NEWS AND ADVICE

What a difference a week can make. I have no credit card debt—seriously, I am at ZERO!!! It has been many years. It feels good and I just want to yell to the world that I have no credit card debt.  I received my federal tax return and paid off my remaining card.  More exciting for me, I budgeted paying off my final card at the end of May and I was able to pay it off the first week in February. I saved additional interest!  My remaining debts include my auto and my mortgage.  I hope to pay those off within the next 18-24 months.

[Related Articles: Read all Debt Diva posts]

The week also had expenses.  I used part of my tax return to repair my plumbing.  I live in a 100-year old home.  The water stopped coming out of my shower.  Because of the age of the house, I plan ahead.  I had purchased faucet replacements for my bathroom and kitchen faucets, and I had purchased a replacement kit for my bathtub/shower. The kitchen faucet broke, but it could be used.  The bathroom faucet worked, but it leaked a bit.  When the shower died, I could justify the replacement of the kitchen and bathroom faucets as well as the repair of the bathroom shower. When the shower stopped working, I solicited bids for fixing the shower and replacing the kitchen and bath faucets with customer provided parts.

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I used an Internet-based referral site that provided customer reviews and I was thrilled with the response by and the service of the contractor I chose. The contractor arrived early, provided a bid within a few dollars of the final cost and communicated with me throughout the day. He wore booties over his shoes since we received snow before he arrived.  He asked me to let my dogs out to meet and greet him so they would be comfortable with him in my home. He cleaned up after himself. Because of the work I needed done, my cost was $818.  I had budgeted $1000.  With the great service—it was a great deal.

I was a bit sad about paying the bills, but things got better today.  I woke up to find out I won a $50 Amazon gift certificate from an online personal finance blog. And, I won a free large pizza and liter of soda because the Super Bowl coin toss was ‘heads.’

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My daughter’s employer is financing her cell phone—so I just realized an additional $80 a month savings by cancelling my family smart phone contract and switching to a single plan.

Not a bad week.  I spent a little, I saved a little. I have no credit card debt, so it is a week like no other in the past 2 to 3 decades!

Image: frostnova, via Flickr.com

The U.S. Department of Justice and Attorney General Eric Holder recently reached a substantial settlement that will provide significant compensation for servicemembers who were wrongfully foreclosed upon by mortgage lenders.

Similar to the agreement reached between the nation’s five largest mortgage lenders and 49 states’ attorneys general, the agreement will grant financial compensation to servicemembers in addition to the $25 billion from the overall settlement, the Department of Justice announced. As part of the settlement, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial will all conduct reviews overseen by the Department of Justice’s Civil Rights Division to determine whether any servicemembers received foreclosure notices between January 1, 2006, and the time of the settlement that violated the Servicemembers Civil Relief Act. If so, the servicemember victimized by the wrongful filing will receive a minimum of $116,785 in compensation in addition to their lost equity and interest.

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Citi, Wells Fargo and Ally will also conduct investigations, once against overseen by the Civil Rights Division, into whether any servicemembers were charged interest of more than 6 percent on their mortgage after filing a valid request for a lower rate, between January 1, 2008 and the present, the report said. If it is discovered that any were charged this rate, the servicemember must be refunded the amount charged in excess of 6 percent, with interest, as well as triple that amount or $500, whichever total is larger.

“The men and women who serve our nation in the armed forces deserve, at the very least, to know that we will protect their rights while they are serving our country,” said Thomas Perez, Assistant Attorney General for the Civil Rights Division. “We appreciate that Wells Fargo, JP Morgan Chase, Citigroup and Ally agreed, through this settlement, to compensate servicemembers whose rights were violated.”

In May 2011, the Department of Justice reached a settlement with Bank of America for more than $20 million as a result of the lender wrongfully foreclosing on servicemembers without court orders, but that agreement only covered allegations related to non-judicial foreclosures, the report said. Details concerning judicial foreclosures and 6-percent violations similar to those being investigated by other lenders were not disclosed.

[Featured Products: Research and compare military loans at Credit.com]

Banks foreclosed on millions of consumers nationwide during the recession as part of the massive robosigning scandal that saw unauthorized personnel sign off on filings without properly reviewing them.

Image: The U.S. Army, via Flickr.com

There are a few things in life where having too many choices is fun. Ice cream comes to mind. Really, Ben & Jerry’s can come out with a new flavor every day and it won’t bother me one bit.

But for the “less fun” things in life, having too many choices is just plain overwhelming and stressful. Credit cards fit into this category. You see ads on TV, hear about them on the radio, see tons of offers on the Internet. You also probably get bombarded with mailed offers for different types of cards: airline miles, low interest, balance transfers, gas rebates and more. Oh, and some will give you a $200 sign-up bonus if you jump through a few hoops within the first three months.

I want you to forget all that. Clear your mind of all the marketing hype because picking the wrong type of card can actually cost you money. Don’t apply for any cards until you’ve taken a little time to go through these five steps to get clarity about what you really need in a credit card.

[Free Resource: Check your credit for free before applying for a credit card]

Step #1: Look at your current financial picture

This is easier than it sounds. You don’t need to consult with a CPA. I’m talking about an honest, straightforward look at your financial life.

• Credit card debt. Are you already in credit card debt? If so, then the only card you need is a balance transfer card. You’ll need excellent credit to qualify for a balance transfer card that offers a zero percent intro APR. If you don’t qualify, then focus on paying down your debt the old-fashioned way. Scrimping, saving and paying more than the minimum. Don’t open a new account until this part of your life is under control again.
• Bill paying habits. Do you tend to revolve debt now and then? Or do you always pay your bill in full every month? If you’re a serial revolver, then rewards cards are not for you because the APRs tend to be higher. The interest expense you’d pay would negate any benefit from the rewards. Sticking with a low-interest card could be your best bet.
• Emergency fund. If you don’t have an emergency savings account, then a low-interest card for emergencies might be in order. If you need a new roof and you can’t pay for it all at once, you’ll want a card that doesn’t destroy your financial future if you carry a balance for six months.

