Loans

Government And People Are Both Spendthrifts With Credit Cards

Apr 22nd, 2012
by admin.
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Economists are thrifty bunch. If they do use credit cards, they never miss a payment. They never pay the 10%+ APR charged by credit card companies for balance transfers. They do not buy homes that they cannot afford, and if they take on a mortgage, they read the fine print. They understand that the teaser rate of an adjustable-rate mortgage is exactly that, a teaser.

An unintended consequence of this thriftiness is that economists are not equipped to understand the behavior of highly-indebted people. Economists cannot model the behavior of “NINJA Loans” (“No-Income-No-Job-and-No-Assets”) because NINJA loans should have never existed to start with.

The bank should have never extended credit to a NINJA and the NINJA should have never taken credit, knowing that he had no hope of paying it back. yet people do stupid things, and highly-indebted people do not follow the logic of economics textbooks.

Anybody who has had to deal with a highly-indebted person, either as a friend, family member or business partner, will tell you the same thing: that person will take the deal that offers the most cash right now with a complete disregard for long-term consequences. in economics terms, highly-indebted persons have an infinite discount rate and an infinite preference for the present, which leads them to make decisions that can have disastrous long-term effects.

The sub-prime crisis constitutes the most glaring example of this schizophrenic behavior, and our collective inability to understand or refrain it. the explosive growth of U.S. public debt is the next illustration of this principle. as usual, economists attack the problem with their standard tools, which boil down to the following three arguments:

–Public debt is bad because it represents a claim of current generations on the earnings of unborn generations. these unborn generations cannot vote on how the money is spent, they cannot ensure that the money will be put to productive uses and they may not be in a position to repay that debt.

–Public debt is also bad because it increases the dependency of the U.S. government on foreign sources of capital, particularly Asian central banks, which may be accumulating claims on U.S. national assets for strategic reasons.

–Public debt is bad because it crowds out private investment. Every dollar that goes into treasuries could have flown into corporate bonds or equities. as a result, companies find it harder to finance productive projects.

All of these arguments are true, but they miss the point. It is like giving a lecture on compound interest to an over-indebted person about to sign for a tenth credit card. It won’t work: as long as the person gets more cash right now by taking the card, that person will take the card.

Applying the same logic to the U.S. government, debt will continue to grow as long as the government can raise more cash by issuing debt than it costs to repay maturing debt and pay interest costs. and incentives to issue debt have never been higher. Let’s look at the numbers for 2011:

Government And People Are Both Spendthrifts With Credit Cards

Obama’s credit card watchdog backs off upfront fee limits

Apr 12th, 2012
by admin.
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Washington • the Obama administration’s consumer financial watchdog agency is backing off a plan to limit big upfront fees on credit cards.

The Consumer Financial Protection Bureau acknowledged Thursday that its proposal would increase costs for cardholders and allow banks to charge more in fees.

Banks aren’t allowed to charge fees totaling more than 25 percent of a person’s credit limit in the first year that the account exists. but there’s no limit to the fees they can charge before the card is activated.

Under a rule proposed last year, those upfront fees would have counted toward the 25 percent cap. but the CFPB is retreating from that idea after a court prevented it from taking effect.

The consumer agency’s new rule would let banks charge whatever fees they want up front. the 25 percent cap would only apply to fees charged after the card is issued.

The CFPB was set up after the financial crisis to protect consumers from loans and cards with hidden fees or other traps.

Republicans and business lobbyists opposed the agency’s creation and tried to prevent it from gaining power. They argued that it would limit consumer choice, in part because fee limits would discourage banks from offering some services.

“Just a year ago, the view was that this agency was going to be devastating for business,” inventing costly and unnecessary consumer protections, Williams said. He said Thursday’s action shows that the agency “could be very effective for consumers and also bridge the needs of business to make profits.”

The CFPB decided to weaken the rule after a federal court in South Dakota issued an injunction preventing it from taking effect. A bank had filed a lawsuit claiming the Fed overstepped with its original proposal.

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The CFPB’s revised proposal was published quietly in the Federal Register, the daily digest in which federal agencies make routine announcements. the CFPB is accepting public comment about until June.

If the proposal is approved, banks could charge steep fees to apply for or activate a card — a practice most common when the customer has weak credit. after the card is issued, the banks could continue tacking on fees in the first year until they reach 25 percent of the credit limit.

“Obviously, the people most likely to be hurt are the more vulnerable, subprime borrowers,” said Kathleen Day, spokeswoman for the Center for Responsible Lending, a consumer advocacy group. “Still, we think they’re doing the best they can to protect consumers.”

Daniel Wagner can be reached at www.twitter.com/wagnerreports .

Copyright 2012 the Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Obama’s credit card watchdog backs off upfront fee limits

Air Miles Credit Cards For Persons With Fair Credit In Canada

Oct 8th, 2011
by Cherry Giddy.
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Unfortunately, most of the decent airlines credit cards around are for people with excellent credit, but the good news is that the pickings for people with good to fair credit are not as slim as you’d imagine. Of course, if you have poor credit, you should look for another type of card. One case in point, where fair credit is concerned, is the Aspire Gold MasterCard. As a cardholder, you will earn bonus miles without paying an annual fee. You get a mile for every Canadian dollar you spend, no matter what you buy. Each year you get 1,000 bonus reward miles. Miles can be redeemed for travel, cash, merchandise, gift cards and more. The balance transfer interest rate is 19.80 percent. The interest rate on purchases and cash advances is the same. Likely candidates should have a household income of $30,000 or over. Benefits include extended warranty, baggage delay, travel accident insurance, and more. The Master RoadAssist Service and 0 fraud liability are additional MasterCard benefits.

The CIBC Aerogold Visa TM Card is another preferred option. It also gives one reward mile to the dollar, 1.5 miles per dollar spent at gas stations, groceries and drugstores, and the possibility to earn additional miles when you use the card at participating partner stores. The issuer also features access to seats on Air Canada as well as Air Canada Jazz, with holders gaining access to executive class and executive first, and a warranty that you will not lose your miles earned up to that point if your account is inactive for a period of one year. The interest rate on balance transfers is 19.99 percent. You will pay an annual fee of $120.

If you need credit card with air miles the BMO Gold AIR MILES MasterCard is yet another option for applicants with fair credit. The first purchase on the card earns you 1,000 bonus miles, every $15 you charge earn one mile, and double rewards are offered if shopping at Shell locations. Other benefits are collision damage waiver coverage and acceptance at tens of millions of locations throughout the world. The interest rate is 19.5 percent. The balance transfer rate is the same, while the annual fee is $99.

Another air miles card is the ScotiaGold Passport VISA. Your first purchase charged to the card earns you 30,000 bonus points, the equivalent of $300 in travel rewards. During the first year, there is an initial fee of $99 and $110 a year thereafter. This card enables you to travel anywhere, at any time during the year. The interest on balance transfers is 19.99 percent.

Finally, one cannot go without mentioning the Delta SkyMiles World MasterCard, offered by Capital One. Your first purchase brings a bonus of 25,000 miles. You get two miles for every dollar you charge to the card on Delta purchases and another mile per dollar for all other purchases in net worth. You will earn 2,500 bonus miles for adding a new user.

Looking for great credit card deals, then go to http://www.creditcardreview.ca/. Find advice on Canadian credit card blog and learn how to choose a credit card.

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