credit score with their value as a person, say experts. And this, too, can lead to a slippery slope toward excess debt.

Michelle Barnhart of Oregon State University co-wrote a study published online in April that found a startling correlation between bank loans and self-esteem. Researchers interviewed 27 white, middle-class consumers in 2006, well before the recession, and found that many of the young people they spoke with measured their self-worth by the types of loans that they were approved for.

“A couple said things like, ‘Well, you know, I went to get a car and the car dealer ran my credit score and my income, and they said that I was good enough for the car I wanted. By implication, they were saying they deemed me good enough to get that car,’” recounts Barnhart. “That really intrigued us. It makes you feel really good about yourself when your creditors are willing to loan you this money.”

At the same time, says Barnhart, researchers found that some of the young adults in their study viewed their credit scores as an essential yardstick to measure how well they were living up to expectations. “The credit score indicates something to them about their value as a person,” says Barnhart. “The ones who had bad credit issues recounted those times as feeling really bad about themselves.” Then, when they managed to rebuild their scores, they felt good about themselves again. “Rebuilding your credit score is almost rebuilding you,” notes Barnhart.

But if you find yourself already deep in debt, Sullivan adds, “stop digging. Whenever you find that your debt load is too high, whenever you look at it and see what it’s costing you and it becomes alarming because you know it’s more than you can handle, stop digging. Stop borrowing.”

Outcry from bankers wins them a break, but fees will still be halved

By Connie Prater

Debit card swipe fees paid by merchants and retailers to large banks will be capped at 21 cents, according to rules finalized Wednesday by the Federal Reserve Board.

The decision on the fees, paid indirectly by consumers each time they swipe a debit card at a cash register, was a win for bankers and a loss for retailers and sent bank stock prices up slightly in afternoon trading. The caps — as originally proposed — would have been much worse for bankers, dropping the fee all the way from its current average of 44 cents down to 12 cents. The fight over the fee has pitted banks and credit unions against retailers in a political battle that has raged for months.

The Fed “has taken a significant step in reducing the harm that could have resulted from the proposed rule,” Frank Keating, president of the American Bankers Association trade group, said in a statement. Even so, he added, the cap will take 45 percent of the revenue banks now receive from swipe fees, which will force them to charge “higher fees for basic banking services.”

Retailers, however, were not pleased with what they called watered down reforms: “We are extremely disappointed that the Federal Reserve chose to be influenced by special interests,” Matthew Shay, president of the National Retail Federation, said in a statement.”While the rate will provide modest relief, it does not go far enough.”

Cap delayed until Oct. 1
The Fed also pushed back the start of the debit card limits to Oct. 1, 2011, giving banks and credit unions nearly three additional months to implement the new debit card rules. Under the Fed’s initial proposal, the debit card restrictions would have begun on July 21, 2011.

“I think this is the best available solution that implements the will of Congress,” Fed Chairman Ben Bernanke said before board members voted 4-1, with Elizabeth Duke dissenting, to approve the rules. In the massive Wall Street reform law that passed in 2010, Congress mandated that the Fed create rules to limit how much banks and payment card networks could charge merchants for the swipe fees, more formally called interchange fees.

The fees are borne by retailers each time customers swipe their debit cards to make purchases, and are passed along as part of the price consumers pay for goods and services. The fees are set by VISA and M/C and generate an estimated $1.8 billion a month in revenues for banks. Convenience store and gas station owners, grocers, large retailers and restaurant owners have long complained that the fees have skyrocketed in recent years and added to their cost of doing business.

Merchants currently pay interchange fees of about 1 to 2 percent of each transaction — or about 44 cents on the average purchase. The Fed’s original proposal called for caps of 7 cents to 12 cents per transactions. However, banks and credit unions complained that regulators had not taken all of the costs of processing debit card transactions into consideration when setting such low amounts. Their arguments were persuasive because, in addition to the higher 21-cent transaction fee, the Fed is also allowing banks to charge an additional 1 cent per transaction to cover costs for fraud prevention. Because of this and a few pennies for other adjustments, “A covered issuer could receive up to 24 cents for the average transaction,” Mark Manuszak, who heads research and statistics for the Fed, told board members.