[Credit Card Review: The Best Balance Transfer Credit Card in America]

Step #2: Get your FICO score

You can get an idea of what your credit score range is by the offers you receive in the mail. But nothing is a substitute for knowing your current score before applying for a new card. You can get a FICO score for $19.95, or use our Credit Report Card to get an overview of your credit standing for free. Once you have your credit score, you’ll know what credit range you fall within. Then you can focus your search on cards that are targeted to your credit level.

For instance, if your score is between 700-749, you have “good” credit. If your score is at least 750, you’ll probably qualify for the best offers. If your score is less than 640 or so, you might need to take a look at secured cards and work on rebuilding your credit history.

Note: FICO scores and other credit scores do vary from one bureau to the next and they also change almost constantly. But getting a score tells you where you currently stand and gives you an idea of your basic credit level.

Step #3: Look closely at your lifestyle

This step is more important if you decide that a rewards card will work for you. This has to combine your whole life—your personal life and work life. If you’re a stay-at-home spouse, your “work” is running the household and that’s a big job. The goal here is to find out what type of rewards, such as miles or cash back, will save you the most money.

• Leisure activities. What do you (and your family, if applicable) do for fun? Do you enjoy dining out or going to the movies? If so, a cash back or rewards points card that focuses on entertainment might be a good option. If you enjoy cooking, then getting a card that offers savings on groceries might be helpful.
• Vacations. Do you tend to fly or drive to your vacation spots? For people who like to fly to an exotic vacation destination, a card that helps you collect airline miles throughout the year could save you money on airfare. Take this thought process a little further and decide if you’re comfortable earning miles on one specific airline or if you need flexibility.
• Daily activities. Do you drive carpool or have a long commute to work? A card that offers a gas rebate is in order. Or maybe you run your own business and you’re spending a fortune on office supplies. If that’s the case, then you should consider a small business card that offers cash back or rewards points on office supplies.

[Credit Cards: Research and compare credit cards at Credit.com]

Step #4: Think about the fees you’re willing to pay (cont.) »

Image: Andres Rueda, via Flickr.com

Step #4: Think about the fees you’re willing to pay

This step is an extension of Step #3. If flying is a part of your life, for instance, then decide if you’re willing to pay an annual fee for a generous rewards program. If so, how high of a fee are you willing to pay? Do you want priority boarding and access to airport lounges?

If you practically live in airports, then cards that offer benefits that enhance your travel experience might appeal to you. Just remember you’ll pay higher annual fees for more privileges. And if you travel overseas, you need to think about getting a card that doesn’t charge foreign transaction fees.

If travel isn’t your priority and you’re just looking for a low-interest credit card, then you might not be willing to pay an annual fee at all. And you might not care that there’s a 3 percent foreign transaction fee.

See where I’m going with this? Just have an idea of what fees you’re willing—and not willing—to pay. When you start comparing cards, you’ll be able to weed out a lot of cards from the start because they don’t meet the criteria you’ve set for fees.

[Free Resource: Check your credit for free before applying for a credit card]

Step #5: Go forth and compare cards

At this point, you have a pretty clear idea of what type of card you need. The next step to the perfect card (perfect for you, that is) is to compare cards within your chosen category.

Don’t just pick a particular cash back card because they sent you a letter plastered with You’ve earned this card! on the envelope. In the past, I’ve fallen for the flattery, too. But now you want the best card you can qualify for that fits in with your financial habits and lifestyle.

So what’s next? Use the custom credit card search feature on Credit.com to put together a list of candidates. Let’s say you want an airline miles card that doesn’t have an annual fee. You can check off these features and even input your credit level. You’ll see a list of cards that meet all of these qualifications.

To review the cards on your list, read the fine print so you can compare APRs, grace periods, annual fees, foreign transaction fees, and so forth. Now you’re on your way to picking a card that’s your perfect match.

[Credit Cards: Research and compare rewards credit cards at Credit.com]

For people upset about unfair or deceptive debt collectors, Oklahoma State Senator Gary Stanislawski believes he has a solution. Stanislawski recently introduced a bill that would clamp down on collectors, forcing the companies to do more to prove that they have the right to collect the amounts they claim.

The bill would also ban the collection of “zombie debt,” which is so old that the statute of limitations has run out, according to a related press release.

But the bill also includes language to limit lawsuits by consumers against collections companies by forcing consumers who file lawsuits that are later found to be frivolous to pay debt collectors’ legal fees. The provision worries some credit experts.

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“That could close the door on lawsuits by consumers with legitimate grievances who don’t dare risk suing a debt collector—even if they’ve broken the law—for fear of running up more debt if they are outgunned,” says Gerri Detweiler, Credit.com’s consumer debt expert.

As proposed, Stanislawski’s bill would require debt collectors in Oklahoma to be licensed and supervised by the state. Collectors would face new documentation requirements, including providing proof to courts and consumers that they actually own the debt, and proof that they informed consumers about collection lawsuits. Companies that buy and sell consumer debt also would be required to transfer all available information about the consumer.

[Credit Cards: Research and compare credit cards at Credit.com]

Those provisions could help prevent mistakes in the collections process, which sometimes have caused companies to try collecting too much money, or collecting it from the wrong person, Detweiler says. Partly as a result, the number of consumers complaining about debt collectors has risen in recent years. Over 144,000 people complained to the Federal Trade Commission about debt collection practices in 2010, the last year for which data is available, a 20-percent increase over the previous year.

The bill “looks like it will bring better consumer protections to Oklahoma citizens who are struggling to pay their bills,” says Detweiler.

