Tag Archives: credit cards

Apr 27 2024

CFPB Report Finds Many College-Sponsored Financial Products Charge High and Unusual Fees

The Consumer Financial Protection Bureau (CFPB) issued a report in December 2023 highlighting that many college-sponsored financial products have higher fees and worse terms and conditions compared to typical market products. The CFPB report identifies college-sponsored deposit accounts with fees above prevailing market rates, which institutions are required to consider under Department of Education rules designed to protect students’ interests.

Many colleges offer sponsored and co-branded financial products to students and alumni, such as deposit accounts, credit cards, and prepaid cards. Students may be likely to accept their school’s recommendation of a bank account or credit card when they arrive on campus, meaning that colleges and their financial institution partners may not face competitive pressure to lower fees or provide low-cost products. These arrangements can be lucrative for schools, as financial institutions pay tens of millions of dollars every year to colleges and universities, including flat-fee marketing deals and per-signup kickbacks.

In 2022, the CFPB’s College Banking and Credit Card Agreements report described the high fees charged on student banking products endorsed by colleges. The report made clear that financial institutions and colleges may be steering students into expensive financial products. Today’s report found that many colleges continue to employ marketing strategies that may mislead students into accepting products that may not be the best choice for them. Among the student risks identified in today’s report:

  • Colleges’ financial product partners may charge students high or atypical fees: Although most of the largest banks have moved away from charging overdraft and non-sufficient funds (NSF) fees in recent years, some of the sponsored deposit accounts in the report do charge students those fees. Thus, students who follow their school’s advice may be steered into accounts that cost them much more than what they would pay in the open market.
  • Fees paid by students often vary by institution type: The average fee burden varies by the type of institution. The report finds that accountholders at Historically Black Colleges and Universities (HBCUs), for-profit colleges, and Hispanic-servicing institutions (HSIs) all pay higher-than-average fees per account.
  • Students face unexpected fees at graduation: Some financial institutions impose additional fees when a student graduates or reaches a certain age, relying on “sunset” clauses in the products’ terms and conditions. Students who sign up for a product marketed as free may thus end up being charged monthly maintenance fees, or overdraft and NSF fees they did not anticipate.

The report notes that the CFPB will continue to examine these practices and identify possible violations of federal consumer financial protection laws.

For more information, click here.


Teaching Suggestions

  1. Ask students if they use college-sponsored and co-branded credit card (s).  If so, what has been their experience?
  2. Is it ethical for colleges and universities to promote college-sponsored financial products? Make a list of pros and cons.

Discussion Questions

  1. Why do many college-sponsored financial products have higher fees and worse terms and conditions compared to typical market products?
  2. Should colleges take a hard look at the fees and terms of the products they pitch to their students and alumni?  Why or why not?
Mar 2 2024

DANGERS OF DEBIT CARD USE

Debit cards do not provide the same protection as credit cards when lost or stolen. As a result, money experts recommend not using a debit card in these situations:

  • When buying airline tickets; if the airline goes out of business, you may have no recourse for a refund.
  • Non-bank ATMs are more likely to have skimmers that steal debit card information.
  • When making a gas station purchase a hold may be put on funds in your bank account, which could result in Bottom of Forman overdrawn balance when trying to make other purchases.
  • Use a credit card for online buying for stronger legal protection to dispute a charge.
  • In restaurants with high turnover, a dishonest employee may get access to your card number; again, a credit card provides more protection.
  • When buying appliances a credit card may give you an extra warranty, which would not be

available with a debit card.

With a debit card you can be responsible for up to $50 of unauthorized transactions if you report a lost or stolen card within two business days. Then, your liability can be as high as $500 for fraudulent charges if you don’t report the situation within 60 days after receiving your statement.  After that, you have the potential of unlimited losses for unauthorized use of your debit card.  In contrast, with a credit card, you are not responsible for unauthorized charges of more than $50.

