Ten Traits Of Debt-Free People

I was debt-free once. I had paid off my student loan and had no consumer debt. I thought I would immediately start spending my suddenly-increased disposable income but I didn’t. Instead I found that I was very cautious with my money until I made the choice to go back into debt via a mortgage.

It turns out that I was like most debt-free people. It takes a lot of work to become debt-free and those lessons tend to stick with people.

Patrick Demers* recently became debt-free but it took him four years to get rid of $30,000 of debt. He says in an email interview, “I had accumulated a considerable amount of school debt, credit card debt and went through a stretch of being unemployed for roughly six months.”

1. They are detail-oriented and very organized

Paying off debt means knowing what you owe, developing a budget and sticking to it. Debt-free people keep track of their bills, how much they earn, how much they save and how much they invest. They speak to experts and have a tracking system in place, whether it’s an Excel file or another program. Demers went to a financial planner when he started a new job in 2008. “I went to a financial planner to get my house in order and set up a debt repayment plan, as well as placing a portion of my paycheque to an RRSP.”

2. They’re stress-free

Debt creates stress. People worry about money, they dread next month’s bills, they can’t sleep at night which leads to poor work performance… the list goes on. Getting rid of debt gets rid of stress as Demers experienced when he finished paying off his debt. He says, “It felt amazing. It was like this huge weight was off my shoulders. I didn’t go out to celebrate, though. I’m merely modifying my plan now.”

3. They operate within a budget

Just because they have disposable income doesn’t mean they spend haphazardly. If they can afford it, they’ll spend. If not, they’ll wait or forgo spending.

4. They pay cash

One of the reasons I was able to pay off my debt was because I chose to pay with cash. If I didn’t have the money, I didn’t use credit as that would increase my debt load.

5. They don’t have a lot of credit (and they understand credit)

Credit, when understood and used properly, is a good thing. Debt-free people aren’t afraid of credit. Instead they use it properly to build their personal credit and pay their cards off every month to avoid interest. Demers uses his grandparents’ attitude towards credit. He says, “Never, ever use them as a substitute for cash. They must be paid off every month. My card’s limit has been set deliberately very low for that reason.”

6. They understand value

Do you really need ten tops from a fast-fashion store or one very good, high-quality top that will be worn for years? Debt-free people consider the value of items before purchasing versus mindlessly buying stuff.

7. They’re patient

Debt-free people make the hard decisions. If they can’t afford something, they either wait until they can or choose to do without.

8. They comparison shop

They also cut coupons, wait for sales or buy second-hand. That’s not because they can’t afford it. They know that it’s silly to automatically pay full price for everything. Debt-free people have a habit of looking for realistic and pragmatic ways to save money.

9. They’re not materialistic

Debt-free people might like nice, shiny toys but they don’t define themselves by their possessions.

10. They think long and hard about taking on new debt

I was debt-free for a long time and was hesitant to take on new debt via a mortgage. It took a lot of thought, some calculations, a lot of research and talking to real estate and financial experts before making the choice to take on new debt. Thanks to my previous experience being debt-free, I continue to practice my debt-free habits as well as focus on paying off my new debt as soon as possible.

Demers would also take on new debt but with a few caveats, ”If I ever do take on debt, it will be exclusively with a credit line from a credit union or with an online bank like ING Direct. Their interest rates are favourable, and on top of that, I feel as if I’d be in a position to get a better deal.”

*Name changed by request

Renee Sylvestre-Williams

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How will glum news affect Floridians’ buying (and the economy)?

The recent news isn’t good with the U.S. Bureau of Economic Analysis reporting  the U.S. economy had slowed down from April to June. Nationwide, consumers closed their purses which prompted the American economy to barely grow 1.5 percent during the second quarter.

Floridians will get a signal Tuesday about how others in the Sunshine State are reacting when the University of Florida releases its monthly Consumer Confidence Index.

Greg McBride, the senior financial analyst at Palm Beach Gardens-based Bankrate.com, warns Floridians to brace themselves for another poor index report.

“We’ve had a run of disappointing economic data in the last six weeks,” he said. “That coupled with stagnant incomes is having a toil.”

Last month, Floridians’ consumer confidence sank amid new worries that the economy was slowing or even stalling, according to the UF survey.

A prolonged drop in confidence could affect the state’s efforts to dig itself out of hard economic times brought on by the housing bust and Great Recession. Some 70 percent of the economy relies on people spending.

Bankrate.com reported last Wednesday that Americans’ financial security experienced its biggest drop in 11 months, according to its July Financial Security Index.