You can read the bill itself by clicking on Stanislawski’s here, and searching for Senate Bill 1430.

Image: quaziefoto, via Flickr.com

It’s been a bad ten months for online gamers who value their credit cards. First, last April, came news of a huge data breach at Sony, which exposed up to 77 million people to identity theft and credit card fraud. Then, in November, online game distributor Valve announced that its popular Steam service had been infiltrated by hackers. At the time, Valve said the hackers didn’t get any information from its database.

But the Valve/Steam breach may wind up affecting consumers anyway. In a recent statement to users, Valve CEO Gabe Newell announced that the hackers did manage to steal a backup file containing user names, email addresses and encrypted credit card data and encrypted billing addresses for Steam transactions between 2004 and 2008.

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“We do not have any evidence that the encrypted credit card numbers or billing addresses have been compromised,” Newell says in a press release. “However as I said in November it’s a good idea to watch your credit card activity and statements.”

The announcement did not mention how many users were affected, or how many transactions were accessed. The number is likely to be in the millions, since Valve is by far the dominant player in online game distribution, according to Brad Wardell, CEO of Stardock, a competing company. Valve did not respond to a phone call or email seeking additional information.

In his statement, Newell says the data breach is still being investigated. Valve will mail formal notifications of the breach to customers in states where it’s required to do so, Newell says.

[Featured Products: Research and compare Identity theft protection plans at Credit.com]

Image: Valve

The idea might make some shudder: Debt can be good? Believe it or not, it is actually good to have certain types of debt in your financial portfolio, assuming you are comfortable with owing money. Why? Because it is through debt that you can acquire assets such as housing, automobiles and other types of property. In short, the strategic use of good debt can improve your finances and help you achieve your dreams and goals.

However, beware, as debt falls into three categories—the good, the bad and the ugly! Ugly debt and bad debt, of course, will do the opposite of what good debt can do for you.

[Article: 5 Credit Card Catastrophies (and How to Avoid Them)]

Ugly debt is easy to define.  More often than not, you acquire this kind of debt when your expenses exceed your income because you are in a situation beyond your control—for example, you lost your job or you had to take a pay cut—and so you use credit cards to pay your expenses. If your situation does not turn around, even making the minimum monthly payment on those accounts could become impossible, and filing for bankruptcy may be your only way out. Given the state of our current economy and the rising rate of bankruptcy in past years, it’s clear that many, many Americans have become all too familiar with ugly debt.

Bad debt is unsecured debt that increases because you use credit cards to live beyond your means—maxing out your credit cards by charging luxury items, vacations and the like. This can lead to your only being able to afford the minimum monthly payments, which costs you more in the long run. This is also how bad debt can spiral into ugly debt.

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Good debt is debt that helps you achieve a positive result within a specific period of time, helps you increase your assets and, slowly, your net worth. This is the kind of debt that financial advisors are comfortable with and will even encourage their clients to take on. A mortgage is a common example of good debt, assuming that it has a favorable interest rate (usually defined as 5% or lower), is not an interest-only, variable-rate, or adjustable rate loan, and has monthly payments you can comfortably afford. A good mortgage allows you the possibility of home ownership over time within your ability to repay.

A loan to finance the purchase of a sensible automobile is another example of good debt, assuming the loan has an interest rate of less than 9%. And by “sensible,” I’m talking about a car that is high performance, gets great gas mileage, meets your transportation needs, has a good safety record, fits your budget and, yes, looks good.  Let’s face it—no one wants to drive an ugly car! Although your car will begin to depreciate in value as soon as you drive it off the lot, in today’s society owning a vehicle is a necessity for most of us.

An education loan can be good debt, assuming that the education you finance will help you better yourself—by increasing your income, expanding your job opportunities, or by moving you onto a new, more promising career path. Never borrow more than you honestly believe you can repay and use the money to attend an accredited institution only. The adage that “no one can ever take away your education” is true. Education is an investment in you and, following these guidelines, the price you pay can be well worth the effort.

[Featured Products: Research and compare loans at Credit.com]

A final word of advice: Before you take on any kind of good debt, consult with a professional financial advisor. The advisor will help you make sure that you can afford the debt and that you can truly benefit from it, and that you’re not throwing good money at an unwinnable payoff.  Used carefully, good debt can reap rewards down the road, and provide the ability to better your life and finances.

Image: Wolfgang Staudt, via Flickr.com

Do you believe that your bank or mortgage servicer erroneously foreclose on you? If so, now you have another three months to do something about it.

Federal regulators announced on Wednesday that homeowners have until July 31 to request an independent review of their foreclosures. The previous deadline was April 30.

“The deadline extension provides more time to increase awareness of how eligible people may request a review through the independent foreclosure review process and to encourage the broadest participation possible,” the Office of the Comptroller of the Currency and the Federal Reserve Board announced in a joint press release.

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The reviews come out of the legal settlement between federal regulators and the 14 largest mortgage servicers, which was announced in April. The servicers were accused of a variety of errors and illegal actions, including charging homeowners more in fees and principal than was owed, pursuing foreclosure against homeowners who qualified for loan modifications, foreclosing on people who were protected by bankruptcy, and illegally foreclosing on active-duty soldiers, according to a briefing about the review process published by federal regulators.

Homeowners who believe they were harmed by their servicers can request a review by independent consultants, hired by their servicer, to see whether they were “financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process,” according to the comptroller’s office. If the review finds any wrongdoing, homeowners may receive compensation.

[Featured Products: Research and Compare Mortgage Rates at Credit.com]

If you would like to learn more about how to request a review, you can call 888-952-9105, Monday through Friday from 8 a.m. to 10 p.m. Eastern Time, and on Saturdays from , 8 a.m.-5 p.m. You can also visit the Federal Reserve’s website here, or the OCC’s website here.

