College students may have spent their summer break working or relaxing at the beach, but politicians, banks and consumer advocates have been busy trying to figure out the future of campus-related financial products – better known as campus cards.
At a hearing of the US Senate’s Banking Committee on July 31, senators heard a wide variety of opinions about whether or not further regulation is needed to guide partnerships between colleges and large financial institutions. In particular, the issue of the fees associated with students accessing student loan refunds via campus debit cards or prepaid debit cards was a matter of discussion. Currently, many colleges around the nation have signed deals with big banks to offer financial services to students on campus. These products and services often come with a school’s logo, as a result of multi-million dollar deals between the colleges and banks.
Christina Lindstrom, an official with the advocacy group US PIRG, testified that campus card arrangements are costly and unnecessary. “Right now students are being hit with high fees that are hard to avoid as they try to access their federal financial aid refunds through campus sponsored bank accounts and prepaid debit cards,” she said. Lindstrom went on to say that students at some schools were being charged “steep and unusual” fees to get their federal financial aid, including PIN transaction charges and overdraft fees of $37 and higher. “On the whole these accounts are not necessarily a better deal for students than what they might find through a bank not affiliated with the campus,” she testified.
By contrast, Richard Hunt, the president and CEO of the Consumer Bankers Association, told the committee that the relationships forged between banks and colleges have many benefits for students. “Some Consumer Bankers Association members have entered into agreements with institutions of higher education to provide useful services, such as campus ID cards that can be linked, at the option of students, to a standard deposit account,” he said. “These financial institutions also provide important services, such as on campus financial literacy programs and assistance with financial aid systems to colleges and universities.”
Hunt went on to cite a study by the General Accounting Office (GAO), the research arm of congress, that found that fees associated with college cards were not higher – and often were lower – than those charged by other banks.
The banking committee will continue to consider whether or not to place limits on campus card agreements.
The new FICO Score 9 is coming out this fall, and it looks very positive for many U.S. consumers. Once implemented and used by lenders, it should help many with poor credit or limited credit histories. Ultimately, this could mean better rates for consumers on loans and credit products such as credit cards.
Score Highlights
There are three main areas that will impact credit borrowers with poor and limited credit. Overall, this is good news for today’s consumer and is a more accurate reflection of the actual credit risk for lenders. The new FICO credit score is more nuanced than the earlier FICO Score 8, which was released in 2008.
Minimizing Medical Collections Impact
A sad figure to be sure, but, according to Experian, a credit reporting bureau, 64.3 million U.S. customers have credit reports currently impacted by medical collections. Of the 317 million Americans, this means that one in five has medical collections showing on their credit reports. Many people do not realize that past due medical bills can negatively impact their credit score, but they can, even the ones charged off to collections.
With advanced analytical systems and software at their disposal, Fair-Isaac, the company who generates the FICO score, will minimize the impact of medical collections on the score in the new system. Although the medical collection accounts will still impact the score negatively, but in FICO Score 9, the impact is minimized. This could mean a bump of around 25 points for many consumers.
So, good news fellow Americans! It’s about time we have some good news regarding medical bills. I will not get on a soapbox about the cost of medical care; we all know it is expensive – about twice as much as other similar countries, but at least in the new system, those large medical bills should be less damaging on credit scores.
Accounts in Collection: New Rules
Many people are not aware of how accounts in collections are treated and scored from their credit reports. Let’s just say that under the current scoring, if you pay off something in collections today, it will have a minimal positive impact to your FICO credit score. It seems like that debt just washes away, as it does for the consumer, but in credit scoring, not so much. It hangs around for six years, showing up on your credit report as a collection item, even if it is paid off.
Again, this is good news! In the new scoring system, paid off accounts in collection will no longer be viewed as in collection. At the very least, that will minimize a negative impact on your credit score, and in my eyes, that is a win for the consumer. This will be good on the collection side as well as it may very well result in additional money collected over time. But, don’t go paying off all those old accounts in collection right now, especially if you would decrease your payments on current accounts. Although the new score will be available, look below to find out more about when lenders will actually start giving credit based on these new scores.
Limited Credit History
In lender’s jargon, around the coffee pot, they describe someone with limited credit history as having a “thin credit file”. That makes sense, there is not much paperwork, so the file is thin. I get it. So, like with any decision, you always want the most information you can collect before pulling the trigger and making the call. A loan decision is no different. With limited information, it becomes harder to make the decision, and that is where this new system comes in nicely.
Right now, the current system measures in absolutes: a Yes or No answer. Was the bill paid on time? The answer is a simple Yes or No. They count how many times an account was paid late. In the new version, they will look deeper into the credit history where they will penalize 30 day delinquencies less than 60 or 90 day delinquencies. For those with minor blips on their young credit history, this will help their score. For lenders, they will have a better way to measure early trends in repayment with limited information. I love it; this means a win-win for everyone.