Consider only using your debit card to withdraw cash to make purchases. Since not everyone will take a cash-only approach to control spending, there is another action to protect yourself. Use a second checking account for your debit card. Fund this second account only with money that you plan to use for debit card activity. Then, in case of a lost card or fraud, you would only lose the smaller amount kept in that second account with your main checking account not at risk. 

For additional information on debit cards, click here.

Teaching Suggestions

  • Have students survey several people to determine common uses of debit cards.
  • Have students create a podcast to warn others of the dangers associated with debit cards.  

Discussion Questions 

  1. Why should consumers become more aware of the potential dangers of debit cards?
  2. What actions do you take to protect your debit and credit cards?
Aug 15 2020

Want a retail store credit card?

Retail store cards are credit cards that can be used only in a single store or at an affiliated group of stores. Like other credit cards, a store card will show as a line of credit on your credit report.

The advantage of these cards is that they tend to be easier to get, even if you have a poor or limited credit history. If you’re able to make consistent and on-time payments, a retail store card can be one way to help you build or improve your credit .

The disadvantage is that retail store cards may carry higher interest rates than traditional credit cards.  Also, if the card has a deferred-interest promotion, you could end up paying even more in interest if your balance isn’t fully paid off by the end of the promotional period.

Six rules for using your store credit card wisely 

  1. Watch your overall spending during the holidays
  2. Pay your bill on time
  3. Understand the differences between zero-interest and deferred-interest promotions
  4. Limit the number of cards you apply for
  5. Don’t get close to your credit limit
  6. Act fast if you can’t pay your bills

For more information, go to

https://www.consumerfinance.gov/about-us/blog/six-tips-when-offered-retail-store-credit-card/

Teaching Suggestions:

  • Ask students if they have any retail store credit cards. If so, what has been their experience?  Share the information with classmates.
  • Ask students to make a list of possible advantages or disadvantages of retail store credit cards. Share the list with the class.

Discussion Questions:

  1. If there is a deferred-interest promotion, why is it important to pay off deferred balance in full before the end of the promotion period?
  2. If you already have several other credit cards, will you be able to manage one more card?
  3. What is the difference between zero-interest and deferred-interest promotions?
Nov 12 2016

When Small Charges Can Signal a Big Crime

Counting every penny on your credit and debit card statements can help detect fraud

Most people looking at their bank statements would probably notice if their credit or debit card were used without their approval to purchase a big ticket item, and they would quickly call their bank or card issuer to report the error or fraudulent transaction.  But consumers are less likely to be suspicious of very small charges, including those less than a dollar…which is why criminals like to make them.

“These transactions might be signs that someone has learned your account information and is using it to commit a crime,” said Michael Benardo, manager of the (Federal Deposit Insurance Corporation) FDIC’s Cyber Fraud and Financial Crimes Section.  “That’s why it’s important to be on the lookout for fraudulent transactions, no matter how small.”

He added, “When thieves fraudulently obtain someone else’s credit or debit card information and create counterfeit card, they might test it out with a small transaction—like buying a pack of gum or a soda—to make sure the counterfeit card works before using it to make a big purchase.  If this test goes unnoticed, by the true account holder, thieves will use the card to buy something expensive that they want or that they can easily sell for cash.”

For more information, click here.

Teaching Suggestions

  • Ask students if they know someone who had his/her credit or debit card compromised. If so, how they detected the illegal charge and how the problem was solved.
  • Under what circumstances should you close the compromised account?

Discussion Questions

  1. Why is it important to regularly scrutinize your monthly credit and debit card statements?
  2. What can be consumers do to protect themselves from such frauds? What is the best way to catch this type of fraud?
Jan 9 2016

Chip Card Scams

Scammers are taking advantage of millions of consumers who haven’t yet received a chip card.  For example, scammers are e-mailing people, posing as their card issuer.  The scammers claim that in order to issue a new chip card, they need to update your account by confirming some personal information or clicking on a link to continue the process.  Information received can be used to commit identify theft.  If they click on the link, they may unknowingly install malware on your device.

