The IRS is finally considering at refund loans and whether they are being used by tax cheats in order to game the system. Many middle-class Americans are taking advantage of the system by falsely identifying their income in order to qualify. These loans are traditionally available to the working poor in order to help them attain temporary assistance but now many others are taking advantage of the program as a "free" loan opportunity. Clearly, this is a practice that has to stop and the IRS is definitely taking the right steps...

From Baltimore Sun:
Last week, the Internal Revenue Service said for the first time it will be looking at refund loans and whether they encourage cheating among tax preparers, as some critics claim. Sounds hopeful, though at this point the agency only is seeking public comment ... A refund loan is an advance on your tax refund - minus fees. The loan is repaid when the IRS deposits your refund in the bank ... Millions of tax filers likely will take out refund loans this tax season. Don't be one of them.

It appears as if the credit crisis is not only limited to people defaulting on home loans, it's now affecting the rich as well. Many millionaire investors around the world have begun pulling out a significant amount of money in order to reduce risk. Unfortunately, this is causing a lot of pain for money managers and those who manage cash for the rich. So much money being pulled out is also causing damage to the markets themselves, which continue to feel the effects of a lack of liquidity.

From The Guardian:
As the credit crisis drags on, not even the world's millionaire investors are immune from its effects, and the private banks which manage their money could be next to feel the pain. Rich investors are reducing leverage on their portfolios, robbing wealth managers of a lucrative income stream just as difficult financial markets cast a shadow over their results. As the credit crisis eats away the value of their assets, millionaires are paying back cash they borrowed for investment purposes to reduce risk, private bankers say.

Credit card companeis have been known to institute seemingly random rate increases for some time now and the practice was finally beginning to be brought to attention during 2006. However, the subprime meltdown along with a host of other problems buried it in the newsmedia. Perhaps it's time to bring this back to the public attention so that the Senate takes the time to continue their inquisition into this unfair practice...

From FWDailyNews:
In the midst of all the reports of home foreclosures and credit failures in 2007, an investigation that could affect anyone who has a credit card slipped under the radar. Spearheaded by Michigan Senator Carl Levin, the U.S. Senate Permanent Subcommittee on Investigations Hearing: “Credit Card Practices: Unfair Interest Rate Increases” met twice this past year, in March and December. While the senator doesn’t have another hearing scheduled soon, the investigation isn’t over, an office aide in Washington told me Thursday. What this is about is what Levin describes as arbitrary decisions by credit card companies to increase the rates on consumers’ cards, on what often seems like an inexplicable whim. The problem is, you agree to this whim when you get your credit card (read the fine print in your cardholder information packet).

Many residents of the UK are set to overpay on their credit cards and the same holds for many Americans. Credit card companies offer residents in both countries many opportunities to loan money with 0% interest for a certain time, yet many people are set to continue to make minimum payments and accrue interest. If you are one of these people, it is important to check into low interest credit cards at websites like CreditCards.com: http://www.creditcards.com/balance-transfer.php.

From TimesOnline:
NEARLY 7m people will pay over the odds for credit card debts they built up over Christmas, in the latest worrying sign for the Britain’s beleaguered economy. Research by Moneyexpert.com, a financial website, found that 6.6m people are not planning to switch to a cheaper credit card deal, despite the fact that they are paying an average 16.8 per cent interest, compared with 0 per cent on the best transfer deals.

Free balance are a great way to reduce your credit card payments by lowering your interest rates and a record number of credit card users are expected to make them during the first three months of 2008. Keep in mind, however, that balance transfers will still cost you money. The best ones will charge around 2.5% in order to transfer your balance - but this is still far better than paying the higher interest rates! Also, remember that the 0% interest rate is typically for a promotionally period only until it resets to a higher rate - so it is very important to get the card paid off during this time period.

From Motely Fool:
If you splashed out over the Christmas period, you could find yourself saddled with a large debt on your plastic. The New Year has arrived so now is the perfect time to get your finances back into shape which means switching to a 0% balance transfer credit card. That way you can put a temporary stop on your interest while you get to grips with your debt. Voila!

The evidence is piling up that American consumers are in deep trouble with credit. This latest report showed that deliquences across all consumers loans are at their highest rate since 2001 when we were in a recession. The highest number of deliquencies were present in housing and auto loans as home equity lines of credit have dried up; however, we are likely to see a continued rise in credit card problems despite more lenient financing terms.

