One reason why we need a Consumer Financial Protection Agency

At today's Senate Banking, Housing & Urban Affairs Committee hearing on the proposed Consumer Financial Protection Agency, representatives from both the American Bankers Association and the American Enterprise Institute outlined the chilling effect such a new regulatory body would have on financial innovation. The proposed agency would require purveyors of more-exotic financial products, such as payment option adjustable-rate mortgages, to also provide consumers with "plain vanilla" alternatives such as 30-year fixed mortgages, and with simple disclosures for meaningful comparison. The agency also could ban certain unfair terms and practices, and require brokers and other financial intermediaries to determine if their products really were affordable to the borrower.

Saddled with those requirements, among others, many financial institutions won't bother to offer innovative products to consumers who might indeed benefit, noted Edward L. Yingling, president and CEO of the American Bankers Association. The costs of compliance would be too high, he asserted. That could stifle choice and competition, which ultimately would be bad for consumers. "Ideas that could give consumers benefits or lower costs would never see the light of day," he said.

California taxpayers: How to benefit from your state IOU now

The basket case government of California, which has been unable to raise taxes and unwilling to cut spending, has come up with a bill-paying scheme that your fiscally irresponsible big brother probably used on you after filching money from your piggy bank when you were kids: I.O.U.'s

On July 2, the California State Controller began issuing I.O.U.'s for state obligations—including tax refunds. Most of California’s 12.8 million taxpayers are a trusting lot. This year, 65 percent of them let Sacramento withhold more in state income taxes than was necessary. The result: More than $6.6 billion in taxpayers’ money piled up in the state’s coffers. Of course, the state spent this money, rather than hold it for safekeeping. The average refund due is a not-unsubstantial $789.

The I.O.U.'s, known as “registered warrants” in financial circles, are supposed to be redeemable on October 2, “assuming there is adequate cash in the Treasury,” says Controller John Chiang. The California Bankers Association said in a press release, "We have learned that if sufficient cash is not available by the October 2, 2009 maturity date, registered warrants may be issued to cover those previously issued registered warrants.” 

California taxpayers, shouldn’t sit still for this. We advise you to turn your California I.O.U. into cash right now. Here are four ways to do it:

Credit CARD Act countdown: Banks sneak in higher fees and rates

The Credit Card Accountability, Responsibility and Disclosure Act, aka the Credit CARD Act, will go into effect next February, but a few provisions are scheduled to kick in on August 20, about 6 weeks from now. Those provisions include a requirement that credit care issuers give 45 days' notice before an interest rate hike, compared with the 15-day notice currently required now. That'll give consumers time to shop for a new card if they're unhappy with the new rate.

In recent weeks, however, banks have been sneaking in changes in advance of the new law's effective date. Here are a few, identified by Bill Hardekopf, CEO of www.LowCards.com, and author of The Credit Card Guidebook:

•JP Morgan Chase increased the minimum payment percentage to 5 percent of what's owed, from 2 percent. In one sense, that's good for consumers because it forces a quicker payment of the principal, resulting in lower interest payments overall. But it could throw others–particularly those only able to afford to 2 percent–for a loop. [UPDATE July 15, 2009: Chase says they notifed less than one percent of its customers that their monthly payment would increase this way.–Ed.]

•Chase also increased its the maximum balance transfer fee and cash advance fee to 5 percent, effective in August. Hardekopf says that's the highest in the industry. Bank of America's balance transfer fee is now 4 percent, up from 3 percent. 

•Several banks announced they would be moving to a variable rate from a fixed rate. Simmons Visa Platinum Rewards, for instance, is moving tomorrow to a variable rate of 9.25 percent, from a fixed rate of 8.95 percent.

Sneaky as those changes are, you can fight back with your own tactics. Click here for our advice on avoiding credit-card snags and getting the best rates and lowest fees.–Tobie Stanger

Airplane air is still stale, but the summer deals are fresh

The Wall Street Journal today reported that airlines have yet to act on recommendations to improve airplane air quality, a year after those steps were proposed by an industry blue-ribbon panel. The recommendations, the Journal notes, included "voluntary standards for onboard air circulation, lower ozone exposure, new monitoring for contaminated air from oil or hydraulic fluid leaks, and limits on pesticides used on planes."

