Consumers Union Urges Fed to Require Banks to Roll Back Recent Unfair Credit Card Interest Rate Hikes

/PRNewswire/ -- After Congress passed legislation last year reining in some of the worst credit card lending practices, many banks responded by hiking interest rates before the new rules went into effect, including on customers with perfect bill paying records. Now Consumers Union, the nonprofit publisher of Consumer Reports, is calling on the Federal Reserve Board to require banks to roll back those unfair interest rate hikes and to put stronger limits on the size of penalty fees and interest charges.

The Fed has already proposed new regulations that would limit penalty fees and require banks to reconsider interest rate hikes imposed during the year leading up to the enactment of key CARD Act protections on February 22, 2010. But the proposed regulations don't go far enough according to Consumers Union and should be strengthened to ensure consumers are more likely to see their old interest rates reinstated and don't face unfair penalty fees and charges in the future.

"Last year's shameful frenzy of credit card interest rate spikes has saddled millions of Americans with high cost debt, including many consumers who always paid their bills on time," said Lauren Bowne, staff attorney for Consumers Union. "The Fed should undo that damage by requiring banks to lower interest rates for customers who were treated unfairly before the new credit card protections went into effect."

The Fed's proposed regulations would require banks to review interest rate hikes made on customers between January 2009 and February 22, 2010 and to reduce those rates "as appropriate." But under the proposal, banks are allowed to keep secret their review process with no oversight by the Fed.

Banks could keep the higher interest rate if the reason for the old rate hike still exists, or if the bank decides to come up with a new reason for the higher rate. Banks would not be required to start this "look back" process until six months after the regulations go into effect - in other words, starting in late February 2011.

Consumers Union urged the Fed today to strengthen the rate review proposal by:

-- Requiring banks to reinstate the old interest rate if the reason for
the rate hike would not have been allowed under the new protections
afforded by the CARD Act.
-- Requiring banks to disclose the methodology they use to review rates
and to report to the Fed twice each year the number of rate increases
reviewed and the number of rate reductions that result.
-- Requiring banks to begin reviewing rate increases on August 22, 2010,
when the rate review provision goes into effect.


Thousands of consumers have contacted Consumers Union over the past year to complain that their credit card interest rates were raised unfairly. Many consumers reported that their banks acknowledged that interest rates were raised because of the economy or a change in market conditions and not because of anything wrong done by the consumer. Other consumers reported that their interest rates doubled or tripled after they were a day or two late making their payment or for other minor mistakes. Before the new credit card protections started on February 22, banks were allowed to raise interest rates on existing balances at any time for any reason.

Starting on February 22, banks were prohibited from raising interest rates on a credit card customer's existing balance unless the customer has a variable rate card, a promotional rate has expired, or if the customer is more than 60 days late making the minimum payment.

The Fed also has proposed regulations required by Congress under the CARD Act that are meant to ensure penalty fees and charges are "reasonable and proportional" to the customer's violation of the credit card contract. However, the Fed's proposed rule only applies to penalty fees such as those imposed for going over the limit or being late with a payment and not penalty interest rates.

Under the Fed's proposal, penalty fees would be allowed only if a bank can show the fee is a reasonable proportion of the total cost to the bank caused by the customer's violation of the credit card agreement or if the bank proves that the fee amount is necessary to deter the same kind of violations in the future. The rule also proposes a complicated "safe harbor" provision which allows a bank to pick a permissible fee amount without doing the cost or deterrence analysis.

Consumers Union urged the Fed to broaden its proposed regulation so it extends to the size of penalty interest rate hikes in addition to fees and to limit those rate increases to no more than seven percentage points above the non-penalty interest rate. Consumers Union called on the Fed to simplify and strengthen the "safe harbor" provision for penalty fees by setting it at five percent of the violation or no more than $10.

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Fed Fixes for Overdraft Fall Short, Strong Reform Crucial, CRL Tells Congress

/PRNewswire/ -- Congressional proposals to rein in abusive overdraft practices are long overdue, Center for Responsible Lending executive Eric Halperin told the House Financial Services Committee today.

Halperin, who is director of CRL's Washington office, gave full support to legislation aimed at reforming bank overdraft programs, which cost consumers $23.7 billion last year and are among the most predatory lending products on the market.

"Charging people a $35 fee for a small, debit card transaction is unacceptable," said Halperin, director of CRL's Washington office. "It doesn't save them bounced check fees, it simply skims money from their account and puts them in a bind."