Americans were feeling less secure about their jobs, savings, debt, net worth and overall financial situation — although jobs was the least of their worries.

“Interestingly, despite another poor jobs report in early July, feelings of job security were the least affected and remain the component of financial security that Americans feel is most improved relative to one year ago,” McBride said. “Just 19 percent of Americans feel less job security than one year ago.”

What worries Americans more is their personal financial situation.

More than a quarter of those surveyed  declared their overall financial situation worse than a year ago, according to the Bankrate.com poll. Just  23 percent felt it was better.

And almost four out of 10 surveyed said they were less comfortable with their savings compared to last year at this time, while only 16 percent feel better.

“It’s difficult to make headway on savings and paying down debt when the paycheck doesn’t go far,” McBride said. “Household incomes aren’t keeping up with modest inflation.”

Florida and the entire country might be going through another economic slowdown “just like we have had in the last two years,” he added.

Florida and the entire country might be going through another economic slowdown “just like we have had in the last two years,” he added.

Still, the PNC Financial Services Group in Orlando predicts U.S. economic growth will pick up from now until the end of the year and add more jobs.

“Growth will be around 2.3 percent in the second half of 2012, close to trend, as consumer spending and business investment will continue to increase moderately and the housing market recovery picks up,” according to a PNC Financial Services written statement. “However, the problems in Europe, government spending cuts, and uncertainty over federal fiscal policy will remain drags.”

But more U.S. jobs will be added and the unemployment rate will slightly decline by the end of the year, said the financial services group.

Donna Gehrke-White

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Growth in U.S. Slows as Consumers Restrain Spending

The world’s largest economy cooled in the second quarter as limited job growth prompted Americans to curb spending while state and local governments cut back.

Gross domestic product, the value of all goods and services produced, rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter, Commerce Department data showed today in Washington. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year.

Europe’s debt crisis and looming U.S. tax changes threaten to keep the expansion in check and are hurting sales at companies from United Parcel Service Inc. (UPS) to Procter & Gamble Co. (PG) Federal Reserve policy makers, led by Chairman Ben S. Bernanke, meet next week to discuss whether further measures are needed to boost growth and push down an unemployment rate that’s been stuck above 8 percent for more than three years.

“We’re not going to bust out of this moderate-growth recovery we’ve been in for quite some time,” said Dean Maki, chief U.S. economist at Barclays Capital in New York, who correctly forecast the GDP gain. “Growth is slow but not fragile, and there may be a modest pickup in the second half.”

Stocks rose on speculation Europe’s leaders will act to ease the region’s debt crisis. The Standard & Poor’s 500 Index climbed 1.2 percent to 1,376.95  at 1:14 p.m. in New York. The yield on the benchmark 10-year Treasury note increased to 1.52 percent from 1.44 percent late yesterday.

“The economy remains on a moderate expansion path,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, predicting growth will benefit from a decline in gasoline prices and signs the European crisis may ease.

Election Contest

The GDP report leaves the door open for President Barack Obama to win an election contest dominated by economic concerns and shaping up as one of the closest in decades.

“This sort of slow-growth region puts it in the too-close-to-call category,” said Alan Abramowitz, a political science professor at Emory University in Atlanta.

The median forecast of 82 economists surveyed by Bloomberg News called for a 1.4 percent increase in GDP in the second quarter. Estimates ranged from gains of 0.7 percent to 1.9 percent.

Household consumption rose at a 1.5 percent rate from April through June, down from a 2.4 percent gain in the prior quarter. Purchases added 1.05 percentage points to growth.

Frugal Consumers

Among frugal consumers is Morgan Ray, a fourth-grade teacher who was shopping at a Macy’s Inc. store in downtown Washington today. She said she always goes to the sales rack and shops off-season to get a better deal.

“Other necessities cost more, so I don’t spend as much on things that I want,” she said. “I was waiting for a pair of black sandals for a couple of months. I finally went in today.”

UPS, the world’s largest package-delivery company, cut its full-year profit forecast after a drop in second-quarter international package sales. The Atlanta-based company, considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals, projects the U.S. will grow 1 percent in the remainder of 2012.

“Economies around the world are showing signs of weakening,” Chief Executive Officer Scott Davis said on a July 24 call with analysts. “In the U.S., uncertainty stemming from this year’s elections and the looming fiscal cliff constrains the ability of businesses to make important decisions such as hiring new employees, making capital investments, and restocking inventories.”

Fiscal Cliff

The so-called fiscal cliff represents more than $600 billion in higher taxes and reductions in defense and other government programs next year that will occur automatically without action by U.S. lawmakers, threatening to push the economy into recession.