Image: james.thompson, via Flickr.com

American Express is planning to overhaul its Serve mobile payment platform considerably in the near future, which includes adding all of its prepaid card products to the service. In fact, the product was originally launched to Serve, which was originally planned as a type of account that was targeted specifically to consumers who would otherwise not be able to qualify for AmEx credit cards or charge cards.

[Free Resource: Check your credit for free before applying for a credit card]

When Serve was originally released, AmEx also started issuing other prepaid cards which bore fewer fees, the report said. But soon, all the company’s prepaid products will fall under the Serve umbrella.

Serve will also be able to be used in much the same way as other digital wallet payment platforms, in that it could be used at the point of sale to make purchases. Similar to eBay’s plans for rolling its PayPal purchasing platform into brick and mortar stores, consumers will be able to key the phone number associated with their Serve accounts into a touchpad, then enter a PIN code, to verify a transaction. Other purchase authentication plans are in the works as well.

“We will turn our platform from a digital payments platform to a digital payments and commerce platform,” Dan Schulman, group president of enterprise growth for American Express, told American Banker.

[Credit Cards: Research and compare prepaid credit cards at Credit.com]

In addition to these changes, Serve will also soon offer consumers more benefits for using it, including exclusive deals granted through the program itself, as well as the ability to attach loyalty rewards programs to the accounts. Once those plans are in place, AmEx also plans on introducing money management tools that will allow Serve users to have better control over their accounts.

Consumers being hesitant to adopt alternative payment methods is often cited as one of the largest hurdles to widespread adoption of digital wallet programs. The companies offering these programs hope that by offering greater benefits, consumers will see the quality of the services they provide. Experts expect the mobile payment industry will be worth as much $44 billion per year by the end of 2015.

Our experts have had another busy week getting you the latest credit and privacy information and advice. Whether it be a global financial ricochet, national credit resurgence, or the hacking of a major web-based privacy company, there’s never a dull moment in the world of finance. Let’s take a closer look at the week’s stories that made headlines on our friends’ news outlets—with a little help from our very own experts.

VeriSign, Pillar of Internet Security, Hacked

The VeriSign hack is one that affects most, if not all, Internet users. When we visit websites, especially ones that require us to enter sensitive personal or financial information, we expect those sites to be real.  VeriSign provides the service which certifies that the websites we visit are real, and safe—which is why this news is so troubling. This week, Christopher Maag talked to security experts about what potential dangers Internet users face following this hacking. @BoingBoing

[Free Resource: Check your credit for free before applying for a credit card]

Mortgages, Greece & Obama’s Budget: The Global Financial Literacy Crisis

Credit.com co-founder and chairman Adam Levin makes the case that much of the world’s financial problems are created by a lack of communication, but even more so by a lack of education. When repercussions from foreign decisions are felt so strongly around the globe, as they are today, information must be digested with some perspective and the knowledge that many gains have side effects. With stakes so high in the United States right now, the same case is easily made for the state of our national financial climate. @HuffingtonPost

What You Need to Know About Cash-Back Credit Cards

Focusing more on your personal economy, credit card expert Beverly Harzog is here to help you navigate through the world of credit. Cash back credit cards have become very popular and for good reason. When shopping for one, it is important to take your credit behavior in to serious consideration and go with a card that will suit your needs best. It’s also important to avoid gotchas by reading the fine print. Or, you could let Beverly help you out, she’s read it all! @msnbc_business

Image: NS Newsflash, via Flickr.com

The Consumer Financial Protection Bureau unveiled a sweeping set of proposed rules on Thursday to regulate credit bureaus and debt collectors.

Both industries have come under increased scrutiny in recent years. Credit reporting agencies play a fundamental role in consumers’ ability to obtain loans and other forms of credit, yet remain almost entirely unregulated. And complaints concerning allegedly unfair or illegal practices by debt collectors continue to rise, according to the Federal Trade Commission.

“Debt collectors and credit reporting agencies have gone unsupervised by the federal government for too long,” Richard Cordray, the bureau’s director, said in a press conference on Thursday. “It is time to provide the kind of oversight of these markets that will help ensure that federal laws protecting consumers in these financial markets are being followed.”

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Under the Dodd-Frank financial reform law, the bureau has the power to regulate “larger participants” in the financial markets. By that definition, the new rules would apply to debt collectors with revenues higher than $10 million. That would mean about 175 firms would be regulated, or four percent of all debt collectors in the country, according to the CFPB.

In the credit reporting industry, the three largest bureaus—Equifax, TransUnion and Experian—continuously gather spending and credit data information on 200 million Americans. About 30 of the biggest agencies earn more than $7 million annually, and they would be subject to the proposed rules, according to the bureau.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” Cordray said in a press release. “Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks.”

[Related Articles: Read more on the CFPB]

When the bureau was first created, many of the nation’s banks unleashed an all-out lobbying war to either repeal the section of the Dodd-Frank act that created the agency, or make changes to the bureau’s structure and budget to blunt its power. For over a year, the banking industry spent tens of millions of dollars every quarter on the lobbying battle.

The collections industry plans no such effort, says Mark Schiffman, spokesman for ACA International, a trade association for collections companies.

“In no way are we suggesting all-out war,” Schiffman says. “We knew this day was coming. Obviously, we want to make sure it isn’t overly burdensome or interfere with the ability of our members to do their work.”

The Consumer Data Industry Association, which represents some credit reporting agencies, did not immediately respond to calls seeking comment.

Consumers can read the proposed rules, and comment on them, by clicking on the bureau’s website here.

[Credit Cards: Research and compare credit cards at Credit.com]

Image: Your Pal Dave, via Flickr.com

Capital One’s No Hassle Rewards credit card for fair credit was a card that I frequently recommended for consumers with fair credit. That card, though, has been replaced with an “average credit” version of the Capital One Cash Credit Card.

