Thursday, August 26, 2010

Study Shows Massive Increase in Consumer Bankruptcy Costs

/PRNewswire/ -- People currently filing for Chapter 7 and Chapter 13 consumer bankruptcy protection are facing as much as a 55 percent cost increase as one result of the 2005 comprehensive bankruptcy reforms, according to a new study published in the American Bankruptcy Institute Law Review. In addition, as a direct result of these increased costs, unsecured creditors are being paid a smaller percentage on the dollar today than prior to the 2005 reform.

The study, authored by New York bankruptcy attorney Lois R. Lupica of Thompson & Knight LLP and funded by the American Bankruptcy Institute (ABI) and the National Conference of Bankruptcy Judges (NCBJ), reveals that consumer bankruptcy is a "far more complicated process than it was before the 2005 amendments" based on an increased number of conditions and calculations for filers in addition to a corresponding rise in expenses.

"The government's stated goal in passing bankruptcy reform was to eliminate abuse of the system and create a set of higher eligibility standards for consumers, but this is the first time that the financial impact of those standards has been quantified," says Ms. Lupica, who also serves as a Maine Law Foundation Professor of Law at the University of Maine School of Law in Portland.

The study examined data collected from consumer bankruptcy cases in judicial districts located in Florida, Illinois, Georgia, Maine, Utah, and West Virginia. The costs to consumers was defined as debtor's attorney fees and expenses, trustee fees and expenses, filing fees, credit counseling and debtor education fees, and any other professional fees.

For the sample of Chapter 13 cases, the study found that the median cost for consumers was $2,930 in 2003 and 2004, with an increase to $4,077 in 2007 and 2008. For Chapter 7 cases in the same periods, the costs increased from $900 to $1,399.

"Attorney fees are just part of the required administrative expenses that may have contributed to the overall decline of consumer bankruptcies, even in the face of the public's increased debt load, foreclosures, and loan defaults," Lupica says.

While the overall number of consumer bankruptcy filings has declined since passage of the 2005 reforms, the most recently available data reported by the ABI shows that the 149,268 consumer bankruptcies filed in March 2010 represented the highest monthly total of consumer filings since the reforms were enacted. The March filing total represented a 34 percent increase from the February filing total of 111,693 and a 23 percent increase from the March 2009 total of 121,413.

"Greater up-front costs may have hindered some consumers from filing bankruptcy, but there may be other factors at play," Lupica says. "There was a large volume of negative publicity in the aftermath of the 2005 amendments, as well as heightened efforts by aggressive debt collection and consolidation firms."

The publication of the study marks completion of the first phase of a two-part national survey to analyze how the consumer bankruptcy system has changed in the past five years. The full study is scheduled to be published in late 2011.

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Thursday, August 12, 2010

Inept Repairs Leave Economy Stalling

When the Fed's Open Market Committee meets today (Aug 9), its economists will doubtless produce reams of data and theory aiming to explain why GDP growth is fading fast. But there is a very simple - and disturbing - reason why the recovery is sputtering out: The damage we did to our economy during the housing bubble and subprime crisis was far too severe to be fixed by the weak steps our government has taken in response. We tried to cheap out on the repairs to our economy, and they haven't held up.

The leading example is the bank bailout. Only one-third of the TARP funds even went to banks. Instead of using the money to clean the toxic waste out of bank vaults, the Treasury bought just enough bank stock to prop up their share prices. And the money came with almost no stipulations about how the banks could use it.

As a result, the banks aren't back to normal, judging by their anemic lending. Their balance sheets are still stuffed with decaying loans, and they nurse along existing borrowers instead of looking for new ones. Sure, the big banks have all paid back the TARP funds with interest, but so what? Ask the millions of creditworthy people who can't find banks willing to finance their homes or businesses whether the chump change that taxpayers made from TARP was worth it.

Because TARP didn't really fix the banks, the Fed had to step in and take over many of the credit markets they pulled out of, such as commercial paper and mortgage securities. This forced the Fed to use all its financial strength simply to prevent these financial markets from collapsing. That effort used up virtually all the Fed's capacity to do its main job: stimulate the economy.