Consumer Benefits
Of course, it is better to have a higher score, but what will this mean in terms of loans and credit? Credit experts predict that the increase in credit score will show more in terms of better rates for credit rather than qualifying for more loans or credit. So, although it may not mean more “yes’s” for credit, it can lead to you paying less for borrowed money.
The Final Buzzer: Not a Slam Dunk
All this sounds great for the consumer on the way they are reviewing credit scores for the new FICO Score 9. That is excellent news and should help a lot of people. The good news is that positive changes are on the way.
Here is the not-so-good news. Although this new system is released this fall, the lenders still have to implement it. Lenders, banks, credit unions and all institutions providing loans, credit lines and cards have to update their systems to accommodate FICO 9, which is a cost to the lender. FICO 8 was introduced in 2008, and there are still a number of lenders using an earlier version with their systems. BestPrepaidDebitCards.com founder, Curtis Arnold says, “If the past is any indication, it may not take months, but years before it is implemented by a majority of lenders.” Ouch. That is not what I wanted to hear.
But, lenders are usually motivated to make more loans, so those lenders who could see more loans with these score improvements in their systems will be motivated to implement these system changes. If consumers find they are getting better rates from lenders with this new system, those lenders should enjoy a competitive advantage until others catch up. Hopefully, that encourages the overall industry to respond faster. At least, we can hope for that.
Thanks for the improvements, Fair-Isaac. Now, lenders it is up to you.
Readers, we would love to hear your thoughts on this. How do you think this will roll out, and who will start using this first?
Have a few blemishes on your credit report? You’re not alone. According to a new study from the Urban Institute, over one-third of Americans had debt in collections in 2013. The debts averaged $5,178 and include debt like medical bills, credit card balances, student loans, parking tickets and utility bills.
In a very real sense, the phenomenon is making the US a debtor nation. People all over the country have debt in collections. However, some areas have higher concentrations of debt than others. Nevada residents have the highest rate of debt in collections, with 47% of residents with delinquent debt and an averaged owed of $7,198. Eleven of the twelve states where 40% of more of the residents have debt are in the South.
Once a debt goes into collections, it can remain on a person’s credit report for up to seven years. And, even after a debt in collections is paid off, it can still reduce a credit score for a period of time. These delinquent debts can have a serious effect on people’s credit, job prospects and more.
People with low credit scores are often considered bad candidates for certain jobs. Bad credit can keep you, for instance, from getting a security clearance, which is necessary for certain companies that work with the federal government. Not only can delinquent debts keep someone from qualifying for a mortgage; they can cause apartment rental applications to be turned down, as well. When you have bad credit, you can pay more for everything from insurance to renting a car. The reduced opportunities and higher costs can keep people from the financial stability that would, in the future, reduce their chances of winding up in debt.
Dealing with Debt Collectors
Calls from debt collectors can be embarrassing and intimidating. But, as a consumer, you have rights and protections. If you are contacted by a debt collector:
• Always ask for communication about the debt in writing. This gives you time to research the debt and verify whether it is valid.
• Check your credit report. If you have been reported for debts that you do not owe, you can have those records removed so they do not affect your credit score.
• Know that you can negotiate debt payments. In some cases, debt collectors will be willing to accept a lower amount if you can pay off the debt all at once. You can also ask for payments.
• Do not hesitate to report debt collectors who harass you. Actions that legally qualify as harassment include calling outside of approved hours, calling you at work after you have asked them to stop and seeking unjustified amounts. Both your state’s Attorney General’s office and the FTC can help.
In yet another sign of the mainstreaming of prepaid debit cards, the Consumer Financial Protection Bureau (CFPB) announced this week that it would begin accepting complaints from Americans encountering problems with these increasingly popular financial products. Although the market for prepaid debit cards has been steadily expanding and attracting big name financial players like American Express, consumer advocates have expressed concern about a lack of regulatory oversight.
The CFPB is in the midst of developing proposed regulations targeted at prepaid debit cards, which should be released in the coming months. In the meantime, the CFPB, the federal government’s consumer watchdog for all manner of financial matters, is urging Americans who have run into problems with prepaid cards to get in touch. “By accepting consumer complaints about prepaid products and certain other services we will be giving people a greater voice in these markets and a place to turn to when they encounter problems,” says CFPB director, Richard Cordray.