I like seeing offers for those with fair credit because this group often gets forgotten. The new card, Capital One Cash Rewards, has similar rewards to the Cash card for excellent credit. You get 1 percent cash back on all purchases plus 50 percent cash back on what you earned for the year.

But the “fair credit” version is, as you’d expect, a little more expensive than the Cash card targeted at those with excellent credit.

[Free Resource: Check your credit for free before applying for a credit card]

Still, the costs aren’t outrageous. You get a zero percent APR on purchases until November 2012. After that, you get a 17.9 percent, 19.9 percent, or 22.9 percent (V) APR, which is competitive for the fair credit range (a FICO score between 650 and 699, give or take a few points).

There are no foreign transaction fees. There’s also no balance transfer fee. However, I don’t recommend this card for a balance transfer unless you’re currently carrying debt at a really high rate. There’s no zero percent intro period offered, so you’d be paying interest of at least a 17.9 (V) APR on your transferred balance.

You’re also asked to pay a $39 annual fee. But the fee is fairly small and I think it’s worth it if you’re looking for a cash back card that will also help you move up in the credit score world. Use this card responsibly and in time, you’ll qualify for better terms, especially when it comes to APRs.

Overall, I think this is a solid addition to the “fair credit” category. You can read my very thorough review of this card here.

[Credit Cards: Research and compare credit cards at Credit.com]

At publishing time, the Capital One Cash Rewards card is offered on Credit.com product pages and Credit.com may be compensated if our users apply for and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

The FBI is asking tech companies to help it monitor people who use Facebook, Twitter, blogs and other social media. In a request for information posted on its website in mid-January, the bureau asks for help creating software that would monitor social media websites for potential threats, and immediately report them back to the bureau’s Strategic Information and Operations Center.

“The application must have the ability to rapidly assemble critical open source information and intelligence that will allow SIOC to quickly vet, identify, and geo-locate breaking events, incidents and emerging threats,” according to the request.

The goal is to create a system that automatically scrapes social networking sites, and allows FBI agents to perform searches, looking for “possible emerging threats to National Security, key government personnel or any criminal activity” that falls under the FBI’s jurisdiction.

[Free Credit Calculator: Use Credit.com's Credit Report Card]

Plans to increase the government’s surveillance of the Internet quickly gained the attention of privacy organizations and members of Congress. After filing a lawsuit under the Freedom of Information Act, the Electronic Privacy Information Center (EPIC) uncovered documents proving that the Department of Homeland Security already is operating a surveillance program similar to the one the FBI has in mind.

The group uncovered evidence that the project tracks media stories that “reflect adversely” on the department. One report generated by the program summarizes blogs and comments on social networking sites criticizing the government’s plan to bring Guantanamo detainees to American prisons, according to the group’s summary.

EPIC has filed a lawsuit against the department over the practice.

Meanwhile, in Congress, the Committee on Homeland Security’s Subcommittee on Counterterrorism and Intelligence planned to hold a hearing this week to ask representatives of the Homeland Security department about its social media surveillance program.

[Credit Cards: Research and compare credit cards at Credit.com]

Image: Credit.com

One of the best-known online payment processors in the world recently made the decision that it would not focus on developing a tap-to-pay service for mobile phones, and would instead focus on expanding itself into the world of brick-and-mortar retail.

PayPal, the online payment processor owned by eBay, recently announced plans to start edging itself into real-world purchasing by striking a deal to become a payment option at the Home Depot, and the rollout is happening quickly. Already, PayPal is accepted as a payment option in 51 of the national hardware chain’s retail locations, and will be in all of them by the end of February. In addition, there are plans from the payment processor to make itself a purchasing option in as many as 20 national retail chains by the end of the year.

[Free Resource: Check your credit for free before applying for a credit card]

The system will work like any other payment option that’s not cash. Instead of tapping “credit” or “debit” on the little touchpad at checkout as they normally would, shoppers will be able to select “PayPal.” As long as they have a pre-existing account linked to their cellphone, they would simply need to enter their phone number and a PIN code to verify the purchase, and the receipt would be sent to them digitally through their PayPal account. In addition, users who don’t want to link their accounts with their phones will instead be issued a card that looks like a debit or credit card but is only connected to PayPal.

The incentive for businesses to add PayPal as a payment option comes in the form of customer data compiled by the payment processor, including locations of transactions, product searches and even purchase history. All this can be used to create more effective marketing for stores.

[Credit Cards: Research and compare credit cards at Credit.com]

In addition to this move, it was recently revealed PayPal is ditching its pursuit of a digital payment service that allows consumers to link their credit, debit or PayPal accounts to a smartphone enabled with near-field communications technology. That’s because it believes consumers will soon have options to pay in ways other than standard point-of-sale checkouts. While experts believe this payment method will become popular in the next few years, some believe technology may outstrip its usefulness before widespread adoption catches on with consumers.

Image: JoeInSouthernCA, via Flickr.com

Seven days, three seemingly disconnected announcements, and one subtle theme: what we have here is a failure to communicate… or more to the point, a failure to educate. America and much of the world is in the midst of financial literacy crisis that goes well beyond one’s ability to manage his or her own money.  Consider what’s going on at home and abroad.

First, the attorneys general of 49 states agreed on a $26 billion package with five major banks in order to settle lawsuits brought by those states alleging improper mortgage practices and rampant foreclosure fraud. Then the stock market went through the roof when the Greek government agreed to a series of truly severe austerity measures hailed as yet another final solution to the teetering solvency of that once-prosperous EU country. And finally, the Obama administration released its new $3.8 trillion budget proposal, which projected a massive deficit for the coming fiscal year, and significant deficits for each of the next six years.

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What a web we weave.