And then there's the $800 billion stimulus package. Only about one-third of that was actually new spending, which is what it takes to get the economy moving. And this money is spread out over several years, further weakening the power of its economic punch. Another third of the stimulus was in the form of tax cuts, which didn't stimulate the economy because most households used the tax cuts to pay back old loans rather than buy new things. The remaining third mostly tried to replace spending that would have otherwise declined due to unemployment and falling state tax revenues. That is beneficial, but it's no stimulus.

And finally, there is the mortgage relief program. What mortgage relief program, you ask? Exactly. The government bumbled through a series of small and ineffective programs that have created more frustration and dashed hopes than real relief. One of the first steps the government took was to request a voluntary moratorium on foreclosures, which only pushed the foreclosures off to this year. During the moratorium, it tried a voluntary program that refinanced exactly one mortgage during its first six months. The successor program didn't even start until May 2009 and actually tries to avoid reducing the amount the borrower owes. It's no wonder that struggling homeowners would rather negotiate directly with their lenders - or play the default game and stall for time before foreclosure and eviction.

After the buy-now-and-pay-later economy crashed, we chose a buy-now-and-pay-later recovery. Well, it's time to pay. Unfortunately, we can't simply put the programs in place now that we should have implemented back in 2008, such as removing the toxic assets from the banks and passing a true $1 trillion fiscal stimulus. Consumers and firms have moved on, and the economy has changed.

But more importantly, government lost the initiative to take strong action. The Fed committed its resources to supporting the mortgage market. And public sentiment, exemplified by the tea party movement, has turned against further fiscal stimulus. Now we have to pay for the damage by living with lackluster economic growth - maybe years of it.

Will there be a double-dip recession? Probably not - but that would be one of the best things that could happen. The government would once again have reason to take bold action - and get it right this time.

By Connel Fullenkamp 

Connel Fullenkamp is director of undergraduate studies and an economics professor at Duke.

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Wednesday, August 11, 2010

FDIC Urges Stronger Debit Card and Overdraft Oversight; Other Bank Regulators Should Take Action

/PRNewswire/ -- Statement of CRL president Michael D. Calhoun: "American families, especially those most vulnerable financially, could save millions of dollars a year in costly overdraft fees if guidelines the FDIC proposed today are adopted. The guidelines would encourage the banks the FDIC oversees to offer customers lower-cost overdraft alternatives rather than charge unlimited high-cost overdraft fees--as many banks do, even on small debit card transactions.

Under the proposal, a bank would contact a customer who incurs six overdraft fees within 12 months and offer--and explain--less costly options. The bank would be encouraged to provide the customer with a reasonable opportunity to choose one of them. Banks the FDIC oversees also would be discouraged from re-ordering transactions to maximize overdraft fees.

Banks and credit unions frequently promote their most expensive form of overdraft coverage, which typically imposes a $34 fee per overdraft--twice the amount of the typical debit card purchase that triggers an overdraft--rather than reasonably priced options like a low-interest line of credit or an affordable small-dollar loan. Financial institutions earn $24 billion annually from these high-cost programs.

The proposal comes just days before new Federal Reserve's August 15th rules take effect requiring banks and credit unions to obtain a customer's signature before enrolling them in a costly overdraft program for debit cards. But many banks don't give consumers real choices among alternatives; instead, they steer customers into the highest cost overdraft coverage they offer. The FDIC's proposed guidance indicates the Fed's rule is not sufficient to stop unfair and abusive overdraft practices by lenders: The Fed addresses neither the size of the fees nor how many can be charged.

A decade ago, most banks declined debit card transactions, and at no charge, when a customer's account lacked sufficient funds. Citibank has never charged overdraft fees on debit cards, and Bank of America is stopping the practice. But another big bank, Wells Fargo, continues to charge over a billion dollars a year in debit card overdraft fees. Wells also continues to market a cash advance product that, like payday lending, carries triple-digit annual interest rates.