Dennis Lane, a 7-Eleven franchise owner and spokesman for a national swipe fee reform group, said the Fed had weakened the swipe fee rules to the detriment of merchants like him. “It is beyond disappointing that after fighting for months to bring fairness and transparency to debit card swipe fees in order to give hard-working Americans a much-needed break, the Fed has given in to the pandering of Wall Street,” Lane said in a statement.

He added: “For a merchant like me, who sees high debit use for small ticket items, today’s rule will likely increase my interchange bill. This is not the relief that Congress intended when it passed swipe fee reform last year … Wall Street should expect that small business owners are going to continue to fight until we see that the relief that Congress intended — meaningful reform that will provide important savings to small businesses and consumers across the country that are struggling to make ends meet — is implemented once and for all.”

Small banks exempt
Fed board members expressed concerns that the final rules will do nothing to help small banks and credit unions. Banks with less than $10 billion in assets are exempt from the debit card swipe fee limits. That means those small banks can charge higher interchange fees for use of their cards. However, as Bernanke and others have pointed out, merchants may not accept cards that carry these higher swipe fees and small banks may not reap the benefits of an exemption.

The proposal had unleashed a flood of lobbyists on lawmakers, as financial institutions sought to have the restrictions rolled back and retailers and consumer groups rallied behind them. That lobbying effort culminated in a U.S. Senate vote June 8 that would have delayed the restrictions to allow a study of their impact on small banks and credit unions. The effort to delay the swipe fees failed by six votes.

Debbie Matz, chairman of the National Credit Union Administration, applauded the Fed for taking small financial institutions’ concerns into consideration.

“NCUA had strong concerns about the initial interchange fee proposal,” Matz said in a statement. “The final regulation adopted today, however, addresses concerns raised by NCUA during the rulemaking process … The higher interchange fee amounts included in today’s rule are a step in the right direction.”

How many times can a creditor sell my old debt to other businesses? I have an old debt from 1989 and different companies “buy” my old bill, so that it stays on my credit reports. It just goes on and on and on.

Negative credit information stays on a report for seven years. You would surely think a bill from 1989 would be long gone by now.

It’s not always that simple, however. When you say “from 1989,” is that when you took out the loan? Or is that when you made your last payment, or possibly when you talked to the creditor? It makes a difference.

Rod Griffin, Experian’s director of public education, says, “The original delinquency date delinquency date, or date of first delinquency, is the date from which the seven-year period is measured. The seven-year period is measured from the original delinquency date after which the account was never again current. That is what causes the confusion.”

People often ask if the seven-year period resets if they make a payment. It does not reset, per se. It’s a separate delinquency and date. Griffin explains: “It is possible for an account to have more than one original delinquency date” if the consumer restarted payments and then defaulted again. “For example, if a person is late this month, they would have an original delinquency date in June. If in July they made two payments, the account would become current. If they then missed a payment in August, they would have a second original delinquency date because the account was current between the two missed payments. The first late payment would be deleted seven years from June; the second would be deleted seven years from August.”

If it were shown in a grid it would look something like this (C=Current, L=Late):

If the account were never again brought current after the August missed payment, the account would eventually be charged off and sent to collections. Because it was never again current, seven years from the August missed payment, the original account and any subsequent collection would be deleted.

Neither interest charges nor your account being sold to another collection agency has anything to do with your delinquency date. “Again, there would likely be a new ‘date of last activity’ each month, but it has no bearing whatsoever on when negative information is deleted,” says Griffin. “Federal law requires that lenders report the original delinquency date of the account, and that collection agencies carry over that date so that any collection account can be deleted at the same time. A collection account is considered a continuation of the original debt.”

It is a violation of law for a collection agency to report old past-due amounts as if they are new again when the debts are sold. If an agency persists in reporting old debts with “updated” activity dates, you may have a legal case against them. Georg Finder, an independent credit evaluator, knows of plaintiffs who have been awarded damages in cases where collection agencies have willfully disregarded the rules and caused financial harm to the plaintiffs. He says, “It is very important that good records of the account charge-off, and of subsequent collection activity, be kept by the consumer to document the abuse and violation to her.”