How can you tell if the e-mail is from a scammer?

  • There is no reason your card issuer needs to contact you by e-mail or by phone to confirm personal information before sending you a new chip card number.
  • Still not sure if the e-mail is a scam? Contact your card issuers at phone numbers on your cards.
  • Don’t trust links in e-mails. Only provide personal information through a company’s website if you typed in the web address yourself and you see that the site is secure, like a URL that begins https (the “s” stands for secure).

For more information, click here.

Teaching Suggestions

  • Ask students to visit other identify theft websites, such as, consumer.gov/idtheft, to learn what to do if your identity is stolen.
  • Ask students to compile a list of what actions can they take to ensure that their credit/debit cards and other financial information are secure.

Discussion Questions

  1. How do you discover that someone has stolen your identity?
  2. What steps can you take to thwart identity thieves?
Dec 19 2015

New Credit and Debit Chip Cards

Banks and card issuers have been sending out new credit and debit chip cards, usually as existing cards expire or need replacement.  If you haven’t gotten your new cards, don’t worry.  The rollout will continue at least through 2016.  If you want to know when yours new chip cards will arrive, contact your card issuers at the phone numbers on your cards.

Your new cards look like your old cards with one exception.  New cards have a small square metallic chip on the front.  The chip holds your payment data—some of which is currently held on the magnetic stripe on your old cards—and provides a unique code for each purchase.  The metallic chip is designed to reduce fraud, including counterfeiting.

Here’s how it works: To buy something in a store, instead of swiping your card, you’ll put it into a reader for few seconds.  Then you might have to sign or enter a PIN.  With each transaction, the chip generates a unique code needed for approval.  The code is good only for that transaction.  Because the security is always changing, it’s more difficult for someone to steal and use.

There will be no change in how you use your card online or by phone.  That means chip cards won’t prevent crooks from using stolen card numbers to buy online or by phone.  So it’s a good idea to still guard your card information closely, and check statements for suspicious activity.  If there is a problem, your consumer protections remain the same.

For more information, click here.

Teaching Suggestions

  • Ask students if they have received a new chip credit or debit card. Show how the new card differs from the old card.
  • Do you believe that new cards will help reduce fraud? Why or why not?

Discussion Questions

  1. How might scammers try to take advantage of the millions of consumers who have not yet received a chip card?
  2. How can you protect yourself from the scammers?
Nov 14 2015

Review a Copy of Your Free Credit Report

Credit reports, produced by credit bureaus, detail your financial history, and are used to develop credit scores.  Under federal law, you can get at least one free report from each of the nationwide credit bureaus every 12 months.  If you find an error, contact the credit bureau directly and correct the record.

If you cannot qualify for a regular credit card, consider a no-fee or low-fee secured credit card.  This is a credit card for which you would keep money (as collateral) in a deposit account at the financial institution issuing the card.  For example, if you want a card with $1,000 limit, you might deposit that amount into a savings account at the bank offering you the card.  The lender would report how you manage the card to one or more of the credit bureaus, and often it will provide you the opportunity to obtain an unsecured credit card after a certain period of on-time payments.  Secured cards may have fees attached to them and may have a higher interest rate, so be sure to do your homework before signing up.

To order your free annual report from the three major credit bureaus—Equifax, Experian, and TransUnion visit www.AnnualCreditReport.com or call toll free 1-877-322-8228.

You have the right to see and correct reports from “specialty” credit bureaus that, for example, track a person’s history of handling a checking account.

For more information, go to:

Building a better credit report

Specialty consumer reports

Teaching Suggestions

  • Ask students to visit several websites that may provide current information about credit files.
  • Bring to class examples of credit related problems of individuals or families. Suggest ways in which these problems may be solved.
  • Ask students to talk to a person who has discovered an error on his or her credit report. What was their experience to get it corrected?

