Category: Extended Articles

Many consumers may be thinking of traveling abroad this summer and planning on dealing with credit card debt to ease transactions overseas. However, there are a number of things to keep in mind before finalizing plans.

One thing many consumers may not consider when they travel overseas is that their credit card can cause a lot of problems if they try to use it, according to a report from Investopedia. One of the biggest reasons for this is that many countries in Asia, Africa, Europe and even Central America have begun switching to a new credit card system in the last several years.

The little magnetic strip located on the back of nearly all credit cards issued within the U.S. may work here and in Canada, but the technology is relatively ancient and largely unsecure, the report said. As a consequence, many foreign nations now use the more advanced system known as "chip and pin." With this, all data is stored on a readable microchip embedded within the card, rather than the familiar magnetic strip. Because of this swap, which took place several years ago in many popular European and Asian countries, it may be difficult to find a business that can accept American credit cards.

In addition, many credit cards issued in the U.S. carry fees for being used in other countries, the report said. These are charged because of the cost associated with transferring U.S. dollars to the foreign currency, and can run as high as 3 percent of a transaction's total value. For this reason, consumers may end up paying more than they planned for all the purchases they make in another country for an entire trip, making it harder to get out of debt.

However, American credit card issuers may be wising up to the new trend, the report said. Many are now issuing credit cards with both the microchip and magnetic strip technology, and some have started to waive foreign transaction fees on certain accounts. These changes typically only affect the wealthiest borrowers, though,

It may also be a good idea for consumers to let their lenders know they plan on traveling overseas, as a large number of transactions in a foreign country within a short amount of time may set off red flags that leads to the card getting canceled because the institution may believe the purchases are fraudulent.

Thanks to one change the financial reform bill picked up in committee, it may now end up dead.

The financial reform bill has been seriously imperiled by the addition of $19 billion in bank levies while the bill was being hammered out in committee. According to a report from Business Insider, Massachusetts Senator Scott Brown will vote against the Dodd Frank Act because of the tax. That tax was added after both the House and Senate passed their versions of the bill, which were designed to help consumers reduce debt.

Business Insider points out that the tax is relatively small, since the money it asks for is spread across the entire American financial system. The tax was built into the bill to help pay for its implementation and enforcement, which therefore means that without it, the bill will cost American taxpayers $19 billion. However, despite the fact that Brown voted for the bill a week ago, he now opposes it, based solely on this tax.

"I’ve said repeatedly that I cannot support any bill that raises taxes," Brown said in a statement.

Without Brown, the bill’s passage is unlikely. Because every law that comes up for vote in the Senate these days requires 60 yeas to get passed, the Dodd Frank Act required two Republican votes, which it had a week ago. However, the death of West Virginia Senator Robert Byrd means that Democrat now requires three Republican votes, and Brown, one of the few from his party to vote for the law initially, has unexpectedly changed his position.

A report from Bloomberg said that lawmakers will reconvene to discuss the fee, which was added by Massachusetts Representative Barney Frank and signed off on by Senate Banking Committee Chairman Chris Dodd, and Democrats are backtracking on its importance.

“My hope is that our colleagues will see this as a more attractive pay-for proposal than the one we adopted about four or five in the morning,” Dodd told Bloomberg.

The proposed fix will pay for the bill by eliminating the Troubled Asset Relief Program, and raising the level of funds the FDIC must hold in reserves to insure bank deposits. The elimination of TARP alone is expected to pull together about $11 billion. The bill’s final approval is expected sometime this week, and while Democrats had hoped to get it on President Obama’s desk before July 4, that seems unlikely now.

Earlier this week, the Federal Reserve placed further restrictions on credit card companies, designed to make sure consumers aren’t getting gouged for already-costly mistakes.

Soon the days of exorbitant late fees will be gone, according to an article on the personal finance website Billshrink. Central among the numerous changes the Fed introduced that will curb credit card companies’ costly practices was a cap on most late fees of $25 for first-time offenders. Those that are late on more than one of their last six payments will see that fee increased to $35. Similarly, no fee can exceed the minimum payment on the balance, meaning that if the minimum is $20, consumers cannot be charged anything more than that.

The new rules also barred companies from charging multiple late fees on one occurrence, and eliminated account inactivity fees, the site said. In addition, lenders are required to give 45 days’ advance notice on any interest rate increase, which clearly states the reasons for it. Banks are also now required to review all interest rate increases every six months, and, if it finds the increase to have not been "appropriate," will have 45 days to reduce the rate. Another rate reduction is required if the reason for the rate increase – like frequent late payment – no longer exists.

A Bankrate report said that there can be restrictions on these rules. For example, banks can still charge more than $25 if they can show that the costs resulting from the late payments justify a higher fee, but that would have to be disclosed up-front.

In addition, Bankrate said, just because the banks can no longer charge annual fees or inactivity fees doesn’t mean they can’t simply close the accounts they would have charged in the past, or reduce the credit limit on them.

The rule also does not prevent credit card companies from creating penalty interest rates. One expert told Bankrate that issuers are free to charge whatever penalty rates they want on seriously delinquent accounts, and the median penalty interest rate among the 12 largest issuers is 29.9 percent.

As for the rates that are reduced "if appropriate," Bankrate says that there is no hard and fast rule on the topic, so any increase that does happen might not be immediately repealed.

Consumers are always looking for ways to save money, and one easy way to do it used to be as simple as calling a credit card company and asking for a lower APR.

Back in 2002, 56 percent of credit card holders that called their issuers to request a lower rate got one with a single phone call, according to a report from the financial advice website Mint Life. Obviously those days are gone, but that doesn’t mean a company will never lower a borrower’s rate if they ask.

The trick is in negotiation. If consumers arm themselves with a bit of knowledge beforehand, they might be able to talk a lender into lowering their APR, the report said. Consumers should know their credit score, and whether their report is clean and free of errors, and then get their financial paperwork together. Some lenders may want additional paperwork that doesn’t show up on a credit report before lowering a rate, like proof of employment and income.

It’s also important to try to formulate a backup plan, the report said. Even consumers with great credit may find that the lender will deny their request, so they should be prepared to take their balance with the company that denied them and transfer it to another card, since the lender will be more likely to extend a lowered rate if they think they will lose business.

There are, however, risks. The report noted that if a consumer is denied, it’s very possible that their credit score will drop as a result. Calling lenders with the intent of lowering an APR will force them to look deeper into a consumer’s account and credit history, and, in some cases, to demand more paperwork. And if the company doesn’t find that the consumer has a good enough score to warrant a lowered rate, it is within their rights to lower the credit limit on the account in question. Not only will this hurt the account, but also the consumer’s credit score.

Even those that can’t get their APR lowered might find their lives made easier thanks to the Credit Card Accountability Responsibility and Disclosure Act. A recent MSN report said that any increase to the APR must be evaluated every six months, which includes any increases since January 1, 2009.