From Mercury News:
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

No, it's not a scam letter you received in the mail! Millions of Visa and Mastercard users are eligible for a cash refund of illegal transaction fees that they paid during overseas transaction. The original lawsuit was filed because these fees were largely seen as hidden from consumers and therefore illegally imposed. So, how much do you get? Consumers who spent a short time overseas are eligible to receive $25 with minimal paperwork. Those that spent longer than a week or spent more than $2,500 are eligible for a larger refund if they fill out the paperwork for it. You can find more information and a link to the forms here.

From USNews:
Tens of millions of credit card users received letters in the mail over the past couple of months informing them that they may be eligible for a refund of the currency conversion fees paid during overseas transactions. The settlement was the result of a lawsuit alleging that Visa, MasterCard, and Diners Club did not disclose the 1 to 3 percent fees they charged on foreign transactions.

Many consumers who overextended themselves during Christmas may unload their debts onto the public by declaring bankruptcy. Sadly, many people continue to ignore the warning signs of debt and push their bills off during the holiday season. These bills will begin to surface again during the first three months of the year when many of them will become due. Unfortunately, many of these people will face insolvency as their only way out of debt. This is particlarly true given the issues faced in the credit and housing markets, which has substantially limited consumers' ability to repay their debts.

From Reuters:
Excessive spending over Christmas will fuel personal bankruptcies in the first three months of the year, a report says. Chartered accountant Grant Thornton predicts that 28,000 people will become insolvent in the first quarter of 2008, a third of whom are expected to file for bankruptcy as a direct result of debt racked up over the festive period.

Most Americans count their house as their single largest asset as it is used to back loans and build equity. However, a new trend in so-called "reverse mortgages" may be changing that fact. Now, mortgage companies are targeting seniors who are willing to part with their house in exchange for a monthly stipend (reverse mortgage). Under this arrangement, a senior is able to slowly sell their house over time until they die, at which time the house becomes property of the bank. The problem with this is that these mortgage companies are not only taking away a large asset (that is usually passed down to future generations) but also charge high fees for the loan that can result in homeowners receiving substantially less than they deserve.

From Kansas.com:
As living expenses--particularly health care costs -- rise while incomes remain stagnant, seniors are increasingly finding reverse mortgages a way to remain in their homes and make ends meet. There are downsides, including the costs--which can be as high as $8,000 to $9,000 for a $150,000 loan, for example--and the fact that consumers essentially give up what for most people is their biggest asset.

It appears that the consumer credit crisis that we have been predicting for some time is now finally beginning to hit the market. The housing boom has seen many consumers utilize their home equity lines of credit in order to pay off unsecured credit card debts. Now that that resource has dried up, many Americans are beginning to default on their credit cards. This has caused strain on banks that are now raising their interest rates in order to try and offset the higher defaults. Unfortunately, this will only compound the problem by making it even more difficult for Americans to get out of debt which will force more into default. In the end, someone's going to take the hit - whether it be consumer's with debt or U.S. banks (which are already beaten down) with debt when consumers declare bankruptcy.

From MarketWatch:
Faced with mounting account delinquencies, major U.S. banks are penalizing credit-card customers late on payments by hiking their accounts to maximum default interest rates of 30% and more -- even those with good credit records ... The decline in Americans' home equity due to slumping real-estate values is limiting cardholders' ability to pay off higher-interest credit-card debt with home-equity loans. As that resource becomes unavailable to more borrowers, experts say, lenders are taking aggressive measures to limit their exposure on unsecured credit-card debt.

Winona Daily News had an interesting article today on merchant credit card practices. Many people have seen the signs stating that credit card purchases under a certain dollar amount (or all credit card purchases in some places!) in order to cover their costs. However, all merchants are required to sign the same agreement with credit cards which specifically makes this practice illegal and subject to fines of up to $100,000. For example, on page 2-19 of Mastercard's agreement, it says that: "A merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge … in connection with a MasterCard card." So, next time you are charged, maybe you should try and argue it!

From Winona Daily News:
In response to letters regarding some merchants adding surcharges over the amount of purchase, I believe this practice is improper. Merchants enter into a contract with Master Card, Visa or Discover in order to accept these cards. In this contract, it shows that surcharges are against policy.