Here’s what you should do with an old debt still showing up on your credit report:

1. Check your Credit report and make sure the old debt — not some more recent one — is actually showing on your report.

2. If it’s still being reported, send a letter to the collection agency, that currently holds the debt, and tell them to stop reporting this to the credit reporting agencies or you will protect your rights.

3. Send letters to all three credit reporting agencies and tell them why the debt should not be on your report.

4. If that does not correct the problem, seek legal help. Contact your bar association or a low-cost legal help organization.

Take care of your credit!

If you need assitance Premier Credit & Debt solutions offers a free consultation to reveiw your status.

www.pcm-credit.com or www.primodebt.com

Some financial truisms have a kernel of truth, others axioms should get the ax

By Dana Dratch

There are many money “truisms” that can keep you in the poorhouse.

You’ve probably heard them all, from anciefnt admonishments against any borrowing, to modern urban legends such as “you have to carry a balance to build credit.”

So while some money rules should be taken with a grain of salt, others just need to be thrown out with the trash.

“A lot of times there’s that kernel of truth in there,” says Bill Druliner, financial counselor and group manager for GreenPath Debt Solutions. “Or it’s true in some situations and not in all in others.”

Check out these five rules you might want to start breaking:

Rule 1: Pay off your mortgage as soon as you can.
“Sometimes it’s true, many times it’s not true,” says Wayne Bogosian, president of the PFE Group, and co-author of “The Complete Idiot’s Guide to 401(k) Plans.” “It all depends on the interest rate you’re paying.” If you have a relatively low interest rate around 3.5 percent, “after taxes, it’s closer to 2.5 or 2 percent,” he says. “That’s pretty cheap money.”

So if you were to take that “extra” money you’re thinking of putting toward the mortgage, and invest it into your 401(k), could you get better than the rate you’re paying on your home loan? “In most cases, yes,” says Bogosian. “Use the money to build wealth.”

Paying down the mortgage doesn’t lower your monthly payment,” he says. “It takes a highly liquid asset — cash — and converts it into a highly illiquid asset — home equity.”

“Once you bury your cash inside the equity in your house, the only way you can get it is to take out a home equity loan,” says Bogosian. “And the bank’s going to charge you to get at it.”

His advice: If you have maxed out your 401(k) contributions or need to build an emergency fund, put the extra cash into a Roth IRA. That way, you have an easy tax-efficient way to save for that rainy day, and if it goes unused, it goes toward building your wealth.

“Most people we’ve met don’t have enough cash in their emergency fund, anyway,” he says.

Rule 2: Don’t charge if you can pay cash.
“That’s not necessarily true, particularly if you can get a benefit from using your credit card,” says Bogosian. “If you are the person who is morally committed to not paying interest, go ahead and use that card for everything. You will get points or cash back or both. The caveat here: When that credit card bill comes due, you pay it.”

“You’ve got to know what you’re doing,” says Bogosian. “If you forget along the way, you’re in trouble.”

For most of us, that means the money is already in the bank. But if you’re in an iffy financial situation (waiting on a bonus check that might not come, in a shaky job situation), you might want to either use cash or spend only what you already have.

Related to the “never use cash” rule is the “pay off the balance every month” corollary. But there are a few lucky souls for whom this might not apply.

The exception is if you have one of those no-interest credit cards or loans, says Bogosian.

He recently took out a 12-month, no-interest loan for $5,000. For 11 1/2 months, Bogosian will leave the repayment cash in an interest-bearing account.

When it comes due, “I’ll write them a check for $5,000 and keep the interest,” he says.

Rule 3: College kids need to build credit to get a job.
Not necessarily. “It really depends on the individual,” says Doug Borkowski, director of Iowa State University’s Financial Counseling Clinic.

A couple of years ago, an Iowa State student got a credit card with an $8,200 limit to build credit. She applied for a second one with the same bank. “By the time I saw her four months later, she had $16,000 worth of credit card debt,” says Borkowski.

Another student he saw came in with $52,000 in credit card debt as a senior. The student’s biggest expense? Meals for friends.

A lot of personal financial textbooks insist students must get a credit card to build credit in order to get a job, because an increasing number of employers check your credit.

While building credit is important for other reasons, “As far as what I hear from employers, that’s not necessarily true.” No credit is vastly different from bad credit, he says. And while good credit’s a plus, “they would rather be dealing with someone who didn’t screw up and has baggage.”