To comprehensively address abusive short-term loan products, including unfair overdraft practices, the Federal Reserve and the Office of the Comptroller of the Currency must join the FDIC's efforts and explicitly limit overdraft fees to no more than six per year. In addition, all regulators should require that the size of the overdraft fee reflect a lender's cost and risk, and they should ban the manipulation of transaction postings."

For CRL's research on banks' overdraft marketing efforts, see et-mislead-consumers-as-overdraft-deadline-nears.html.

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AARP Applauds House Introduction of Automatic IRA Bill

/PRNewswire/ -- AARP Executive Vice President Nancy LeaMond offered the following statement in reaction to U.S. Representative Neal's introduction of the Automatic IRA Act of 2010. The bill would provide millions of Americans the opportunity to automatically save for retirement in the workplace:

"AARP is pleased to see momentum building around helping Americans save for retirement. Representative Neal and his colleagues who cosponsored the bill - Representatives Schwartz, Blumenauer and Stark - are to be commended for their leadership on this very important issue.

"To date, both chambers of Congress have introduced legislation that would expand access to retirement savings in the workplace, giving approximately 42 million more workers an opportunity to build their own nest egg.

"The Automatic IRA proposal is a simple, low-cost and common-sense solution to the problem that too few Americans are saving for their retirement. If enacted, this legislation would give tens of millions of employees a new saving option at work through regular, automatic payroll deductions. Studies show that contributions to 401(k) accounts rise dramatically when individuals can contribute to them automatically. The proposal gives employees the choice to opt out of the savings plan, but the goal is to make saving as simple and streamlined as possible for those who wish to do so.

"AARP looks forward to working with Representative Neal to build bipartisan support for this common-sense legislation and make it easier for Americans to save for their own retirement."

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AARP Survey: Americans of All Ages Plan to Rely on Social Security

/PRNewswire/ -- With the 75th anniversary of Social Security approaching, AARP released a new survey report that shows that three in four (75%) adults age 18+ rely on or plan to rely on Social Security for their retirement income, including a large majority (62%) of younger adults age 18-29. The survey also showed a strong majority of those polled oppose reducing Social Security benefits for deficit reduction (85%), and support the infusion of additional revenues into the system to provide the same level of benefits in the future (57%).

Changes to Program Should Strengthen for Long Term, Not Reduce Deficit

The AARP survey found that regardless of age, 85% of adults oppose cutting Social Security to reduce the federal deficit, with more than seven out of ten (72%) strongly opposing it.

However, many support other changes to keep the program strong for future retirees. Over three-quarters (77%) of non-retired adults are worried that they may not have enough money to live on in retirement. To that end, 50% of non-retired adults are willing to pay more now in payroll taxes to ensure Social Security will be there for them when they retire, a finding that has remained consistent over time. Over half (57%) of adults under age 50 would prefer to pay more into Social Security so they can get the same level of benefits provided today as opposed to keeping payroll tax rates at current levels in exchange for lower benefits.

Eight in ten Americans 18+ (81%) believe the government made a commitment to Americans about Social Security being there for them when they retire, and that the government cannot break its promise. In addition, over eight in ten Americans (83%) agree that regardless of income, everyone who pays into Social Security should receive it, a finding that has not changed over time.

"The message from people of all ages to Washington is clear - don't erode the one bedrock of retirement security that unites all Americans," said AARP Executive Vice President Nancy LeaMond. "Americans see Social Security as a benefit they've earned over a lifetime of hard work, and they oppose it being used to reduce the deficit."

Lack of Confidence Does not Diminish Support, Including Among Younger Adults

Although confidence in the future of Social Security has consistently been low over the last 25 years, Americans of all ages strongly support the program. Consistent with previous surveys, a strong majority (63%) believe Social Security is one of the very most important programs in this country, with nine out of ten (90%) younger adults age 18-29 saying that Social Security is an important government program. Among non-retirees who are not confident about the future of Social Security, 84% agree with the statement that "Maybe I won't need Social Security when I retire, but I definitely want to know it's there just in case I do."

In addition, the public's lower level of confidence in the future of Social Security can be partially explained by the lack of awareness about solvency. Only one in five (21%) Americans knew that if the Social Security trust fund is exhausted in 2037, Social Security could still pay reduced benefits.

