Financial institutions make a great deal of money providing easy access to credit. They don’t want to slow it down. While they do want to reduce fraud, they are perfectly happy to allow a fair amount of fraud while they can still make a lot of money.

What this means is the financial system has less incentive to eliminate identity theft than the people that have to clean up after it happens to them. There should be better ways to make identity theft much more difficult.

At a lessor level it should also be more difficult to steal one credit card (which also creates a big hassle for us, in trying to clean things up after fraud occurs). I suggested a way to make credit cards more secure and useful. When Apple Pay was announced I learned they are doing basically what I suggested.

Apple Pay doesn’t share information that can be used to steal your credit card. Apple Pay gives the retailer a 1 time use code for that purchase. It can’t be used, even if someone steals it to use your credit card for more purchases. I also believe Apple Pay doesn’t share other details with the retailer, though maybe I am wrong – I think it is just like you giving them cash (they don’t have your name, address, phone number, etc.).

Much of the information businesses share in the USA is considered private in Europe and companies are not allowed to share that personal information. This makes identity theft and invasions of your privacy more difficult. I wish the USA would move more in that direction.

If you have details stolen (a wallet…) you can put a note with credit agencies that results in them be less free to make it easy for financial institutions to give credit without sensible protections against misuse. But you can’t do this just as a matter of course. I believe we should have the ability to protect ourselves from the massive headache caused by businesses providing credit in our name. But we don’t have such protection now, because of the big money in keeping credit super easy (and thus fraud fairly easy).

Having to clean up after identity you may well have to hire someone to help clean up your credit report. To do so, look for credit repair companies with good reviews and a good reputation.

I would imagine choosing to put in extra protections against identity theft would mean we would have less easy access to credit. For example, I wish I could say you cannot provide a new credit under my name that isn’t using my address on file and without confirmation from my email. Also you are required to send an email, send a text message and send a postal letter, and update my credit agency file (in a way I can view) one week before credit is allowed.

There should also be options such as you must get a positive reply from me. A citizen choosing to have better protection against identity theft would give up immediate access to credit. But I would happily do so. I believe millions of others would too. And given how many people are victims every years, millions or hundreds of thousand a new customers for such a service would likely result.

Also credit card providers should let me generate credit card numbers as I wish for use online (that are unique and can be stopped at any time I wish). If I get some customer hostile business that makes canceling a huge pain I should just be able to turn off that credit card “number.”

Laws should be adjusted to allow this consumer controlled spending and require that any subscription service must take the turning off of the payments as cancellation.

For some plan where the consumer agrees up front to say 12 months of payments then special timed numbers should be created where the potentially convoluted process used now remain for the first 12 months.

Also users should be able to interact with there credit reports and do things like turn on extra barriers to granting credit (things like they have to be delayed for 14 days after a text, email [to as many addresses and the consumer wants to enter] and postal notification are sent to the user. Variations on how these work is fine (for example, setting criteria for acceptance of the new credit early at the consumers option if certain conditions are met (signing into the web site and confirming information…).

Better security on the cards themselves are also needed in the USA. The costs of improvement are not just the expenses credit card and retailers face but the huge burden to consumers from abuse of the insecure system in place for more than a decade. It is well past time the USA caught up with the rest of the world for on-card security.

The providers have done a lousy job of reducing the enormous burden of fraud on consumers. As well as failing to deal adequately with customer hostile business practices (such as making canceling very cumbersome and continuing to debit the consumer’s credit card account).

Related: Protect Yourself from Credit Card Fraud – Personal Finance Tips on the Proper use of Credit Cards – Continued Credit Card Company Customer Dis-Service – Banks Hoping they Paid Politicians Enough to Protect Billions in Excessive Fees

Discover to refund $200 million to credit card customers

It is very good to see the Consumer Financial Protection Bureau taking action to protect the consumers from the financial institutions continued efforts to evade the law and take a little bit from millions of consumers. This type of behavior has been tolerated previously, and should never have been. The financial institutions strategy to take small amounts from millions of people was a wise way of dealing with the tendency of law enforcement to ignore such “small infractions” – they didn’t seem to bother seeing that taking small amounts from millions of people results in hundreds of millions of dollars in ill gotten gains.

Far too much of the bad practices are continuing. And when they are caught the consequences are far too small (which is why they keep behaving unethically). Discover is only being charged $14 million in civil penalties for their lapses (and has to return $200 million it took unfairly).

It is good to have police to try and catch literal pickpockets. And it is good to have the Consumer Financial Protection Bureau to catch financial institutions that take far more than pickpockets can dream of away from the wallets of consumers.