That news adds insult to injury in an environment in which summer travelers are experiencing ever-shrinking amenities and higher fees. Still, there are steps you can take to make your air travel healthier and more comfortable; click here for our advice from Consumer Reports Health.

And, if you can put up with that stale air and are willing to do a bit of legwork, you can save a bundle on air travel now. Check out our latest article on travel deals from the Consumer Reports August issue.

Hail, hail Consumers Union!

A freak July hailstorm pelted Consumers Union's Yonkers, N.Y. headquarters last night, leaving huge, bizarre piles of white pellets in our parking lot. Winds felled trees, flattened grass, and left the ground covered in green leaves peeled from branches and limbs.

This out-of-season storm reminded me of the importance of getting the right homeowners insurance for the unexpected, and of checking your current policy to see what's covered. Hail is a covered peril in the typical homeowners policy, as is damage from wind storms, fire and theft. Flood, however, is not covered, and you'd be surprised what's defined as flooding. Mudflows and water seepage through your foundation's walls, for instance, are not covered by homeowners insurance provided by a private insurer; for those risks, you'll need to buy National Flood Insurance from the Federal Government.

Click here for more on getting the best coverage for your home, and avoiding home insurance traps. For more on saving on homeowners coverage, click here. And for information on National Flood Insurance,  click here. 

Thanks to Gannett's Journal News for the video. But please, spell our facilities manager's name correctly: It's Caluori!–Tobie Stanger

Use this calculator to help wipe out your credit card debt

If you’re carrying credit card balances and have joined the growing ranks of consumers who are resolved to wipe out that debt, the Federal Reserve offers a useful tool that can motivate you to translate your good intentions into action.  The Fed's free credit card calculator that shows how long it would take you to pay off your card debt at its current interest rate if you made only the minimum monthly payment, along with the grand total of how much you’d pay in finance charges over that time. 

Let’s say you were carrying a $6,000 balance, which is roughly the average total credit card debt an individual cardholder carries on bank-issued cards.   Let’s assume further that you were paying 17.9% interest, which is the increased rate that Capital One recently imposed on many of its cardholders.   The Federal Reserve calculator reveals that if you made only minimum monthly payments of $120, it would take 37 years to pay off that balance and cost you $15,523 in interest charges over that time.

The calculator also shows the impact of various plans for paying off that debt sooner.  If you select five years as your deadline for paying it off, you’d need to make monthly payments of $153 a month and the total interest you’d pay would drop to $3,123.   If you aimed to get rid of the debt in just two years, your monthly payment would be $300 a month and your total interest tab would come to $1,183.

Avoid “extended warranty” provider USfidelis

If you’ve been watching TV lately, you’ve likely seen ads for USfidelis auto repair coverage. While we don’t recommend extended service contracts to start with, we advise that you be especially wary about doing business with this company, which has been criticized by the Better Business Bureau and others.

One of the USfidelis ads features NASCAR legend Rusty Wallace, whose NASCAR team is sponsored by the company.

“Believe me, I know the value of good repair service. I know how expensive it can be,” Wallace says in the commercial. He says that a USfidelis plan “can save you thousands of dollars by tak­ing repair bills like these and cutting them down to size.” As he speaks, a counter showing a list of repairs totaling more than $10,000 resets to $0. Wallace adds that the company’s coverage pays for repair bills and provides other benefits, such as roadside assistance. 

THE REAL DEAL

USfidelis coverage is available for new cars and used cars under 15 years old with fewer than 200,000 miles. Although it calls its plans extended warranties, the coverage can be most accurately described as a pre­paid repair contract. If you have a repair bill, USfidelis will pay it for you, less a de­ductible. The company sells more than 50 plans provided by independent vendors.

Costco's renewal rip-off

If you’re a Costco member like me, sometimes you don’t shop at the big box store for months at a stretch. If your membership happens to expire during such a sabbatical, guess what happens when you renew a month or two later?

Answer: Costco automatically backdates your membership to renew on the date it expired, not on the actual date you renewed. That means you pay for membership you didn’t and couldn’t have used, because you can’t get your discount-price purchases past the cashier without a current membership.