"Americans overwhelmingly understand that Social Security has literally been a lifeline to millions of friends, family members and neighbors for 75 years," added LeaMond. "More importantly, they want to make sure it will still be there for future generations. Younger Americans, although worried about whether Social Security will be there for them, value the program with unquestionable support, and want to know that they can rely on the benefits when they retire."

Social Security Provides Financial Security for Families

The AARP survey found widespread understanding and support for Social Security as an important resource for families and their loved ones.

Americans overwhelmingly support Social Security's protections for people who are disabled and for children and widowed spouses of deceased workers (91%). Almost two-thirds of Americans 18+ (65%) say that their family would be hard hit if Social Security were cut, including 72% of adults whose household annual income is less than $50,000. Eighty percent of Americans appreciate that Social Security alleviates the financial burden of taking care of parents and 88% of non-retired adults believe Social Security helps older Americans remain independent.

With increased attention on Social Security's future, the survey assessed Americans' attitudes toward key features of the program. Across all ages, nearly eight in ten (79%) Americans surveyed agree that Social Security should continue to provide guaranteed benefits while few (19%) think that it should be more like an investment account, subject to risk of possible losses. Half of Americans believe that Social Security payments for retirees are too low.

"We are celebrating Social Security's 75 years of success in reliably helping millions of people age with dignity, confidence and independence," said LeaMond. "We encourage leaders in Washington to reassure all Americans - in words and in actions - that Social Security will be strengthened, not treated as a piggy bank for deficit reduction, so that we can celebrate again 75 years from now."

During the August Congressional recess, AARP is engaging Americans of all ages in activities around the country to demonstrate to lawmakers the importance of Social Security. The organization is going to state fairs, holding community conversations, and collecting petitions that ask the President and Members of Congress on both sides of the aisle not to cut Social Security benefits for deficit reduction and to keep Social Security strong. AARP has already collected 1.5 million petitions over the past few months.

AARP commissioned GfK Roper, a national survey research firm, to conduct a national random digit dial (RDD) telephone survey of 1,200 adults aged 18 or older. A total of 781 respondents were not retired and 419 were retired. Interviews were conducted from July 15th to 27th, 2010. The results from the study were weighted by age, sex, race, region, and education. The margin of sampling error is approximately +/- 3%.

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Reverse Mortgage Proceeds Likely to Decrease October 1

/PRNewswire/ -- Seniors should be informed that the budget proposals working their way through both the House and Senate, as currently drafted, bring a 150 percent increase in annual FHA (Federal Housing Authority) insurance premiums, as well as reductions in available proceeds on FHA-insured HECM (Home Equity Conversion Mortgage) reverse mortgage loans.

"Now is a good time for seniors to take advantage of low rates on reverse mortgages and get the maximum return on the product before the new fiscal year starts this fall," said Jeff Lewis, Chairman of Generation Mortgage Company.

According to Lewis, starting October 1st, both bills will change the HECM value proposition if approved in their current form. "With the upcoming Senate vote, seniors have limited time to take advantage of the current pricing on reverse mortgages," commented Lewis. "Reverse mortgages provide financial independence to thousands of seniors struggling to sustain their retirement. A majority of our borrowers use reverse mortgages to pay off existing traditional mortgages, and free up much-needed income."

In early July, the Transportation Housing and Urban Development, and Related Agencies Appropriations Subcommittee met and provided $150 million in funding for the Federal Housing Administration's reverse mortgage program. The bill passed the full House Appropriations Committee late last month and went to the House of Representatives two weeks ago. In the house, the appropriation was lowered to $140 million, and later passed by a vote of 251 to 167. It is not yet clear when the bill is headed to the Senate.

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Saving for College: UTMAs and 529 Plans

/24-7/ -- With the costs of attending college increasing every year, many parents wonder what is the best way for them to save for a child's education. While there are several different options for saving for college, two of the most popular choices are UTMA accounts and 529 plans.