You may not realize it, but these three events are part—and an excellent illustration—of the global financial literacy crisis, one of the overriding problems of the modern financial world. Let’s start with a little context: The $26 billion settlement package of course received as many brickbats as it did kudos, but whatever you think about its specifics, you need to know that American residential real estate today is estimated to be about $700 billion underwater. I wonder if most people understand that the settlement is little more than a drop in a very large bucket.

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In Greece, the new austerity measures include a 22 percent cut in the minimum wage and the elimination of 150,000 government jobs over the next 3 years. This, in a country decimated by 5 years of steep recession and an unemployment rate over 21 percent, represents a new kind of Greek tragedy. The night before Parliament passed the new legislation, there were violent demonstrations in half a dozen Greek cities, including a turnout of about 80,000 in Athens where the cocktails were provided by Molotov. That’s quite a statement for a city with a population of some 650,000. Despite the proportion and emotion of the popular outpouring, the new austerity legislation passed by well over a two to one vote.

I wonder if those demonstrators in Greece understand why their elected officials did what they did, and what they had to do; and I wonder if Americans really grasp the significance and relevance of the near collapse of the Greek economy.

And then there came the new proposed U.S. budget, with its 60,000 line items jacketed in blue but awash with red ink, which projects a deficit of over $1.3 trillion for fiscal 2012, and a deficit every year for the next six, gradually shrinking to “only” $575 billion in 2018. I wonder if anybody, on the Hill or elsewhere, really understands anything about that budget.

Thus in short, the mortgage settlement addresses at best only about 4% of the overhang, the unrest in Greece is likely to accelerate with no guarantee that the new austerity plan will actually solve the problem anyway, and the Obama budget pleases no one, and was predictably declared on life support by many observers on both sides of the aisle.

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The real problem … (cont.)»

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So here’s the real problem: the core principle of “democracy”—a word invented by Greeks—is that an informed electorate makes choices about who will lead, presumably choosing those who will represent its best interests. Unfortunately, we now live in a world where no electorate is actually well informed about what’s actually going on financially. We all know that numbers don’t lie, but that liars use numbers. But REALLY BIG NUMBERS numb the brains of most Americans. They numb the meaning of money. And they blur the motives of the people using them. Every number coming out of Washington has become too large to really understand. Does anyone truly comprehend the difference between $10 billion and $1 trillion? Gee, it’s a whole lot of money either way. Either one would pay for a great quantity of baby formula, or many, many college scholarships. We’re going to need some new denominations soon. What about a terabyte or a “light year” of dollars?

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What is happening in Greece illustrates starkly how the people as a whole can lose sight of what is actually in their best interests, and how politicians—whose first duty is, after all, to get elected—either did not try or utterly failed to communicate the real state of fiscal affairs in that country for well over a decade. That lack of communication and lack of understanding is now coming home to roost in the form of violence in the streets, and the likely expulsion of Greece from the EU. In the U.S., the principal cause of economic weakness derives from the still gigantic and largely unaddressed crisis in mortgages, which was caused in significant part by complex financial products never fully understood by many borrowers. Efforts by governments, both state and federal, are well intended but ineffective, because no one really wants to deal with the entire problem principally because of its staggering magnitude. The new budget proposal, with all of its spending and deficits, doesn’t really do much in terms of mortgage relief, but worse than that, it comes packaged with an advertised “$4 trillion in deficit reduction,” when the deficit only INCREASES every year for the foreseeable future. The joys of baseline budgeting….

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The United States is a large and still very rich country, but the informational and philosophical distance between the general public and their elected officials is growing—and becoming frightening—just as the distance between the rich and the poor seems to only get larger. There is no simple way to fix our considerable financial problems, and there is no simple way to communicate those problems. In other words, in the long run, American consumers need two things: more financial education—a lot more; and a lot less apathy. Thankfully, the newly-minted Consumer Financial Protection Bureau has a strong mandate to promote financial literacy education to the general public. What the Bureau and everyone else needs to understand is that financial literacy involves more than learning how to balance a checkbook or understanding what APR means—particularly in times when financial matters dominate the headlines. In addition to the microeconomics of personal financial management, the electorate needs to understand enough of the macro to figure out who’s doing what to whom, to not become numbed by those big numbers, to get through the political spin that accompanies every announcement from Washington, and to learn the lessons provided by history and events in other parts of the world.

Once upon a time in America, Greek was routinely included in the curriculum of a liberal arts education. Today, we don’t necessarily need to speak the language, but we do need to better understand what’s happening in Greece. It has become our civic (another Greek word) duty.

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Chase has sweetened the deal on the Slate from Chase: No Balance Transfer Fee credit card. The zero percent intro period has been extended from 12 months to 15 months. I rarely see a balance transfer card that waives the fee and gives an intro period longer than a year.

This is a good deal, folks. The balance transfer fee is usually 3 percent. On a $10,000 transfer you’ll save $300. Plus, you get 15 months to pay off your debt without paying interest. Here’s an important caveat: You must do your balance transfer within 30 days of opening your account. If you don’t do it in that time frame, you’ll have to pay the 3 percent transfer fee.

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I still like the Citi Simplicity Card for balance transfers, but alas, this card’s amazing 21-month intro period just got decreased to 18 months. Plus you have to pay the transfer fee. So if you can pay your debt off in 15 months, this Slate card is a better low-cost option right now.

Here are a few highlights of this card:

• You must have excellent credit to qualify
• After the intro period ends, the go-to APR ranges from 11.99 percent to 21.99 percent (V) APR
• Annual Fee: None
• Foreign transaction fee: 3 percent

Now, you also get a zero percent intro APR on purchases for 15 months. But if you’re doing a balance transfer, I beg you not to put new purchases on this card. Here’s your chance to pay off your debt. Read my full review of this card here.