A pickup in homebuilding has helped some manufacturers.Caterpillar Inc. (CAT), the largest maker of construction and mining equipment, this week raised its full-year profit forecast on increased demand from North American builders.

“We are planning for a world that is growing anemically in the next 24 months,” Chief Executive Officer Doug Oberhelman said on a July 25 conference call to discuss his company’s earnings. “We are not planning for an implosion.”

GDP Revisions

With today’s release, the Commerce Department’s Bureau of Economic Analysis also issued revisions dating back to the first quarter of 2009. The changes showed the first year of the recovery from the worst recession in the post-World War II era was even weaker than previously estimated.

In the first three years of this recovery, the economy has grown 6.7 percent compared with an average 14 percent gain during comparable periods in expansions dating back to 1948, excluding the short-lived 1980-81 rebound.

GDP grew 2.5 percent in the 12 months after the contraction ended in June 2009, compared with the 3.3 percent gain previously reported, the Commerce Department said.

The final quarter of last year was revised up to a 4.1 percent gain, the best performance in almost six years, underscoring a more marked slowdown in the first half of 2012. The fourth-quarter gain was previously reported as 3 percent.

Another report today showed consumer confidence in July dropped to the lowest level this year. The Thomson Reuters/University of Michigan final index of sentiment declined to 72.3 this month from 73.2 in June. The gauge was projected to hold at the preliminary reading of 72, according to the median forecast of economists surveyed by Bloomberg.

Retail Sales

Recent data signal consumers are reluctant to step up purchases. Retail sales fell in June for a third consecutive month, the longest period of declines since 2008. Same-store sales rose less than analysts’ estimates at retailers includingTarget Corp. (TGT) and Macy’s.

Slowing sales and currency fluctuations led Procter & Gamble, the world’s largest consumer products company, to cut profit forecasts three times this year.

Consumers may remain cautious until hiring accelerates. Payroll gains averaged 75,000 in the second quarter, down from 226,000 in the prior three months and the weakest in almost two years. The unemployment rate, which held at 8.2 percent in June, has exceeded 8 percent for 41 straight months.

Bernanke told lawmakers last week that progress in reducing the jobless rate probably will be “frustratingly slow.”

‘Further Action’

“Economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said in testimony to Congress. The Fed is “prepared to take further action as appropriate to promote a stronger economic recovery.”

Cutbacks by government agencies continued to hinder growth as spending dropped at a 1.4 percent annual rate in the first quarter, the ninth decrease in the last 10 periods. The decline was led by a 2.1 percent fall at the state and local level that marked an 11th consecutive drop.

Business investment cooled last quarter, reflecting stagnant spending on commercial construction projects. Corporate spending on equipment and software improved, climbing at a 7.2 percent pace, up from a 5.4 percent increase in the previous quarter.

A report yesterday showed the corporate spending outlook has dimmed. Bookings for non-military capital goods excluding aircraft, a proxy for future investment, fell at a 3.1 percent annual rate in the second quarter, the first decrease since the same period in 2009, when the U.S. was still in a recession, according to Commerce Department data.

A measure of inflation, which is tied to consumer spending, climbed at a 0.7 percent annual pace in the second quarter, the smallest gain in two years. The slowdown in spending combined with less inflation helped boost the personal saving rate to 4 percent from 3.6 percent in the prior period.

Shobhana Chandra

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Today’s IAPDA News Release

IAPDA Provides Consumers With Powerful Tools To Research And Choose The Right Debt Relief Consultant And Company For Their Unique Debt Situation

The International Association of Professional Debt Arbitrators, a nationally-recognized provider of debt relief certification programs, is proud to provide debt burdened consumers access to important online decision making tools to help them choose the best suited debt relief consultant.

Los Angeles (PRWEB) July 26, 2012
International Association of Professional Debt Arbitrators (IAPDA), long the source of the debt relief industry’s leading certification training programs makes its membership more transparent for consumers and legislators. To support consumers and the industry’s desire for greater transparency IAPDA has this year updated its policy on the use of the IAPDA Member Logo by members. Members can display the IAPDA Member Logo on their company website and marketing materials but now must only display a specific Member Logo indicating their company’s overall level of participation in IAPDA certification programs, giving consumers the ability to research the qualifications of individual debt consultants and their company.