This happened to me twice in recent years. For some reason, I let my Costco membership lapse each August in 2005 and 2006. But, like clockwork, my need for three-football-field lengths of paper towels and gallon jugs of mayonnaise eventually pressured me to renew in November. I thus retroactively paid for four unused months, a $33 waste.

Last year, I wised up, and when I renewed in November I asked that my renewal be dated as of the actual date of renewal. The counter clerk at Costco customer service was happy to accommodate me, and I patted myself on the back for being a shrewd consumer.

As it turns out, Rhonda Dupler and Tempe Evans were shrewder still. When those two residents of New York and California encountered the same backdating pick-pocket, they sued, and their cases became a class action, which has now reached the proposed settlement stage in U.S. District Court for the Eastern District of New York. Costco disputes the alleged claims and does not admit any liability or wrongdoing whatsoever, but wants to settle anyway.

SEC says 'free' lunches cost investors dearly

Earlier this week, the Securities and Exchange Commission took action against a New York-based financial services firm, accusing it of selling inappropriate products to elderly investors.

"They used free lunches as the low-tech bait for their high-scale scheme," Robert Khuzami, director of the SEC's Division of Enforcement, says in the press release announcing the move.

Regular readers will recall that we have long been party poopers when it comes to free-lunch seminars. Nor are we big fans of the product the company in question was allegedly selling, variable annuities.

Our advice: Avoid variable annuities unless you know exactly what you're getting yourself into. As for lunch, it's usually cheaper in the long run to buy your own. For some suggestions, our Ratings of 101 restaurant chains are available to subscribers here. --Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

 

Retirement column makes (the wrong kind of) news

We rarely cover journalistic controversies here on the Money blog, but there’s a smallish one now in the news that caught our attention.

As reported in the newspaper industry journal Editor & Publisher and elsewhere, a retirement planning column, written by a trade association, recently ran in several papers across the U.S., bearing the bylines of different, local financial planners. The presumed ethical lapse here is that "by So-and-so" usually implies that "So-and-so" actually wrote the thing.

I’ve read the column behind the fuss. The advice it offers is sound if not exactly startling: keep funding your 401(k), avoid withdrawing or borrowing from it, etc. There seems to me to be no evidence that the planners involved were trying to be anything but helpful and, of course, possibly drum up a little business.

If you need a financial planner, however, there are better ways to pick one than consulting the bylines, real or otherwise, in your local paper. Here’s some basic advice on choosing a financial adviser. And bear in mind that just about anybody can call himself or herself a “financial planner.” Even fee-only planners, the kind we usually recommend, have been subject to some serious allegations lately.  --Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

New student loan changes spell relief for many

Starting today, your monthly federal student loan payments can be linked to how much you can afford based on your salary and family size.

The major downside of this of course is that you’re pushing your payments further into the future, so you will ultimately pay more in interest over the long run. But for people facing an immediate financial hardship, it can be a real help. You can use this calculator to see how much your monthly payments might be lowered under the income-based repayment plan. The plan is most advantageous for people with high levels of student debt. If you have lower student debt, you may want to take a look at an extended repayment plan. 

Another feature of the plan is that after 25 years, whatever part of the loan that is unpaid is forgiven. Public servants can have their loans forgiven after 10 years of work in the field. Public service - as the U.S. Department of Education defines it - includes work in schools, government and many nonprofits. Mark Kantrowitz, publisher of FinAid.org, says that if you don’t plan on spending the full 10 years in public service required for loan forgiveness, you may want to look at some of the upfront loan forgiveness programs that are offered for civil servants.

Additionally, the interest rate on new undergrad subsidized Stafford student loans dropped today to 5.6 percent from 6 percent. It will continue to decline annually, reaching 3.4 percent by 2012–which may seem a little unfair to students taking out loans today.