If you want to know how things can spiral out of control if you buy stuff with your new balance transfer card, read my blog about 5 Credit Card Catastrophes (and How to Avoid Them). Putting new purchases on your balance transfer card is number one on my list.

Check out more credit card reviews by Beverly Harzog:

• 3 Credit Cards for Lovers on a Budget
• A Cash Back Business Credit Card For Fair Credit
• The Best Balance Transfer Credit Card in America
• Capital One’s New Spark Business Cards

At publishing time, the Slate from Chase: No Balance Transfer Fee and Citi Simplicity Card are offered on Credit.com product pages and Credit.com may be compensated if our users apply for and ultimately sign up for these cards. However, this relationship does not result in any preferential editorial treatment.

The last few weeks we’ve been flooded with questions about 1099-C and 1099-A forms sent to consumers who have defaulted on credit cards, auto loans, or mortgages. I’ve found it frustratingly difficult to get even basic answers to some of these questions. I’ve queried numerous tax professionals, and sometimes received conflicting advice. The Internal Revenue Service did not respond to my repeated queries.

But for two questions related to cancelled debt on real estate, I struck pay dirt when it dawned on me that I should try the National Association of REALTORS®. Sure enough, they pay close attention to tax issues that affect homeowners, and they were quick to respond to my questions.

The answers to these two questions were provided by NAR Tax Counsel Linda Goold. It’s important to emphasize that the information here is not a substitute for professional tax advice. If you have any questions about how to handle a 1099-C or 1099-A- related issue, I strongly recommend you get help from a qualified tax professional.

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Question #1: Are HAFA Payments Taxable?

The Home Affordable Foreclosure Alternatives (HAFA) program provides homeowners who agree to sell their homes using a short sale with up to $3000 in relocation expenses. Will they have to pay taxes on those payments? A reader, Gayle, asked:

I did a short sale on my house last year and about $52K was the amount of the debt forgiveness. I also received $3000 for the Home Affordable Foreclosure Alternatives (HAFA/RASS) relocation assistance program. But I have not received a 1099C for this $3K and am not quite sure who to ask for it.  Is this an amount that will be fully taxed?

Answer: Goold said in an email, “We’ve wrestled with this issue with Treasury for quite awhile” then went on to share the reply received from the Treasury Department Homeownership Preservation Office:

“While there is no IRS directive that I can point you to, the Internal Revenue Service has consistently held that governmental payments made under governmental programs for the promotion of the general welfare are not includible (sic) in an individual recipient’s gross income (general welfare exclusion).  This includes borrower incentive payments received under any TARP program including the borrower relocation incentive under HAFA. However, to the extent that moving expenses are tax deductible, a borrower in a HAFA transaction must reduce the moving expenses by the amount of the relocation incentive before itemizing this expense.  In other words they can’t double dip.”

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How Does PMI Affect Forgiven Debt?

Some loans carry PMI—private mortgage insurance—a fee that the homeowner pays each month to protect the lender in the case of default. If a mortgage carrying PMI goes into foreclosure, the insurance company may have to pay the lender for some of the loss incurred. Does that affect the homeowner? Lauren wrote:

My question is if the PMI company protected the bank from part or all of the deficiency, shouldn’t the amount on my 1099-C be the deficiency less the amount this insurance covered? How is it fair that the bank can claim it as a loss if they were paid back?”

She says she’s asked the bank, loan officers, realtors and even her accountant and no one knows the answer. “Maybe banks are allowed to double dip!” she says.

My initial thought was that the loss that the bank suffers and the amount reported on the 1099-C (or 1099-A as the case may be) are separate matters. The IRS requires the lender to report forgiven debt on a 1099-C because it considers that amount income to the borrower. The IRS expects the taxpayer to include it in her taxable income, unless she can show that she qualifies for an exclusion such as the insolvency exclusion or the Mortgage Debt Relief Act exclusion.

[Related Article: 1099-A In the Mail? How to Avoid Taxes on Cancelled Debt]

Goold’s response confirmed my initial reaction. She wrote: “The only thing reported is the amount that the lender forgave. The borrower has to include the forgiven debt (as provided on the 1099C) on Form 982 with the regular 1040 tax return, but the income isn’t taxed (so long as they meet the criteria for tax-free treatment). The PMI payment is completely separate from that. Usually the PMI payment goes to the lender, not the borrower. But if the bank forecloses and the PMI pays the lender later, then the questions about whether it’s income would go to the lender, not the borrower…Net or gross, the amount paid to the lender wouldn’t affect the borrower’ tax return.”

In my next installment, I’ll tackle the problem of 1099-Cs being sent for very old debts: 20 years in one case! Stay tuned.

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After the company was forced to suspend prepaid card use through its mobile purchasing service, Google recently announced that it had fixed a major bug that would have allowed hackers to rip off consumers.

Earlier this week, hacks were discovered by two separate entities that would have allowed cybercriminals to repurpose consumers’ Google Wallet accounts, especially if they were tied to certain types of accounts. The first hack, which was discovered by a security firm, might have allowed hackers with a certain amount of skill the ability to access a Wallet user’s PIN code, essentially giving them access to the account.

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The second, though, was considered more worrying because it could have been performed by anyone. By gaining access to a user’s accounts and resetting their PIN, they could have used an existing prepaid card to gain access to that account. This would have posed a problem particularly for consumers who lost their phones and did not keep those handsets protected with a lock screen code.

As a result of the second problem, Google temporarily suspended the use of prepaid card accounts through Wallet, but has since issued a fix and reopened that type of account for use. Meanwhile, it continued to state its belief that Wallet is secure overall, and safer than using traditional credit or debit cards to make purchases.

“Mobile payments are going to become more common in the coming years, and we will learn much more as we continue to develop Google Wallet,” said Osama Bedier, vice president of Google Wallet and Payments. “In the meantime, you can be confident that the digital wallet you carry provides defenses that plastic and leather simply don’t.”