Related: Capital One Bank Agrees to Refund $150 Million to 2 Million Customers and Pay $60 Million in Fines – Very Bad Customer Service from Discover Card – Credit Card Regulation Has Reduced Abuse By Banks – Continued Credit Card Company Customer Dis-Service – I Strongly Support the Consumer Financial Protection Bureau

It will take much more than this small, good step, to catch and reserve their bad behavior, before they will modify their ethical compasses or be replaced by those that treat customers honestly (as the costs of the un-ethical behavior are too much too tolerate). Undoubtably the ethically challenged “leaders” will attempt to pay politicians enough cash to stop enforcement of the laws and get even more lax laws then they have already paid for.

As I have stated before you can’t count on the system providing trust-worth financial institution that behave with integrity. If you don’t want to be ripped off you have to assume your financial institution is going to try everything they can to trick you out of your money and think of them as you would someone you see picking the pockets of others all around you. If you are nice, ethical and have a desire to help you might try to stop the pick-pocket (you might even tell the police to stop this person that is taking others money). At the very least you will be very protective anytime you are close to the pick-pocket.

Even with congressional attempts to stop the CFPB from being able to enforce laws against their big donnors, the CFPB has announced their first public enforcement action: an order requiring Capital One Bank to refund approximately $140 million to two million customers and pay an additional $25 million penalty. This is a good, small step that is helping creating a rule of law instead of a rule of those capturing regulators and giving lots of cash to politicians. But it is a very small step. The system is still mainly about captured regulators and giving lots of cash to politicians.

This action results from a CFPB examination that identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for add-on products such as payment protection and credit monitoring when they activated their credit cards.

“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”

Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated. As part of the high-pressure tactics Capital One representatives used to sell these add-on products, consumers were:

• Misled about the benefits of the products: Consumers were sometimes led to believe that the product would improve their credit scores and help them increase the credit limit on their Capital One credit card.
• Deceived about the nature of the products: Consumers were not always told that buying the products was optional. In other cases, consumers were wrongly told they were required to purchase the product in order to receive full information about it, but that they could cancel the product if they were not satisfied. Many of these consumers later had difficulty canceling when they called to do so.
• Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
• Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer’s consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.

One of the less obvious costs of a poor credit rating these days is large companies see you as someone to take advantage of. They often target those with poor credit for extremely lousy deals that they wouldn’t try to sell to those with good credit. The presumption, I would imagine, is someone able to maintain a good credit rating is much less likely fall for our lousy deals.

Related: Protect Yourself from Credit Card Fraud (facilitated by financial institutions) – Anti-Market Policies from Our Talking Head and Political Class – Banks Hope they Paid Politicians Enough to Protect Billions in Excessive Fees

Enforcement Action
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to issue Consent Orders and take action against institutions engaging in unfair, deceptive, or abusive practices. To ensure that all affected consumers are repaid and that consumers are no longer subject to these misleading and high-pressure tactics, Capital One has agreed to:

• End deceptive marketing: Capital One has ceased all marketing of these products, and will not resume doing so until Capital One submits a compliance plan, acceptable to the Bureau, which helps ensure these unlawful acts do not occur in the future.
• Complete repayment, plus interest, to two million consumers: Capital One will pay approximately $140 million to all of the estimated two million consumers who feel victim to this scheme.
• $25 million penalty: Capital One will make a $25 million penalty payment to the CFPB’s Civil Penalty Fund.

Today’s action is being taken in coordination with the Office of the Comptroller of the Currency (OCC), which is separately ordering restitution of approximately $10 million from Capital One. The OCC’s order has restitution for additional consumers harmed by unfair billing practices taking place between May 2002 and June 2011 in violation of Section 5 of the Federal Trade Commission (FTC) Act. For the combined activity, the OCC is assessing a $35 million civil money penalty against Capital One.

Sadly we have been (and continue to be) forced to suffer through an massive imbalance in power. Large financial companies, through large cash payments to politicians and capturing regulators, have been able to create a system where widespread illegal actions go unchecked. The CFPB has been able to make some progress, even while those in congress try to prevent such enforcement against those giving them cash. You might think the politicians would care more about protecting those who will vote from organizations trying to rip them off, but the evidence shows you would be wrong. If we start voting for people that have that attitude it will be a very good day for the USA.

Chart showing loan delinquency rates from 2000-2011, shows seasonally adjusted data for all banks for consumer and real estate loans. The chart is available for use with attribution. Data from the Federal Reserve.