UTMA Basics

UTMA (Uniform Transfers to Minors Act) accounts are custodial accounts that can be set up at any financial institution. One parent generally serves as the custodian over the account. UTMA accounts allow parents to put securities, bonds and other investments in a child's name. Once their child reaches the age of majority, the assets in the account become the child's property. In Illinois, the age of majority under the Act is 18 for most types of investments and 21 for gifts.

The investments placed in the UTMA account can be used to pay for college or for anything else, so long as it benefits the child. Any assets placed into the account are forever the child's - the parents may not transfer them back. This is known as an "irrevocable gift." Once the child reaches the age of majority, however, the custodian loses control over the account and the child can use the assets for whatever he or she wants, which may or may not include education expenses.

529 Plans

Parents looking for a way to save for college also have the option of opening up one of the many state-sponsored 529 plans. These plans are offered by each individual state, so there is variation in the types of 529s available and the benefits offered. However, there are some common denominators for all of the plans, including federal tax benefits. The money placed in 529 plans grows tax-free and may be deducted without federal tax consequences so long as it is used for educational expenses.

Unlike UTMA accounts, a child does not gain control over the funds in a 529 account once he or she reaches 18. Instead, the parents always retain control over the assets in the account. Additionally, the parents can use the funds in 529s for other purposes besides the child's education, although they will have to pay taxes on the money and a penalty for doing so. The account also is transferable and can be transferred to another child if the intended child beneficiary decides not to go to school.

Pros and Cons of the UTMAs and 529s

There are benefits and drawbacks to UTMAs and 529 plans. Some of the factors parents should consider before opening either type of account include:

Tax benefits

UTMAs used to provide a significant tax shelter, but the rules have since been changed. Now, any assets in the account valued at more than $1900 are taxed at the same rate as the parent's income.

The money placed into a 529 plan is tax-free and can be taken out of the account tax-free, so long as it is used for qualified educational expenses. The money can be taken out for non-educational expenses, but it is then subject to federal taxes as well as a 10% penalty. States also may offer state income tax benefits to their residents who invest in their 529 plans.

Financial aid eligibility

Assets in a UTMA account are attributed to the child for purposes of determining financial aid. Depending on the value of the account, this can have a profound effect on the child's ability to get need-based financial aid.

Assets in 529 plans, on the other hand, are considered the parents' assets. While they still will be considered when determining financial aid eligibility, it will have less of a potential impact on the child's ability to obtain federal financial aid.

Limits on contributions

There is no limit on the amount of contributions that may be made each year to a UTMA account. However, parents who give more than $13,000 individually or $26,000 jointly may be required to pay gift taxes on the transfer.

Most 529 plans will have either an annual cap or a plan cap on the amount of money that may be placed in the account. As with UTMA accounts, parents who contribute more than the federal limits for gifts may be subject to gift taxes.

Degree of involvement in investing

In UTMA accounts, the custodian has complete control over the types of investments that are made. 529 plans do not offer this type of control. Instead, an administrator is selected by the institution sponsoring the plan, who then determines how to invest the money. 529s also limit the amount of times that parents can change the plan's portfolio, which is generally only once per year.

With the current uncertainty in the market and the losses many suffered to their retirement accounts and 529 plans, parents may be uncomfortable relinquishing control over the account's investments. For those who want complete control over how the funds are invested, UTMA accounts are a better choice.


The custodian only has control over UTMA accounts until the child reaches the age of majority. At that time, title to the assets goes to the child, who then is free to do as he or she pleases with the assets.

In 529s, the parent retains control over the account and how the assets are used at all times.


While the custodian still has control over a UTMA account, the assets can be used for anything so long as it is for the child's benefit. This may include paying tuition, but also could include purchasing a car. Once the child reaches the age of majority, the assets can be used by the child for any purpose, educational or otherwise.

The assets in a 529 plan should be used for education expenses to maximize the tax benefits of the account. However, the account can be used for other expenses, but will be subject to income tax and a penalty.

Legal Issues With UTMA Plans

It is important for parents considering setting up a UTMA plan to remember that any contributions they make to this plan are irrevocable gifts that belong to their child. This means that while the parent has custodial authority over the account, the investments and funds in the account must be made for the child's - not the parent's - benefit.