In its statement announcing the move, the CFPB outlined the specific issues consumers should alert it to, including:
Trouble managing, opening or closing an account
Incorrect or unexpected fees
Overdraft issues
Frauds, scams or unauthorized transactions
Advertising, disclosures and marketing practices
Adding money and savings and rewards features
The CFPB already accepts consumer complaints about a wide range of financial products, including credit cards, mortgages, consumer loans and bank accounts. The CFPB complaint process works like this: After receiving a complaint, the CFPB expects companies to respond within 15 days and outline the steps they plan to take to address the problem. The CFPB also expects some sort of resolution to all complaints within 60 days. Consumers who do submit a complaint receive a tracking number and can follow the process on the CFPB website.
Complaints about prepaid cards can be submitted through the CFPB website. In the same announcement about accepting prepaid debit card complaints, the CFPB also said that it would begin to address problems with debt settlement and credit repair companies as well as pawn and title loans suppliers.
It seemed like a genuine family emergency. When an 81-year-old Cincinnati resident named Roger answered his phone last December he thought he was talking to his grandson, who told the elderly man that he was in big trouble. The caller told Roger that he had been arrested for speeding and drug possession and needed $7,000 so he could post bail. Being a devoted grandfather, Roger quickly put the money on a prepaid debit card and gave the account number to someone he thought was a police officer.
The only problem: Roger reached his real grandson on his cell phone and realized that he had been swindled. Roger’s tale (he insisted on anonymity for fear of being targeted by other criminals) was one of the stories’ victims of so-called “grandparent scams” told to members of the US Senate’s Special Committee on Aging on July 16. By no means is Roger alone. According to the Federal Trade Commission (FTC), Americans were cheated out of $73 million by imposter scams, a number the government believes is far below the actual cost of all of this type of crime.
Although the hearing was designed to highlight the impact these crimes have on the elderly, it also resulted in some genuine action. In its own written testimony before the committee, Green Dot Corporation, one of the leading suppliers of prepaid debit cards, announced that it would eliminate the MoneyPak PIN, which allowed money to be added to an account to take place via phone. Instead, Green Dot, which issues the Walmart MoneyCard, will now only allow cardholders to reload their accounts with cash in person – a method known as “swipe reloading.”
It’s a change Green Dot insists will make it harder for criminals to commit fraud. “Without the MoneyPak PIN, the scammer will have no method of instructing a senior to buy a product and no method of redeeming any associated PIN number,” Green Dot said in its testimony. The company says the MoneyPak PIN has already been removed from all Walmarts and it expects it will be eliminated from all retailers by early 2015.
There are plenty of compelling reasons people should want to have a good credit report. A solid credit report leads to the sort of credit score that makes mortgage and auto lenders eager to give you the best interest rates available. Simply put, it means you can save a lot of money in interest payments over the years, especially with the sort of big-ticket items you typically need a loan to buy.
While most of the work involved with having a good credit report and score is in our hands, your good credit can sometimes require the credit bureaus not making errors. Sadly, they are far from infallible. A Federal Trade Commission (FTC) study conducted last year found that five percent of consumers had errors on their annual credit reports that could cause them to have to pay more interest on their loans. Furthermore, the FTC study also discovered that 25 percent of people found errors on their credit reports.
Which is why it’s so important to catch and correct any errors that show up on your credit report as soon as you possibly can. A recent story in US News & World Report provides tips on how to do that. Here are some of the suggestions, provided by reporter, Jenna Lee:
Review those reports. You can’t fix what you don’t know about. So the very first step to ensuring that a faulty credit report won’t cost you serious money is identifying any errors. That is easy to do now that the law entitles Americans to a free credit report each year. All you have to do is go to AnnualCreditReport.com and request a report from each of the three major bureaus, TransUnion, Equifax and Experian.
Take a very close look. Once you receive your credit reports, take out that magnifying glass and look for errors. In particular, pay close attention to account details that are wrong and, even worse, fraudulent accounts (i.e. ones you didn’t open).
Get proof you’re right and they’re wrong. The credit bureaus aren’t just going to take your word for it that they’ve goofed. You’ll have to assemble documentation that highlights their errors.
Write a letter. Once you have all of the information you need to dispute any errors, you’ll have to alert the credit bureaus of the mistakes. Do that by writing a letter to each bureau. The FTC provides a sample letter that makes it easy.
Be prepared to wait. Sending in a dispute letter obligates the credit bureaus to act, which generally takes place within 30 days. If you don’t hear anything back in that timeframe, be prepared to follow up.
Remain vigilant. The good news, as Lee writes in her story, is that the FTC report found that four out of five consumers who disputed an error had at least some success in correcting the problem. But Lee offers up some important advice for even those folks who are successful. “New errors could be introduced in the future,” she writes. “Continually monitor your credit to ensure your information remains as accurate as possible.”