Residential real estate delinquency rates increased in the first half of 2011 in the USA. Other debt delinquency rates decreased. Credit card delinquency rates have actually reached a 17 year low.

While the job market remains poor and the serious long term problems created by governments spending beyond their means (for decades) and allowing too big to fail institutions to destroy economic wealth and create great risk for world economic stability the USA economy does exhibit positive signs. The economy continues to grow – slowly but still growing. And the reduction in delinquency rates is a good sign. Though the residential and business real estate rates are far far too high.

Related: Consumer and Real Estate Loan Delinquency Rates 2000-2010 – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Government Debt as Percent of GDP 1998-2010 for OECD

Notes: these data are compiled from the quarterly Federal Financial Institutions Examination Council Consolidated Reports of Condition and Income. Charge-offs are the value of loans and leases removed from the books and charged against loss reserves. Charge-off rates are annualized, net of recoveries. Delinquent loans and leases are those past due thirty days or more and still accruing interest as well as those in nonaccrual status.

Charge-offs, which are the value of loans removed from the books and charged against loss reserves, are measured net of recoveries as a percentage of average loans and annualized. Delinquent loans are those past due thirty days or more and still accruing interest as well as those in nonaccrual status. They are measured as a percentage of end-of-period loans.

Because financial fraudsters are allowed to continue without much fear of prosecution: thousands, or tens or thousands, or hundreds of thousands and then maybe something will be done, of course that is a lot of people to suffer before action is taken. For that reason we are subject to long standing schemes to take money fraudulently go on for a long time. I wouldn’t even be surprised if most companies found to have taken money that isn’t theirs are left off when they refund money to those people that caught them and that is seen as ok.

Given this state of affairs, many have discovered just sending bills to people and companies and billing your credit card for things you didn’t order is a good way to steal money. Since law enforcement is extremely lax about stopping this. It is in your interest to protect yourself.

Bill Guard is a new service to watch your credit card charges and alert you to potentially fraudulent charges. It seems like a pretty good idea. Like Google flagging spam email for you. I really would think credit card companies should do this (they do but I guess not nearly well enough – no surprise there). I don’t so much love the idea of sharing credit card info with these people. And I don’t charge much so I can review my bill easily, myself. I can imagine lots of others though have difficulty remember every charge. If so, this may well be wise.

If you are as skeptical as me, you might think this is a sponsored post or something. Nope, I just read about this and it seemed like a good idea for some people, not me, but some others. Also it has positive externalities. If lots of people use this, fraudulent charges will become less appealing as a strategy for stealing money and drive down the prevalence of such activities in general. One of the segments of the population especially venerable to charges for services they didn’t order is the elderly (again why the attorneys general refuse to act more forcefully and let them suffer is a very sad situation) but this service could help them, and could help shut down those targeting them (even when that person doesn’t use this service).

Related: I Strongly Support Elizabeth Warren and the Consumer Financial Protection Bureau – Banks Hoping they Paid Politicians Enough to Protect Billions in Excessive Fees (they didn’t – yay) – Tips for using your credit card

Why can a company tell you to hand over money you don’t owe under threat and for them just apologizing (after you spend lots of time and energy) is ok. But if some random person on the street does it that isn’t? I’ll even accept the argument that well occasionally mistakes will be made – fine if the company makes an rare mistake and responds reasonable to the person saying “I don’t owe you the money, don’t demand for what isn’t yours” and let it slide. Many companies seem pretty obviously to fraudulently demand what isn’t theirs and only if you waste your time fighting with them to they relent and allow you not to pay. And they are allowed to operate in this way very profitably.

The real free credit report site (for those in the USA), annualcreditreport.com, is provided by government regulation (so those that don’t believe in regulation would maybe rather use one of the sites advertising “free” credit reports). But I suggest using the government provided reports and I would suggest spreading the requests out during the year (you get 3 a year, 1 from each of the nationwide consumer credit reporting companies).

The site also has a large frequently asked question section including:

How do I request a “fraud alert” be placed on my file?
You have the right to ask that nationwide consumer credit reporting companies place “fraud alerts” in your file to let potential creditors and others know that you may be a victim of identity theft. A fraud alert can make it more difficult for someone to get credit in your name because it tells creditors to follow certain procedures to protect you. It also may delay your ability to obtain credit. You may place a fraud alert in your file by calling just one of the three nationwide consumer credit reporting companies. As soon as that agency processes your fraud alert, it will notify the other two, which then also must place fraud alerts in your file.