Thus, a parent falling on hard times cannot sell, transfer or otherwise use the assets in the UTMA account for his or her own purposes. Likewise, the parent cannot transfer the assets back to him or herself. Moreover, a custodian who does not act in the best financial interests of the child beneficiary may have legal liability for his or her acts.


Deciding how best to save for your child's future is an important decision. For more information on UTMA and 529 accounts, contact an experienced attorney today.

Article provided by Van Schwab, Attorney at Law

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Tuesday, August 10, 2010

Treasury Department Proposes End to Checks for Federal Benefits

/PRNewswire/ -- Under new regulations proposed by the Treasury Department, Americans who receive federal benefits like monthly Social Security and Supplemental Security income will no longer be able to get these funds by check. Instead, beneficiaries will have to switch to electronic payments, either by having funds deposited directly into their accounts or onto a prepaid debit card issued by the government.

In comments filed with the Treasury Department, Consumers Union urged the agency to allow consumers to continue receiving their benefits by check and to limit the fees and improve the customer service associated with the Direct Express prepaid card for those consumers who choose this option.

"Electronic payments are not safer, easier, and more convenient than checks for all types of benefit recipients," said Michelle Jun, Staff Attorney for Consumers Union, the nonprofit publisher of Consumer Reports. "Consumers should be able to choose the option that is best for them, including paper checks. And if the government is going to encourage benefit recipients to use prepaid cards, it should do more to limit the fees charged for using them and make them easier to use."

The Treasury Department has received numerous comments from consumers who have raised concerns about the switch to electronic payments. Those comments and Consumers Union's concerns are summarized in the letter linked below:

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Thursday, August 5, 2010

Bankers Mislead, Cajole Customers on Overdraft Fees as Opt-In Deadline Nears

/PRNewswire/ -- As the August 15th deadline nears for bank and credit union customers to opt in to high-cost overdraft programs, a new CRL analysis finds these firms market most aggressively and often misleadingly to their most vulnerable customers. Banks target these customers because they likely live on the edge financially and therefore are most likely to repeatedly overdraw accounts. To induce these customers to accept overdraft coverage, many marketing campaigns use scare tactics or incomplete information. For example, they fail to emphasize customers can have debit card transactions declined at no cost rather than incur a $34 overdraft fee. [For the full report, go to et-mislead-consumers-as-overdraft-deadline-nears.html.]

CRL's report includes:

-- Bank consultant pitches on pinpointing customers who will overdraft
-- Evidence these customers are likely to be low-income, single,
-- A cost comparison of overdraft programs.

Under new federal rules, banks must obtain explicit consent from existing customers by the 15th before enrolling them in a costly overdraft program for debit cards. Banks have had to obtain consent from new customers since July 1. These opt-in rules provide a first-line defense against high-cost overdraft fees, but the Federal Reserve Board and, eventually, the new Consumer Financial Protection Bureau must end all unfair overdraft practices, especially those that disproportionately hurt the most vulnerable.

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Tuesday, August 3, 2010

Capitol Bancorp Receives Approval to Consolidate Three Georgia Banks

/PRNewswire/ -- Capitol Bancorp Limited (NYSE:CBC) announced today that it has received regulatory and shareholder approval to consolidate Bank of Valdosta, Peoples State Bank and Sunrise Bank of Atlanta. Effective July 30, 2010, all three locations began operating as Sunrise Bank.

Capitol's Chairman and CEO Joseph D. Reid said, "To date, Capitol's consolidation strategy has resulted in a reduction of 34 bank charters into seven. These bank consolidations have positioned us to preserve core capital, strengthen operational efficiencies and enhance risk management oversight."

Leadership for the consolidated bank will be headed by Clinton Dunn, who will serve as the Chairman and CEO of the consolidated bank. Joining Dunn on the executive management team are Matt Stanaland, who will serve as President and Kay Howell, who will serve as the Market President of Jeffersonville.

"We will continue to provide the same great service that our customers have grown accustomed to. At Sunrise Bank, we remain committed to supporting our local communities through community involvement and local decisions," added Dunn.

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