Overdraft fees shot up 35 percent from 2006 to 2008. Banks and credit unions drive up the fees through unfair and costly practices such as automatically approving a debit card transaction even if it overdraws an account and then charging a fee that is often higher than the shortfall itself. Also, instead of recording transactions in the order they are made, financial institutions typically reorder them to increase the number of overdraft fees a customer incurs.

Federal bank regulators, including the OCC and the Federal Reserve Board, have recognized the abusive nature of these practices for years but failed to use their oversight authority to rein them in. The FRB finally is weighing a rule that would take a small step forward, but the Overdraft Protection Act of 2009, (H.R. 3904), under consideration in the House, and similar legislation in the Senate would offer real, substantive reform.

Both bills would give consumers an informed choice on whether they want to pay for high-cost overdraft coverage. They would also limit the number of fees a bank could charge each month and year, and they would require that fees be reasonable and bear some relationship to a bank or credit union's cost of covering a shortfall. And both bills would ban the widespread practice of triggering avoidable overdraft fees by re-ordering customer transactions to maximize overdrafts.

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Isakson, Conrad Praise Senate Passage of Legislation to Investigate Economic Crisis

Amendment Creates Bipartisan, Independent Commission

U.S. Senators Johnny Isakson, R-Ga., and Kent Conrad, D-N.D., today praised Senate passage of their amendment to fraud legislation being considered by the Senate that would create a Financial Markets Commission charged with fully investigating the causes of the current financial and economic crisis in the United States. The amendment passed by a vote of 92 to 4.

“When Enron and WorldCom failed at the start of this decade, Congress rushed to legislate and regulate without all the facts. We need to make sure we don’t repeat that reaction as we seek to recover from today’s financial crisis,” Isakson said. “The only way to get an objective evaluation of where mistakes were made is to create an independent commission of experts to ask what went right, what went wrong and what could we have done to prevent this. We need a forensic audit of the laws of the United States as it relates to the financial markets and our economy.”

“The American people – many of whom saw their retirement accounts take significant losses in recent months - demand and deserve to know what caused our financial system to spiral downward so far so fast. We must hold those responsible for this calamity to account,” Senator Conrad said. “The commission the Senate voted to create today will investigate wrongdoing and help establish rules to help shore up our national economy and ensure this never happens again.”

The 10-member, bipartisan Financial Markets Commission will be modeled after the 9-11 Commission, which thoroughly and independently investigated the failures leading up to the September 11, 2001, terrorist attacks and made sound recommendations on where we needed to improve to prevent another attack in the future.

Likewise, the Financial Markets Commission will have 18 months to investigate all the circumstances that led to this financial crisis. The panel will have the authority to refer to the U.S. Attorney General and state attorneys general any evidence that institutions or individuals may have violated existing laws. At the end of its investigation, the Commission will report to the Congress its recommendations for statutory or regulatory changes necessary to protect our country from a repeat of this financial collapse.

This bipartisan Commission will include two appointees each by the Speaker of the House and the Senate Democratic Leader as well as one appointee each from the House Republican Leader, the Senate Republican Leader, the Chairman of the Senate Banking, Housing and Urban Affairs Committee, the Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, the Chairman of the House Financial Services Committee and the Ranking Member of the House Financial Services Committee.

The Speaker and Senate Democratic Leader will choose the commission’s chair. The Senate and House Republican Leaders will select the vice-chair. Members of Congress as well as federal and state employees are prohibited from serving on the Commission.

Isakson and Conrad originally introduced legislation to examine the causes of the current economic crisis in January 2009. Senator Chris Dodd, D-Conn., Chairman of the Senate Committee on Banking, Housing and Urban Affairs, is a co-sponsor of the amendment as are Senators Saxby Chambliss, R-Ga., Olympia Snowe, R-Maine, and Sheldon Whitehouse, D-R.I.
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Tax Provisions Hopeful Sign in New Stimulus, Says Tax Expert

The big question on the economic stimulus bill passed by Congress is: Will it work? Federal tax expert Dorothy Brown of Emory Law says one factor in favor of the new plan is that the tax provisions are incremental, rather than one-time payments.

"Studies have shown that one-time payments are likely to be saved," says Brown, "whereas with this bill, one of the tax provisions will adjust payroll withholdings for workers at the lower income level, which studies have shown are more likely to be spent."