One test Borkowski recommends: Look at how you’ve managed your debit card.

Do you overdraft? Do you run out of money before you run out of month? Spend on wants versus needs?

Bottom line: You have the same amount of money, whether you pay by cash or credit card. If you can’t manage a debit card, you’re probably not ready for a credit card.

Rule 4: There’s a set percentage you should spend on items, such as home, car, food, or entertainment.
Big fallacy, says Druliner. It’s “my personal pet peeve,” he says.

Guidelines and rules of thumb are fun watercooler conversation, but they wrongly assume that everyone is the same, with the identical tastes and similar lifestyles and money goals.

“It really depends what your goals are, and what’s important to you,” says Druliner.

“Those percentages, if you don’t take them as gospel truth, can be OK,” he says. “But you have to look at what’s important to you in your situation and what you value.”

In the same way that some people will fill their homes with ultra-modern furniture and bright colors, while others prefer classic pieces or a background of neutrals. Neither is “right” or “wrong.” But each expresses the person living there.

Some folks may decide to live with friends and split the rent so that they can devote their cash elsewhere. Others may live frugally, putting money toward homeownership or a trip abroad.

The healthy take-away from spending guidelines: It’s fine to be aware of the rules of thumb. That way, breaking away from those money norms is a conscious decision. You’re actively directing your money toward those things that are important to you, rather than passively spending until it’s mysteriously gone.

Rule 5: To build credit, you have to carry a balance.
Totally wrong! But this is one urban legend that Durliner hears frequently, especially from people who are getting secured cards to build or rebuild their credit.

Getting a secured card can help you establish or re-establish credit by helping you compile a record of good behavior: using the card, getting bills and paying them on time. But you shouldn’t carry a balance if your aim is to build good credit.

Carrying a balance is bad for your credit rating. Instead, he recommends, use the card for small purchases “and pay it in full every month.”

“You don’t have to pay interest to rebuild your credit,” Durliner says.

First, if you’re rebuilding bad credit, make sure you’re addressing the mistakes that damaged your credit in the first place..

Then, if you want a secured card, shop the fees carefully before you apply, says Durliner. Often, the best deals are with a local bank or credit union. But you’ll usually have to approach them. Conversely, the companies that are soliciting you uninvited with flashy offers may be more expensive once you do the math, he says.

Says Durliner, “Sometimes the best deal is the one that’s not as noisy and in-your-face.”

Here are the facts behind three common myths:

Myth 1: When we marry, our credit histories merge.
There is no joint credit report or credit score. Your credit reports and scores remain separate, even after you change your last name.

Myth 2: I’ll be affected by his bad credit, or vice versa.
Marriage, in itself, can’t impact your credit. But, if you co-sign for your spouse, or if you open a joint account like a mortgage, credit card, or loan, it shows up on both your credit reports. His bad credit may impact your chance for approval and lower interest rates (and vice versa). More important, bad credit could signal harmful habits. Also, if your mate maxes out or defaults on a joint account, it can damage both of your credit scores and you’d both held responsible for any debts incurred.

Myth 3: When we marry, we’ll share all accounts.
Getting married doesn’t automatically merge any of your financial accounts; that decision is up to you and your spouse. But be smart and discuss each other’s credit history and financial position before tying the knot. Knowing the truth helps prepare you both to tackle any future financial strain.

Experts identify five mindsets that hinder your progress toward a debt-free life

By Allie Johnson

Turning your finances around is never easy — but mental money traps can keep you mired in money woes.

Whether you’re trying to get out of debt, improve your credit score or build your savings, experts highlight five common money mindsets that can hinder your progress.

Mental money trap No. 1 — All-or-nothing thinking

“All-or-nothing thinking is an absolute — either I do everything perfectly, or I’m just going to give up,” says Mary Gresham, an Atlanta-based psychologist who specializes in financial issues. All-or-nothing thinking is especially common when it comes to creating — and sticking to — a spending plan, according to Gresham. “People can get pretty perfectionistic about this,” Gresham says.

How to free yourself from the trap: To break away from all-or-nothing thinking, Gresham recommends thinking of your goal as a target to aim for — if you get close, or even if you miss by a lot, you’re better off than if you hadn’t tried at all.