With interest rates at rock bottom, now is also a great time to refinance existing Federal student loans if you have variable-rate loans originated before July 1, 2006 (student loans since have been fixed-rate loans). Former students in the 6-month grace period following graduation can now refinance to 2 percent, graduates already repaying loans can consolidate to 2.5 percent, and PLUS loans can be consolidated at 3.38 percent.–Chris Fichera

Watchdog: Best–and worst–bangs for your charity bucks

If you’re thinking about donating to the Dallas, Texas-based Point of View Ministries or to the Defeat Diabetes Foundation of Madeira Beach, Fla. you might want to reconsider. Those groups are among the consistently lowest scoring nonprofit organizations at Charity Navigator. The charity watchdog has released a study of groups that repeatedly earn its top 4-star rating and, conversely, those that repeatedly get 0 stars.

The group’s scores are based on various factors, including how much of their money is spent on programs instead of fundraising or other purposes,

It listed nine groups that it said consistently have received 0 stars. Clicking on the names below will take you to their ratings page on Charity Navigator's web site.

Point of View Ministries, Dallas, Texas

Defeat Diabetes Foundation, Madeira Beach, Fla.

National Veterans Services Fund, Inc.,  Darien, Conn.

Youth Development Fund, Knoxville, Tenn.

Children's Charity Fund, Inc., Sarasota, Fla.

SPD Foundation,  Greenwood Village, Colo.

Wishing Well Foundation USA, Metairie, La.

Deputy Sheriffs' Fraternal Organization,  Indianapolis, Ind.

Firefighters Charitable Foundation, Farmingdale, NY.

Many of the organization’s top scorers were colleges and universities, although there were other top-rated groups as well. Among the consistent 4-star recipients are:

Vanderbilt University, Nashville, Tenn.

Northeastern University,  Boston, Mass.

Stanford University, Stanford Calif.

Carnegie Institution for Science, Washington, DC

The Children's Aid Society, New York, N.Y.

Christian Foundation for Children and Aging, Kansas City, Kan.

Breast Cancer Research Foundation, New York, N.Y.

Dana-Farber Cancer Institute, Boston, Mass.

Food For The Poor, Coconut Creek, Fla.

–Anthony Giorgianni

Madoff's 150-year sentence doesn't mean the end of financial scams

Unless you were among his many victims, you might think the 150-year sentence Bernie Madoff received today would put an end to big investment frauds on Wall Street.

But sadly Madoff is not the only swindler out there who would be happy to part you from your cash. One recent reminder: the indictment of R. Allen Stanford, the Texas financier who pleaded innocent last Thursday to federal criminal charges of stealing $7 billion in an international Ponzi scheme.

Check out who is likely to be taken by a scamster, and the details on investment schemes and how to avoid being ensnared by them.–Mandy Walker

Set It and Regret It? Target-date funds in the crosshairs

The Securities and Exchange Commission and the Department of Labor held hearings last week to examine target-date funds (TDFs), particularly in light of the financial nightmare known as 2008. 

A target-date fund, also known as a lifecycle fund, is a combination of ordinary mutual funds, usually inexpensive stock and bond funds. The TDF manager controls the proportions of each ingredient over the life of the fund, and the investor can cross off asset allocation from his list of chores.  Spurred by recent legislation, most 401(k) plans now include target-date funds among investment choices. 

But as we learned, target-date funds got clobbered in 2008 like almost every other investment, even those TDFs designed for those on the cusp of retirement. About thirty fund managers, financial advisers, and consumer advocates gathered to present their viewpoints on these funds, and suggested improvements. 

Recession survival advice, Berkeley-style

You may know Berkeley, California as home of the '60s hippie movement that advocated illicit drug use, free love, and music; Code Pink’s war on the local U.S. Marine recruiting; and occasional major foreign policy pronouncements from the city council.

Now comes some advice about how to get through the recession in ways that require little or no money. “Berkeley has always been the place for thinking outside the box,” says Olaf Egeberg, author of “Coming Home: A Crossover Bible for Christians, Muslims, Jews, and members of other religious faiths, as well as for thoroughly non-religious persons,” available free at www.changesahead.net.

Egeberg, 71, who developed much of his thinking about how to stretch his dollars during 25 years living in Berkeley, starting in 1963, has spent a lifetime living economically, largely by exchanging his carpentry skills for housing on the east and west coasts. 

While the advice is short on the kind of dollar-oriented tips you ordinarily read on this blog, the softer, more philosophical approach–which boils down to people helping each other–is worth packing in your complete bag of recession survival tricks.