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And while it said that it was not aware of any instances of consumers’ Wallet accounts being taken over by crooks, it set up a toll-free hotline for those who lost their phone or believe their account was compromised.

The reason digital payment systems that allow consumers with near-field communications-enabled smartphones to make purchases are safer than traditional card use is in the way those systems store and encrypt information. On a regular magnetic strip card, that information is not encoded and can be stolen and copied with relative ease. With digital systems, the information can usually be accessed only by entering a code when using the service to make a purchase.

Are you so fed up with the fees charged by your large bank that you’re considering a switch to a smaller, cheaper bank or credit union? If so, now you have one more expense to worry about: a fee to close your account.

Many large banks now charge consumers fees of between $20 and $30 to close a checking account. In many cases, the fees penalize customers who close their accounts soon after opening. At PNC and US Bank, customers pay a $25 fee for closing an account within the first 180 days. In a recent study of bank fees by the Pew Charitable Trusts, 60 percent of banks surveyed have started charging fees when customers close an account within a few months of opening.

“These fees are really a problem for consumers,” Susan Weinstock, director of safe checking project at Pew, told TIME. “Our response to this data finding is that we think there needs to be a disclosure box for checking accounts.”

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Pew has joined with some consumer groups to lobby the Consumer Financial Protection Bureau to require banks to give consumers a one-page form, similar to the Schumer Box for credit cards, that describes all the fees associated with checking accounts. Right now, the average disclosure form for checking accounts rambles on for 111 pages, Pew found, and is difficult for the average consumer to understand.

Other banks break out the fees in a document separate from the full disclosure packet. US Bank, for example, offers consumers a 10-page description of all its personal banking fees; the $25 account closing fee is mentioned near the bottom of page six.

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The housing crisis has not eased for millions of homeowners, and one of the telltale signs is the amount of money desperate homeowners are willing to spend seeking so-called “solutions.” Just this week, a U.S. district court put a halt to a mortgage relief firm that had collected up to $2,600 each from thousands of consumers to help them avoid foreclosure. The court acted upon the request of the Federal Trade Commission (FTC). The FTC’s press release says the victims paid for help “based on bogus promises to provide loan modifications that would make mortgages much more affordable.”

One of the defendants has been ordered to turn over a 1971 Hatteras yacht, a 2007 Cadillac DTC, and a Rolex watch to the court-appointed receiver for liquidation.

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The FTC has engaged in a number of efforts to prevent abuses in the “mortgage assistance industry.” This latest case against U.S. Mortgage Funding, Inc. cost consumers nearly $19 million, according to the FTC’s complaint. The complaint also says that as part of the pitch—delivered to homeowners by direct mail, the Internet, and telemarketing—the company “falsely claim(ed) a success rate of up to 100 percent.” Another reason homeowners may have been willing to fork over fees? The defendants allegedly also promised refunds if they were unsuccessful in preventing these foreclosures.

Upfront Fees for Mortgage Assistance Are A No-No

In November, 2010, the FTC issued the Mortgage Assistance Relief Services (MARS) Rule that, among other things, prohibit mortgage relief firms from charging fees until homeowners have been presented with a written offer from their lender or servicer that they decide is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. There is an exemption for attorneys who fulfill certain requirements.

Yesterday’s complaint by the FTC charged U.S. Mortgage Funding, Inc., Debt Remedy Partners Inc., Lower My Debts.com LLC, David Mahler, Jamen Lachs, and John Incandela, Jr., also known as Jonathan Incandela, Jr., with violating the FTC Act and the FTC’s Telemarketing Sales Rule.  An amended complaint added Louis Gendason as a defendant.

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The court orders ban all the defendants from providing mortgage relief services, and Mahler and Debt Remedy Partners, who also provided debt relief services, are banned from continuing to do so. The court orders for U.S. Mortgage Funding, Inc. and Lower My Debts.Com LLC ban them from engaging in any telemarketing.  The remaining defendants are prohibited from violating the Telemarketing Sales Rule, and from misrepresenting any facts relevant to marketing or selling any product or service.

Note: According to the FTC, these consent decrees are for settlement purposes only and do not constitute an admission by the defendants that the law has been violated.  Consent decrees have the force of law when approved and signed by the District Court judge.

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The federal agency set up specifically to add protections for consumers and their finances in dealing with products from banks and other lenders says that it will utilize the latest technology in rolling out safeguards and communicating with borrowers and financial institutions alike.

Technology will play a key role in the continuing development of the federal Consumer Financial Protection Bureau, helping the agency, Americans and lenders in a number of ways, according to a report from InformationWeek. The CFPB is already utilizing the latest technologies in cloud computing, open source software, “agile” development and standardized data, and there are plans to continue ramping up use of these strategies going forward.

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The reason the agency will rely so heavily on technology is that it will make the regulatory changes it enforces easier for both consumers and financial institutions to understand, and will help to encourage more communication about those changes, the report said. Just as the agency believes transparency in lending is key for protecting consumers, it wants to make transparency of information, particularly through its website, a top priority.

One of the top ways the CFPB is already using technology for consumers’ benefits is in the tools it provides on its website to help borrowers better understand the true cost of an account they may be interested in opening, the report said.

“The whole concept is to say that, part of the problem when you buy things is that there’s a lot of fine print and the documents are just too hard to understand,” Chris Willey, the chief information officer for the CFPB, told the news site. “What if we had a better, simpler form or document that actually describes the instrument?”

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The CFPB has been working on a number of documents that will allow for more transparent disclosure of terms for several financial products. The most prominent is the one it is working on for credit cards, which will help to reduce the size of lending agreements considerably and the amount of fine print and industry jargon that may be difficult for consumers to understand. It is also developing a similar form for mortgage lending agreements, and says that it could soon shift a similar focus to private student loans as well.