The holiday season has left many consumers with gift cards that they do not care to use, and this has created an entire secondary market around such gift cards. Along with a new market comes a new breed of criminals that are trying to scam consumers. Many small-time consumers are stealing gift cards and sell them on websites such as Storefrontbacktalk.com, which enables people to trade and sell gift cards. Others steal the numbers off of gift cards and then call in later on to see how much is left on the card - they then create counterfeit cards and sell them online. It's a growing problem that stores are just now trying to address...

From TheState.com:
The guy trying to unload his Cold Stone Creamery gift card on eBay because he says he's lactose intolerant might be a scam artist. Gift cards are more popular than ever, and this time of year Web sites are flooded with sellers hoping to unload unwanted cards, often at significant discounts. Some experts recommend that shoppers avoid such sites entirely.

Credit card pricing schemes can prove to be extremely complicated and they may be partly to blame for the problems that consumers are facing. The Chicago Tribune provides a great example: It's entirely possible that under a common cardholder agreement provision called a universal cross-default clause that your dispute with the cable company over lousy service constitutes an event of default on your credit card. The default bumps your interest rate up to 32 percent, which is applied retroactively to your existing balance and (under another common practice called "two-cycle billing") to the balance you paid off last month. Clearly, changes are needed!

From the Chicago Tribune:
Pop quiz: what's the interest rate on the credit cards you're carrying? How about the default rate? Do you know what constitutes an event of default? What will trigger a penalty fee or surcharge? How much are those fees? If you're like most Americans, you probably cannot answer many or all of these questions. Credit cards have a complicated price structure. Cards have multiple price points -- annual fees, merchant fees, interest (at several different rates), and assorted back-end fees, such as late fees, over-limit fees and currency conversion fees. This pricing structure makes it virtually impossible to determine the potential costs of carrying a balance.

The IRS announced today that repairing a glitch in the alternative minimum tax may delay tax refunds for more than three million U.S. citizens, according to the Internal Revenue Service. Lawmakers moved to shield millions of upper and middle class taxpayers from falling under the minimum tax. The move was designed to ensure that very wealthy citizens did not claim so many tax breaks that they avoided paying taxes entirely.
 
The move forced the IRS to re-program its computer systems, however, which means that the IRS won’t be able to process AMT-related returns until February 11th for the three million plus taxpayers who typically file early in the year.

Brick-and-mortar retailers have been hit hard this holiday season by both online retailers and a poor credit environment that has tightened consumer spending. Many are now hoping that consumers will head back to the stores after Christmas in order to utilize gift cards and make additional purchases at new lower prices. Online retailers like Amazon.com are also making a quick move to try and bolster sales one last time before consumers fall into more normal spending trends.

From the Associated Press:
The nation's retailers slashed prices further Wednesday in hopes that a post-Christmas shopping rush will salvage holiday sales that, so far, have fallen below even modest expectations. They're waiting in particular for legions of shoppers armed with gift cards to snap up bargains and buy new merchandise that has just hit store shelves. Merchants in past years have received a late bounce during big clearance markdowns, and they find themselves again in the position of hoping that bargain-hunting consumers will come through in the end. Gift card sales are not recorded until shoppers redeem them.

Debt is on the rise in the UK and many banks around the world are preparing for a similar decline in other Western markets like the United States. Mortgage problems that began in the United States have quickly extended into the UK and other markets, which has switched much of the spending from home equity to credit cards. The result has been a huge increase in the amount of credit card debt outstanding and (thanks to the mortgage crisis) a rising number of defaults. This is a trend that is only continuing to get worse both domestically and around the world.

From TimesOnline:
Debt charities are gearing up for the busiest January on record as the financial hangover from an expensive Christmas kicks in. The Consumer Credit Counselling Service and Credit Action, two leading debt charities, predicted that they would receive more calls from borrowers worried about their finances this January than in previous years. The credit crunch, coupled with five interest-rate rises, has left tens of thousands of borrowers struggling. It was hoped that the 0.25 per cent cut in the interest rate at the beginning of the month would ease the burden on homeowners, but many mortgage lenders have yet to pass it on. In addition, shoppers have spent an estimated £34 billion on their credit cards this month, up from £31 billion last December, according to the Association of Payment Clearing Services, the credit card industry body.