"It will be an increase in the check every week, and workers are more likely to think 'this is more permanent, so I can go ahead and spend it' as opposed to a lump sum of $600 that they want to save," says Brown.

And because the tax breaks are hitting payroll withholding, "it's going to kick in sooner," also a positive sign, she says.

"When I look at the tax provisions, most of them go for low- and middle-income workers, which is exactly what President Obama said he was going to do—tax cuts for 95 percent of American families," Brown observes. "This may be one of the rare instances where a candidate said it and then when elected, did it."

On the president's housing policy, Brown says the provision giving bankruptcy judges the ability to renegotiate mortgages or write them down to the fair market value of the house "is a huge deal."

"I imagine they'll be some pushback," she says. "The argument is when you [renegotiate mortgages] then cost of credit for everybody goes up, because banks can no longer be comfortable with the documents they sign; they're going to be affected. But I think people will get over that. This is a crisis the likes of which we haven't seen."

Brown, professor of law, specializes in federal tax law and critical race theory and is known for her work examining the racial implications of federal tax policy. She has been an adviser to J. Stephen Swift of the U.S. Tax Court, an associate with Haynes & Miller in Washington, D.C., and an investment banker at New York’s Drexel, Burnham & Lambert. She also was a special assistant to the Federal Housing Commissioner at the U.S. Department of Housing and Urban Development in the late 1980s under President George H.W. Bush.

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Polk Predicts the Impact of U.S. Government Incentives on Automotive Sales

/PRNewswire/ -- Based on detailed analysis and evaluation of the current economic stimulus package expected to be voted on today in Washington, Polk analysts predict the current proposed government incentive will increase U.S. light vehicle sales by 94,000 units in 2009, providing consumers with an average rebate of $330 for each new vehicle purchased.

Throughout the negotiations between the House and the Senate over the economic stimulus plan, Senator Barbara Mikulski (D-MD) spearheaded a provision to help revive the sagging automotive market. Under the current proposal, consumers who buy a new vehicle will be able to deduct the sales tax from their income taxes.

Polk analyzed vehicle prices, sales tax rates, registrations by state, and income tax brackets to develop its rebate forecast. The sales projection forecast is based on measuring the efficiency of past incentive programs across the automotive industry, together with current economic conditions including limited credit availability, low consumer confidence and a rising unemployment rate.

A previous proposal also included a deduction for interest expenses on new vehicle financing. Under that plan, Polk estimates the average rebate would have been $1,250 per vehicle, and would have provided a sales boost of 359,000 units in the U.S.

"Although the current tax incentive is not as generous as the initial one, it is nevertheless an encouraging measure. This incentive program could be even more successful if coupled with additional steps to boost consumer confidence that would drive more showroom traffic for dealers," said Lionel Yron, director of Consulting & Analytics at Polk.

"For example, Hyundai just launched a special program where U.S. consumers can return their newly purchased vehicle if they lose their income within a year. As a result, Hyundai's sales are up 14% in January while overall, the industry is down 37% compared to January 2008," explains Yron. "The magnitude of this gap hints at how much market uncertainties weigh on consumer spending."

Another interesting point of comparison is to look at the steps taken by Western European governments to spur automotive demand in their region. In Germany, consumers can receive a rebate of 2,500 Euros (equivalent to $3,200 USD) if they scrap their old vehicle when purchasing a new one. According to Polk estimates, this measure is expected to increase light vehicle sales by 200,000 units for 2009 and should push the German car market just above 3 million units.

"Because of the fixed rebate amount, small car buyers will benefit from a greater discount. As such, Polk expects to see robust sales gains in this segment. The scrappage bonus may very well ignite a sustained recovery for the German car market," commented Ulrich Winzen, chief analyst at Polk.

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Economic Stimulus Package Would Place Social Security Trust Fund in Deficit for First Time Ever Next Year

/PRNewswire-USNewswire/ -- The Congressional economic stimulus plan would place the Social Security Trust Fund into deficit for the first time ever next year, if the current economic stimulus package is passed by both Houses of Congress.

Social Security is funded by payroll taxes that employees and their employers pay into the system. Money that comes into the Social Security Trust Fund is used to pay the Social Security checks retirees receive each month, and since the creation of the Trust Fund in 1983, the program has always had more money coming in than going out.