Consider this spending plan example. “Say you plan to spend $100 each month on clothes, but then you go and spend $200,” Gresham says. “Instead of throwing out your entire plan, just say, ‘I’ll work on hitting that target over time,’ or ‘I’ll work on hitting my grocery target this month.’”

Mental money trap No. 2 — Unexamined spending

If you’re trying to fix your finances, you’ve probably looked at your spending — but have you really looked at it? Many people spend a lot on things that don’t really add much to their lives, says Dan Ariely, professor of psychology and behavioral economics at Duke University and author of “Predictably Irrational: the Hidden Forces That Shape Our Decisions.”

That’s partly because people tend to compare similar things — such as an expensive bottle of wine to cheaper bottle of wine — rather than coming up with other items they could buy for the cost of a bottle of wine, Ariely says. Also, people tend to have trouble predicting how doing without things will actually make them feel.

How to free yourself from the trap: Scrutinize your spending. Ariely recommends using dividing cash in envelopes designated for specific expenses (groceries, gas, entertainment, etc.) to make spending feel more concrete. He also suggests that before making a purchase, you ask yourself what else you could buy with the same amount of money. And, finally, test out your options. “People should experiment — try different things and see what works,” Ariely says. “Cut your cable bill and see how you feel for the next few months. Switch from an expensive smart phone to a cheap phone and see how that works for you,” Ariely says.

Mental money trap No. 3 — Fixating on the future

Do you dream of the day you’ll get your life back — after you fix all your problems with money? Money issues can seem overwhelming if you get too far ahead of yourself, according to Gresham. “Some people start thinking too far into the future, and they end up thinking a goal is too hard, too big or will take too long,” Gresham says. “This is particularly true with credit card debt — you might start thinking, ‘It will take me five years to pay this off.’”

How to free yourself from the trap: “You want to get a plan, stay in the present and work your plan every day,” Gresham says. Also, don’t wait for tomorrow to start enjoying life, says Larry Winget, author of “You’re Broke Because You Want to Be: How to Stop Getting By and Start Getting Ahead.” Winget says: “Still have a life — still enjoy what you have even if what you have is not very much. Figure out how to enjoy where you are.”

Mental money trap No. 4 — Avoiding money

Do you shove unopened bills in a drawer, put off looking at your bank statements and never get around to asking for a raise? If so, you might be practicing money avoidance — a money belief pattern that was found, in a study published this year in the Journal of Financial Therapy, to be associated with lower income and net worth. “It’s sort of a combination of a couple of attitudes — one that money is bad, two that rich people are evil, greedy, shallow, the list goes on,” says study researcher Brad Klontz, who is a psychologist and co-author of the book “Mind Over Money.”

Money avoiders, according to Klontz, tend to sabotage themselves and believe they don’t deserve money. Klontz says: “The irony is that people who hold this belief will often tell you they wish they had more money.”

How to free yourself from the trap: Klontz recommends taking a look at your past and even your family history to find experiences that might have led to the unconscious belief that money is bad. “Become aware of your beliefs — and just that awareness applied to your current situation can help you,” Klontz says.

Mental money trap No. 5 — Punishing yourself

If you’ve gone through your budget and slashed every latte and lunch out, you might be using money to punish yourself, says Amanda Clayman, a New York-based psychotherapist who specializes in financial wellness.

“Some people automatically eliminate everything they classify as frivolous — but that I would classify as self-care — and they say, ‘I’m not going to eat in any more restaurants. I’m not going to go on any more vacations,’” Clayman says.

How to free yourself from the trap: To approach money less punitively, Clayman says she pushes her clients to get past shame over money problems, and use money in ways that make them feel good.

On a practical level, that might mean finding ways to trim monthly spending on big-ticket items such as housing and car payments. Clayman says: “These higher fixed costs can actually be a bigger problem for a budget than the small things we think of as treating ourselves.”

In order to extricate yourself from any of these mental money traps, it’s important to try to change your thinking — and even seek help if necessary, experts say. Klontz says you need to be able to tweak ways of thinking that are keeping you from shaping up your finances. “The key to money health is having flexibility in your thinking,” he says.