Discussion Questions

  1. What steps can you take to improve your credit score?
  2. Which federal laws protect your rights if your credit application is denied?

 

Nov 11 2015

Tips on Choosing and Using Bank “Rewards”

Bank reward programs tied to credit or debit cards or other products can provide you with appealing offers for things such as points to be used for travel and shopping or cash added to your account.  But finding great deals is only half of the equation.  Before jumping into any rewards program, consider these tips for maximizing the potential benefits and minimizing mistakes:

  • Comparison shop different rewards programs, including their fees and other costs, before deciding to apply for one.
  • Choose a rewards program that fits your lifestyle. The best way to maximize benefits and avoid spending problems is to choose a program that rewards you for purchases or deposits you would make even without the gifts.
  • Remember what it takes to earn rewards. Many credit cards provide rewards when you use them to make purchases, but it’s important to know exactly how much you can earn.

For more information, click here.

Teaching Suggestions

  • Why is it important for consumers to understand that to make the most of any rewards program, they need to make sure that they do not overlook other, more important account features in addition to the rewards?
  • Ask students to comment on the statement: “While rewards can be beneficial, don’t spend just to earn rewards.”

Discussion Questions

  1. Where should you look for credit cards and other bank products that provide rewards tailored to your particular needs?
  2. What are some of the perks that credit cards allow for their customers?
  3. Does overall spending and debt accumulation increase among consumers who use a rewards credit card?
Sep 27 2014

Prescreened Credit and Insurance Offers

Many companies that solicit new credit card accounts and insurance policies use prescreening to identify potential customers for the products they offer.  Prescreened offers–sometimes called “preapproved” offers–are based on information in your credit report that indicates you meet criteria set by the company.  Usually, you receive prescreened solicitations via mail, but you may also get them in a phone call or in an email.

For additional information, go to

http://www.consumer.ftc.gov/articles/0148-prescreened-credit-and-insurance-offers

Teaching Suggestions

You may want to use the information in this article to discuss

  • Why some people prefer not to receive prescreened offers in the mail, especially if they are not in the market for a new credit card or insurance policy?
  • What might be some advantages of receiving prescreened offers?
  • Ask how many students have received prescreened offers and what did they do with them.

Discussion Questions

  1. Can prescreening hurt your credit report or credit score?
  2. How can you reduce the number of unsolicited credit and insurance offers you receive?
Aug 30 2014

Consumer Finance: Medical Credit Cards

Medical credit cards are offered by financial institutions to pay for services not covered by health insurance, such as, dental and cosmetic procedures, or for veterinary care.  Medical credit cards received increased attention after the New York attorney General and the Bureau of Consumer Financial Protection brought enforcement actions against Care Credit LLC, an affiliate of GE Capital Retail Bank.  It is alleged that Care Credit failed to provide disclosures and gave inaccurate information to 4.4 million cardholders.

Medical credit cards from large banks offer a revolving line of credit with an established credit limit with some form of promotional financing (special terms and conditions, which are valid for a specified period of time). The most commonly used financing option is deferred interest, with no interest charged for promotional period, but interest charged retroactively if the balance is not paid in full before the end of the promotional period, usually 6 to 24 months.  Among large banks the Government Accountability Office reviewed in May 2014, the most commonly used cards had an annual percentage rate of 26.99 percent or more.  These banks also offered revolving line of credit with fixed monthly payments, with an APR of zero to 17.99 percent.

For more information , go to

http://www.gao.gov/assets/670/664256.pdf

Teaching Suggestions

  • Ask students what are other alternatives in financing medical expenses that are not covered by health insurance.
  • Have students survey friends or relatives to determine the use of medical cards.

Discussion Questions

  1. Why would someone get medical credit cards when mainstream credit cards, such as Visa, and MasterCard, offer relatively lower-rate credit cards?
  2. What might be advantages or disadvantages of using medical credit cards?