Levels of participation are determined by the number of company employees who attain IAPDA certification(s) and maintain their certification(s) with continuing education every two years. Platinum Level companies have over 100 currently certified IAPDA members, Gold Level companies have 25-99 currently certified IAPDA members, Silver Level companies have 10-24 currently certified IAPDA members and Bronze Level companies have 2-9 currently certified IAPDA members.

Professional education and consultant certification is more important than ever in the debt relief industry. IAPDA programs provide a standardized foundation for debt consultant’s professional knowledge, as well as an objective measure by which consumers can judge the debt relief expert they turn to for help.

Laurence Larose, IAPDA Executive Director says, “Consumers deserve to work with debt relief consultants who totally understand all the debt relief options available and who can effectively guide them back to a debt free life. Leading Debt Relief company owners and top consumer debt experts agree. They heartily recognize and endorse the complete debt relief education and the certifications earned by IAPDA certified members.”

Consumers and legislators can search the IAPDA 3200+ member database online by either name, company name or city to learn the current membership and certification status of all 3200+ IAPDA members.

IAPDA also publishes a detailed list on their website of companies with current IAPDA certified members. The list is sorted by each company’s level of participation in IAPDA certification training programs, making it very easy for consumers (and lawmakers) to compare a company’s stated level of participation with official IAPDA records.

Larose also says, “In the past companies could display the standard IAPDA Member Logo and advertise that all of their consultants are IAPDA certified. Consumers can now easily verify this claim and see how many company staff members, if any, have received and maintain IAPDA debt relief training and certification.”


The International Association of Professional Debt Arbitrators (IADPA) is the debt relief industry’s leading certification training programs. Established in 2000, they have graduated over 3,200 members, and offer online-based training to both individuals seeking certification, and companies that want to certify their employees. Visit them online at http://www.iapda.org.

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Are You Too Broke to Go Bankrupt?

A number of cash-strapped Americans, overloaded with debt, will not  be able to afford to file for bankruptcy this year. Anywhere between  200,000 and 1 million consumers are estimated to be unable to front the  $1,500 average cost to pay for the filing and lawyer fees for a Chapter 7  bankruptcy protection, according to recent research submitted to the  National Bureau of Economic Research.

Chapter  7, the most common form of consumer bankruptcy in the United States,  wasn’t always this hard to attain. With Chapter 7 bankruptcy, your assets that are non-exempt are turned over to a trustee, who then allocates funds to your creditors, in turn wiping out all or most of your debts. But bankruptcy laws changed  in 2005, resulting in bankruptcy filings becoming more expensive and  more difficult to execute. The United States Government Accountability  Office estimated that the average attorney fee for a Chapter 7 case  increased from $712 in February and March 2005 to $1,078 in February and  March 2007, a 51 percent increase.

Under the  2005 laws, debtors have to go for credit counseling before filing a  bankruptcy petition. Consumers are also subjected to a means test, to  determine which type of bankruptcy to file. In a Chapter 13 bankruptcy,  the filer undergoes a financial reorganization overseen by the court and  develops a plan to pay off his debts in an effort to protect certain  assets, such as an estate. And as of 2005, the debtor must take a debt  management course and file a certificate of completion with the court.

While  claiming bankruptcy is more difficult than it was in the past, the need  for it is perhaps even greater during these tough economic times.  “There are a lot of people in this country who for many  reasons—unemployment, skyrocketing medical bills—can’t afford to pay  their bills,” says Andrea Fisher, an attorney with Squire Sanders in New  York City who specializes in bankruptcy. “They legitimately need to  file Chapter 7 to get the breathing space they need to get a fresh  start.”

Filing for bankruptcy without  consulting a lawyer is an option, but most experts don’t recommend it.  “If you truly need to file bankruptcy, you truly need to hire an  attorney,” Fisher says. “The bankruptcy code is filled with procedures  and rules. Just filling out the petition, which is the forms you file to  start the bankruptcy process, is very complicated.”

Without  the guidance of an attorney, you can make a number of harmful mistakes  that can ultimately lead to your case being dismissed by the court.  Gerri Detweiler, director of consumer education at Credit.com, advises  against using a bankruptcy preparation service in lieu of hiring an  attorney. “These services are really only designed to fill out the  forms, but they are not allowed to give legal advice,” she says.

To  prepare to file for bankruptcy, Fisher advises getting all of your  paperwork together, since you’re going to have to list all of your  assets, debts, and any litigations you’re involved in. “You want to be  able to have a complete picture of what your financial condition is,”  she says. Fisher also cautions people against transferring any assets  before talking to a lawyer, since many asset transfers are subject to  avoidance laws and can result in your case being dismissed. Detweiler  adds that even if you sell an asset to pay off a debt before bankruptcy,  that action could be looked at as preferring one creditor over another  and could damage your case.