Where can I find out more about credit reports, my rights as a consumer, the Fair Credit Reporting Act and the FACT Act?
Please visit www.ftc.gov/credit

Related: Credit Card Tips – Personal Finance Basics: Avoid Debt – Save Some of Each Raise – Personal Finance Basics: Long Term Disability Insurance

Why I Support Elizabeth Warren and the CFPB

There are few political appointments I care much about. They normally are so co-opted even if they have good ideas they can’t get anything done. Don Berwick is a great person to have lead health care reform. The system is so messed up I am skeptical he can actually get much done, but I also strongly support him.

Elizabeth Warren is excellent and wise enough to actually accomplish things even with those who will attempt to thwart and improvements in the financial system that move forward capitalism at the expense of a few nobles that are protected by political allies. I have no doubt those in power will still thwart most efforts to stop politically sanctioned distortion of markets to enrich a few people that then pay a portion of their gains to the politicians that let them ruin free markets for their own huge personal gains.

Very few political appointees make much difference. If Elizabeth Warren gets this position she will have a good chance and making a huge difference o the quality of life for hundreds of millions of people and the economy overall. That is true even though she will have to continually fight those politicians seeking to protect the anti-competitive benefits they have lavished upon those that pay them to enact policies that benefit them at the expense of everyone else.

Related: If you Can’t Explain it, You Can’t Sell It – Middle Class Families from 1970-2005 (webcast of Elizabeth Warren) – What the Financial Sector Did to Us – Politicians Again Raising Taxes On Your Children

Banks want a favor — at your expense

David Frum, special assistant to President George Bush, is exactly right.

The caps were part of the huge bailout taxpayers gave banks and were meant to be a partial watering down of a few of the smaller favors their bought and paid for politicians had given them over the years (as “punishment” for their misdeeds).

Why we need to wait for us to bail out the banks to stop having us hand over $230 each every year to banks that have anti-competitive pricing power (due to favors congress and administrations have given them at the expense of everyone else) is beyond me. But we keep electing politicians that only decide to water down the favors given top donors when millions of Americans are thrown out of their jobs. And when less than 10% of those jobs have been added back to the economy they already are looking to favor their donors at out expense.

It will be another in the long line of congress siding with those that pay the congressmen lots of cash against the interest of the country if they allow these banks to exploit their oligopolistic position (which congress has granted them for large amounts of cash). The country can’t afford to keep paying billions to those that pay congress a few tens of millions.

On a personal finance note, you should just use credit cards and pay them off each month and avoid all the downsides of debit cards.

Related: Credit Card Regulation Has Reduced Abuse By Banks – Chose the Right Bank and Eliminate ATM Fees – Legislation to Address the Worst Credit Card Fee Abuse (2007) – Tips for using your credit card – What the Financial Sector Did to Us

The second half of 2010 saw real estate, agricultural, credit card and other loan delinquencies decrease. The rates are still quite high but at least are moving in the right direction. Residential real estate delinquencies decreased 138 basis points in the second half of 2010, to 9.94%, which brought them to just below the rate at the end of 2009. In the second half of 2010, commercial real estate delinquencies decreased 77 basis points to 7.97% (which was also exactly 77 basis points less than at the end of 2009. Agricultural loan delinquencies decreased 76 basis points, to 2.55% (down 53 basis points from the end of 2009). Consumer loan delinquencies decreased, with credit card delinquencies down 90 basis points to 4.17% and other consumer loan delinquencies down 27 basis points to 3.1%. The credit card delinquency rate decreased a very impressive 219 basis points in 210.

Related: Real Estate and Consumer Loan Delinquency Rates 2000 through June 2010 – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Bond Rates Remain Low, Little Change in Late 2009 – posts with charts showing economic data

Chart showing the loan delinquency rates from 1998-2009 by Curious Cat Economics Blog, shows seasonally adjusted data for all banks for consumer and real estate loans. The chart is available for use with attribution, data from the Federal Reserve.

Notes: these data are compiled from the quarterly Federal Financial Institutions Examination Council Consolidated Reports of Condition and Income. Charge-offs are the value of loans and leases removed from the books and charged against loss reserves. Charge-off rates are annualized, net of recoveries. Delinquent loans and leases are those past due thirty days or more and still accruing interest as well as those in nonaccrual status.

Charge-offs, which are the value of loans removed from the books and charged against loss reserves, are measured net of recoveries as a percentage of average loans and annualized. Delinquent loans are those past due thirty days or more and still accruing interest as well as those in nonaccrual status. They are measured as a percentage of end-of-period loans.