However, that may change as soon as next year, due to a proposed refundable payroll tax credit which would offer workers a refund on their portion of Social Security taxes, meaning there would be insufficient cash to pay benefits. The $145.3 billion refundable payroll tax credit proposal would give individual workers up to $500 and couples up to $1,000.

According to the 2008 Social Security Trustees Report, the estimated surplus under "high cost," or bad economic conditions, is as follows:

Year Social Security Trust *Payroll Credit Costs,
Fund Projected Surplus Proposed Legislation
(Billions) (Billions)
2009 $54 $24
2010 $57 $80.8
2011 $43 $37
2012 $26
2013 $5

* Source: Joint Committee on Taxation


"A sufficiently funded Social Security Trust Fund is critical in ensuring that seniors don't have to endure benefits cuts," said Daniel O'Connell, chairman of The Senior Citizens League. "Although we recognize the economy is in bad shape, we don't think putting the Trust Fund into the red is a responsible response."

The Senior Citizens League is advocating for any decrease in payroll taxes to be taken from the general treasury, not the Social Security Trust Fund.

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History and Overview of the Federal Estate Tax

/24-7/ -- The federal estate tax is defined by the Internal Revenue Service as a tax on the right to transfer property at death. The tax is imposed on the taxable estate, which is the total fair market value of the property transferred at death (called the gross estate) minus allowable deductions. Deductions allowed under the Internal Revenue Code include administration expenses, funeral expenses, charitable transfers and property that will be passed on to a surviving spouse.

History of the Estate Tax

Prior to 1916, death taxes were enacted temporarily to raise funds for a specific purpose. For example, the first version of the estate tax was enacted by Congress in 1797 to fund the formation of the American Navy. The Revenue Act of 1862 enacted an inheritance tax and introduced a gift tax for the first time in order to fund the Civil War effort. The War Revenue Act of 1898 implemented an inheritance tax of .74%.to 15%, which was used to fund the Spanish-American War.

The Revenue Act of 1916 assessed taxes on estates based on their value as of the date of death. An exemption of $50,000 was allowed. Rates ranged from 1% for estates with a net value below $50,000 to 10% for estates over $5,000,000. These rates were increased in 1917 to 2% for estates valued at less than $50,000 and 25% for estates over $10,000,000. The Revenue Act of 1918 cut the rates on estates valued below $1,000,000 and expanded the estate tax base by including life insurance proceeds and the value of the surviving spouse's interest in the estate above $40,000 of the estate's value.

The Revenue Act of 1924 raised the tax rate to 40% on estates over $10,000,000 and added a gift tax. The gift tax was repealed in 1926 and the estate tax rate was lowered to 1% for estates below $50,000 and set at 20% for estates over $10,000,000. Between 1932 and 1942, estate and gift taxes were increased several times and exemption amounts were lowered. Estate tax rates were at their highest rate in 1941 - 77% for estates over $50,000,000.

The Tax Reform Act of 1976 brought sweeping changes to the estate and gift tax laws. The reform included a generation-skipping tax. The three separate taxes became part of a unified system for the first time. Estate and gift taxes were capped at 70% for estates over $5,000,000.

The Economic Recovery Act of 1981 phased in an increase in the unified tax transfer credit from $47,000 to $192,000 and a decrease in the maximum tax rate from 70% to 50%. The limits on estate and gift tax marital deductions were eliminated. The Taxpayer Protection Act of 1997 phased in an increase in the amount excluded from taxes from $600,000 in 1997 to $1,000,000 in 2006.

Current Law

The current estate taxes are nearing the end of the phased changes set forth in the Economic Growth and Tax Relief Reconciliation Act of 2001 ("2001 Act"). The 2001 Act gradually reduced the maximum estate tax rates from 50% in 2002, to the current rate of 45%, where it will remain through 2009. The amounts exempt from estate taxes increased from $1,000,000 in 2002 to $2,000,000 for 2008. This amount increases to $3,500,000 for 2009. The 2001 Act repeals the federal estate tax in 2010. Unless Congress acts to extend the tax relief offered by the 2001 Act, the rates will return to pre-2001 Act levels in 2011.

The history of federal estate taxes indicates that the U.S. government has used estate taxes as a source of revenue during tough economic times and war. With the war in Iraq draining resources and the current economic recession, it seems possible that Congress will not extend the estate tax relief provided in the 2001 Act.

Article provided by the Prince Law Firm. Please visit us at www.probateprince.com.

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