Today, the Chapter 7  filing fee by itself, without attorney fees, is $306 and $281 for a  Chapter 13, according to the United States Bankruptcy Court. You can,  however, get the fee waived if your household income is less than 150  percent of the income poverty line.

In terms of  affording the lawyer fees, experts recommend seeking out pro bono  attorneys. You can do this by contacting your local legal-aid society,  which should be able to refer you to a low-cost or free service in your  area. You can also use the American Bankruptcy Institute’s Pro Bono  Locator to find free bankruptcy attorneys near you.

Through  ABI, you’ll find lawyers like John Hargrave, who provides pro bono  bankruptcy counseling through the Rutgers Law School Bankruptcy Pro Bono  Project. “I’ve always regarded the practice of law as having an  obligation to give something back to the community,” Hargrave says.  Through the project, Hargrave advises people who are living off Social  Security, unemployment, disability, or are earning very little in the  way of minimum-wage jobs.

When  consulting a lawyer, Robert Lawless, a law professor at the University  of Illinois who specializes in bankruptcy, says it’s important to find  an attorney who will not only help you file for bankruptcy but also try  to solve your debt problems. He says, “The attorney should talk about  your goals and look at what all your options are.” Another low-cost  resource is the National Foundation for Credit Counseling, which  provides affordable financial services to help people manage their debt.

Daniel Bortz

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Consumer debt seen rising—again

The financial crisis prompted consumers to start paying down their debt, but even with the economy far from recovery, that decline in consumer debt is expected to reverse.

Consumers owed a total of $11.4 trillion in March, down from $12.7 trillion in the third quarter of 2008, according to Federal Reserve data. That figure includes credit cards, auto loans, mortgages and other types of debt. If you divide the current debt load evenly across all U.S. households, that’s more than $96,000 per household.

The good news is that credit-card debt fell to $679 billion in the first quarter of 2012 versus $837 billion in the same period in 2008.

“The credit-card issuers have been tightening credit through the recession, making it more expensive and less available,” said Cristian deRitis, a director at Moody’s Analytics. Plus, consumers aren’t borrowing as much, he said.

Still, consumers’ debt level is now shrinking at a slower pace and likely will soon start to expand, deRitis said. Credit “will slowly grow through the end of this year and in the next year,” he said.

The expansion of credit is positive for the economy in the short term, as consumers spend more, deRitis said, but in the long run, financial sustainability is what matters.

As consumers start tapping into credit again, some financial advisers warn that all debt—even a mortgage loan—is best avoided.

“Just because the society lives that way, it does not mean it is a good way,” said Dave Ramsey, a financial counselor and author of several books on personal finance. Debt is “a poison” and there is no such thing as a good debt, he said.

Ramsey’s radical philosophy: Nothing should be bought with debt. Instead, consumers should save for items they want to buy, and tame their need for instant gratification.

Ramsey has been debt-free for more than 20 years. He advises people to pay off all of their debt as soon as they can, though he says it usually makes sense to leave the mortgage payoff until last. The mortgage term should not exceed 15 years, and payments should not exceed one quarter of household income, he said.

“The problem with debt is that it increases risk for the people that are involved and it drains their most precious wealth-building tool, which is their income,” he said.

Other advisers are less hostile toward debt, but agree that abusing debt is a bad idea.

“Credit cards are the worst kind of debt, because of the high cost,” said Charles Buck, a certified financial planner in Woodbury, Minn. Credit-card rates can go as high as 33% if a cardholder doesn’t pay on time. Rates rose last year, especially for consumers with low credit scores or no credit history.

In general, debt is not a good thing, Buck said, but some kinds of debt may make sense. For instance, if buying a house means paying less or the same as renting a similar property, then buying may make sense. Financing the purchase of a first car can be justified, but second and third cars should be purchased in cash, he said.

What about student loans? Total student debt outstanding spiked to $904 billion in the first quarter of 2012 compared with $506 billion in the first quarter of 2007, according to Federal Reserve data. It became the largest form of consumer debt outside of mortgages.

“If you pay for an education, you have to be in a position to pay back what it cost you,” Buck said. Even high-ranking universities may leave graduates with few job prospects. For those considering college, Buck noted that a big part of the cost comes from room and board on campus. He said students might consider living with their parents while attending a local community college for freshman year, and then transferring to a university.

Ramsey proposes more austere measures in tackling student debt. He suggests students spend more time working and less time playing. If they spent the same amount of time on the job that they spend watching television and engaging in social activities, he said, they would be able to put themselves through state school without the help of loans.

Many financial advisers say a rule of thumb is that your debt should not exceed about 33% to 38% of income. That includes your mortgage, car loan and consumer credit. Buck suggests to his clients that they not exceed 25% and plan to pay off their debt in total by the time they retire.

“Aside from auto loans and your mortgages, assuming a fixed-rate mortgage, the interest rates on most debt is variable,” said Jay Hutchins, a financial adviser with the Wealth Conservatory in Lebanon, N.H. He said that people don’t think about variable interest rates as a risk factor, but rates can spike to double digits from current lows. The stability of future income should be taken into a consideration when taking on debt, especially in the current economy with a high level of unemployment.

“We all are going to take emotional and other noneconomic considerations into play when we make decisions about taking on a debt,” Hutchins said. As long as your balance sheet can tolerate a specific amount of debt without sending you into bankruptcy, then emotional factors may guide you. For example, a person might justify the cost of a face-lift by considering the benefit of how he would feel looking in the mirror after the medical procedure is done.

Still, Ramsey cautioned consumers against letting their “wants” dictate their financial decisions.

“One definition of maturity is the ability to delay pleasure,” Ramsey said. “Adults devise a plan and follow it, and children do what feels good. We’ve got some 52-year-old children walking around.”

Anna Andrianova

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Praise for the 1-Year-Old Consumer Protection Bureau

Prentiss Cox first caught wind of the scheme about 15 years ago. Consumers were finding charges on their credit-card bills and bank statements for unwanted services such as membership clubs or disability insurance. Cox, then an assistant Minnesota attorney general, noticed an odd pattern as their complaints flowed in.

Most of the consumers — often people with limited mental capacity or trouble speaking English — said they had no clue where the charges came from. But when they disputed their bills, their banks insisted the charges were for authorized purchases from telemarketers.

It didn’t take long for Cox to unravel the mystery. Some of the nation’s largest banks were taking a cut on the charges they were defending. And, as Cox saw it, the consumers were confused because the deals were rigged.

They were supposedly authorizing the purchases without ever taking what most consumers would consider a crucial step: giving the merchants their account numbers. They didn’t have to, because the banks already had them.

Cox may have solved the mystery back then. He helped give it a name — “preacquired account marketing” — and filed successful suits against financial institutions linked to the marketers, such as Fleet Mortgage Co. and US Bank. He even helped U.S. Sen. Jay Rockefeller (D., W.Va.) win passage of 2010′s Restore Online Shoppers’ Confidence Act, which barred similar marketing on the Internet.

But it was only last week when Cox, now a University of Minnesota law professor, had reason to see victory on the horizon.

After years of efforts by Cox and others to eliminate various versions of the same scheme, two federal financial regulators finally cracked down hard on it. They ordered Capital One, a major credit-card issuer, to pay $210 million in consumer refunds and penalties for nearly a decade of deceptive marketing that was much like what Cox first saw in the ’90s.

One of the regulators was the Consumer Financial Protection Bureau, which turned a year old this weekend — a birthday that Cox and other consumer advocates are happy to celebrate.

“I’ve been trying to get attention focused on this for 15 years now,” Cox told me. In addition to helping Rockefeller, he published an article lambasting the practice — and regulators’ blind eye toward it — in the Harvard Journal on Legislation.

“This case is exactly why we needed the CFPB,” Cox says. “This has been going on for 20 years, and no federal regulator had the power or interest in going after them.”

To be sure, that inaction partly reflects the fact that the cases involve businesses’ skirting the line in ways that they could at least contend weren’t outright deception. But Cox says there’s abundant evidence that some of the nation’s largest banks, including JPMorgan Chase, Citigroup and Bank of America, are involved in the same kinds of practices.

Cox says the Capital One scheme differed only slightly from the tactic he first saw in the ’90s, in which banks provided consumers’ names and account numbers directly to third-party vendors. With that crucial information already in hand, Cox says, a seller can turn a time-honored market dynamic on its head.

Think about it. When you buy something, you know exactly when you’ve agreed to the purchase: when you hand over your cash, check or other form of payment. If you don’t retain that control, you’ll be at risk any time you encounter an unscrupulous merchant.

That’s exactly what happens here. Cox says the business model “flips the power dynamic in the solicitation process by shifting the burden to the consumer” to stop a transaction rather than start one. At the very least, it’s a recipe for misunderstanding.

In Capital One’s case, the bank didn’t provide the account details to its vendors. Instead, it hired them to answer the phones in call centers where customers called to activate their cards.

But not just any customers or call centers. According to the CFPB, Capital One apparently steered its low-end and less-credit-worthy customers — “subprime” cardholders with low credit scores, and cardholders with credit limits under $5,000 — to the call centers staffed by the vendors.

When they called, they were pitched services such as “Payment Protection” and credit monitoring. And just like 15 years ago, no one had to ask for their credit-card number. The vendor, quite obviously, started out with it.

“You have the exact same problem, which is that the consumer is being charged for something without ever giving their account number,” Cox says.

To be fair, the Office of the Comptroller of the Currency joined in the enforcement against Capital One, albeit under a new director, Thomas J. Curry, appointed last July by President Obama. But the OCC’s previous record on this subject only helps prove Cox’s point.

When he worked in law enforcement a decade ago, Cox sought the OCC’s help in his efforts against preacquired account marketing. Ironically, the only times it intervened were on behalf of the banks it regulated — to argue for the narrowest readings of rules, or against state efforts to enforce consumer-protection laws against them.

Cox made that point in a 2010 letter to former Sen. Christopher Dodd, a chief sponsor of that year’s Dodd-Frank financial reform — the law that established the CFPB despite fierce lobbying against it by the banking industry. He called the case “one obvious example among many that the OCC identifies with the interests of the banks it regulates and has no understanding of, even hostility to, consumer protection concerns.”

Let’s face it: Consumer protection isn’t sexy. No regulation is. It’s just the nuts-and-bolts business of government, which we need to do things we can’t always do as individuals.

I can only speculate why Capital One targeted those low-end consumers for its vendors’ questionable pitches. Perhaps surprisingly, Cox says, “a lot of sophisticated consumers bite on this.”

The case is just a small part of the agency’s first year. Via e-mail Friday, CFPB director Richard Cordray mentioned efforts to “fix the broken mortgage market — a leading cause of the financial crisis and a key part of our economic recovery,” as well as efforts to cut down on fine print, improve student loans and credit cards, and give consumers a place to find answers or complain when their financial dealings go awry.

For his part, Cox isn’t willing to count his victories just yet. But he was happy to see that the CFPB chose a major bank’s mystery charges as its “first public enforcement action.”

“This is huge,” he says, “because there’s finally a real cop on the beat.”

Jeff Gelles

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Thousands file consumer complaints with CFPB

As we move toward the second anniversary (July 21) of President Obama signing into law sweeping financial reforms, more commonly referred to as Dodd-Frank, more than 45,000 people have filed complaints with the newly-created Consumer Financial Protection Bureau.

In one case, a 77-year-old Army veteran and retired businessman living in Georgia was certain he had paid off his mortgage, but his mortgage servicer insisted he still owed money. To make matters even more complicated, the man was blind and had trouble finding paperwork that proved he owned his home. After CFPB got involved in late 2011, the bank agreed that the mortgage was fully repaid in 2007. For his trouble and his time, the bank sent the borrower a check for $30,000.

In another complaint, CFPB helped a 31-year old waiter from Florida reduce his monthly student loan repayments to an affordable amount. A young man’s dream of becoming an artist led to a decision to enroll in a for-profit college, where he sunk into debt at the tune of $110,000 while earning an Associate’s Degree. Without a four-year degree, he was unable to find work in his chosen field as he began paying $700 a month to a private student loan lender.

By the time his federal student loan payments were added, he could barely manage to make ends meet after paying $1,100 in total loan costs. When the private loan company refused to adjust payments, the young man contacted CFPB. They determined that he was eligible for a reduced payment program that cut his monthly payment to only $407 for a year. Further, he is still working out a plan to reduce federal loan payments.

The best news is that there are even more successful stories of how consumers working with the CFPB were better able to manage financial debt. From July 21, 2011 through June 1, 2012, 45,630 consumers contacted the CFPB with a range of complaints. Mortgage issues ranked highest (19,250 complaints), followed by credit cards (16,840), bank products and services (6,490) and private student loans (1,270).

Of these complaints, 81 percent have led to contacting identified companies for review and response. Others were referred to other regulatory agencies, found to be incomplete, or are still pending with CFPB. Companies contacted by CFPB are also responding – responses have been received on approximately 33,000 complaints.

To make filing complaints easier for consumers, CFPB accepts complaints via its Web site, by telephone, mail, e-mail and fax. Consumers opting to phone use a toll-free, U.S.-based call center that offers assistance in 187 languages, and can accommodate the needs of both hearing and speech-impaired callers.

With information in hand, CFPB then determines if the complaint falls within the bureau’s enforcement authority. Once that basic threshold is met, affected companies are contacted for review and reply. While the complaint is in progress, consumers can log onto a secure portal or call the toll-free number to receive status updates, provide additional information and review responses submitted by companies.

In addition to the consumer complaints received, CFPB has also gained further consumer insights through written comments on a range of topics that include but are not limited to: debt collection, equal credit, leasing, overdraft and payday lending.

For example, in response to a larger than expected attendance at a January 2012 payday lending public hearing in Birmingham, CFPB offered a comment period for persons and organizations either unable to attend or speak. By the time the comment period closed on April 23, a total of 620 comments were filed. The majority of comments received spoke directly to consumer needs and concerns, some citing CRL research.

Speaking on behalf of the Leadership Conference on Civil and Human Rights, Wade Henderson and Nancy Zirkin wrote in part, “Regardless of the precise source of payday loans, their effects are the same. They come with triple digit interest rates. Communities and consumers are targeted, rather than served. And according to the Center for Responsible Lending, each year more than $4.2 billion of otherwise valued and disposable income are lost to the accompanying predatory fees.”

Charlene Crowell

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Britain’s household debt ‘at highest levels since 1980s’

Britain’s household debt levels are at their highest since the 1980s with consumers now owing £1.5 trillion, according to a report published today by Which?

And the situation is so bad, Britons are now amongst the most economically vulnerable in Europe, with just 53 percent of saying they are ‘satisfied with life’, the report reveals.

Which? executive director, Richard Lloyd, said: “Consumers in Britain are going through the tightest squeeze in their living standards since the 1920s. Many consumers are clinging to the edge of a financial cliff with savings at rock bottom and personal debt levels sky high.”

Overall, it was found that women and young people aged between 18 and 29 are suffering from the highest levels of debt. As a result, they have also felt the largest impact to their living standards. The report found that for every pound earned in this group, 47p was owed, compared to a national average of 21p.

One in 10 young people also said they had defaulted on a bill, while 45 percent said they ran out of money every month (compared to 38 percent of consumers on average). In response, Which? and other consumer groups are calling for compulsory personal finance education in schools to help young people learn how to manage their money earlier.

Half of British consumers (48 percent) said they could not cope with any further unexpected costs, with 35 percent already struggling on their current incomes. However, people earning the second lowest wage bracket (£12,376 – £21,424 peryear) have seen the biggest decline in quality of life; from 69 percent reporting that they are ‘living comfortably’ in 2003 to 48 percent in 2010.

Consumers who sit in the lowest income bracket earning £12,376 a year of less, were found to have the highest debt ratio, owing 37p for every £1 they earned. Together with the group in the wage bracket above, the two groups form a larger group of working poor – the squeezed bottom.

Mr Lloyd said: “Shocking numbers of people say they are forced to take on new forms of debt just to make ends meet, and many more would not cope with unexpected shocks to their incomes or household bills.”

As a result of financial difficulties, consumers are looking harder at their budgets and where they can save. 43 percent of people said they would try to cut back on food costs, while more than 50 percent will cut back on holidays and socialising.

Mr Lloyd warned: “The consumer has too often been an afterthought in the government’s growth agenda. With this new report, we show just how well those with power, both in government and business, are doing at putting consumer wellbeing first.”

Jon Land

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Some Capital One Customers Getting a Refund

If you have a Capital One credit card, you might be entitled to a refund. That’s because the Consumer Financial Protection Bureau (CFPB) recently ordered Capital One Bank to refund $140 million to about 2 million customers who were pressured or mislead into paying for credit-card products they didn’t understand, want or, in some cases, even need.

Capital One call-center vendors offered consumers with low credit scores or low credit limits payment protection, which allowed them to ask the bank to cancel up to a year of payments if they encountered certain life events, such as unemployment. The vendors also offered credit monitoring with identity-theft protection and access to credit education specialists.

Consumers were led to believe that the products would improve their credit scores and sometimes were told the products were free. Some consumers were enrolled without their consent, and some were sold the products even though they were ineligible for them, according to CFPB.

Capital One will automatically refund customers with open accounts by crediting their accounts. Customers who have closed their accounts will receive a check in the mail. The CFPB says customers should expect to receive refunds later this year. If you have questions about the refund, contact Capital One directly by using the customer service number on your credit card.

The CFPB also is warning consumers to watch out for scammers who may try to charge a fee, ask them to cash a check or divulge personal information to claim their refund.

Cameron Huddleston

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