A typical reward checking has three or four of these requirements:
- 10-15 debit transactions within a statement period
- electronic paperless statements
- at least two bill pay transactions per statement period
- at least one direct deposit per statement period

In addition to those requirements, you only earn the higher rate for a portion of your balance. Usually the cap is set at $25,000, so you only earn the higher rate on $25,000 of your deposit.

A reward checking account can offer such high interest rates because their requirements generate income for the bank (they beat even the most generous of CD rates). Specifically, the debit card transactions generate the bulk of the income. Whenever you use the debit card to make a purchase, the bank collects fees on the transaction. Your above-market interest rate is funded by those fees.

The electronic paperless statements are a cost cutting measure and the bill pay and direct deposit merely make the account harder to change. If you're paying two bills and getting your paycheck deposited each month, it's a bigger pain to switch banks.

Best of all, they're FDIC insured up to $250,000!

Are they worth the hassle? Let's look at on eexample. Bank of the Sierra Reward Checking Account offers 4.51% APY on the first $25,000 as long as you make 12 debit card transactions, one bill pay, and one direct deposit. Your balance above $25,000 earns 1.01% APY, which is probably better than your standard checking account. If you fail to satisfy the requirements you earn only 0.12% APY, which, I would guess, is still better than your standard checking account!

(This is not an endorsement of Bank of the Sierra)

So they seem to be worth the hassle, if you can get enough transactions. Do you have a rewards checking account? Any words of wisdom?

Jim writes daily about money at his personal finance blog, Bargaineering.com.

(Photo: cutiemoo)

Some credit unions participate in the federal loan program and, in the last six months, a growing number also have started offering private loans because of member interest. In some instances, the credit unions are working in groups or with states to make the loans available, often with better rates than other private lenders.

For example, more than 80 credit unions nationwide are participating in the Credit Union Student Choice, which provides undergraduate loans. The average rate for a variable loan was 5.8%. None had origination fees, which typically range from zero to 6%. A borrower needs to belong to a credit union to apply for a loan. Unlike many big banks, credit unions often keep the loans on their own books.

Don't even consider private loans until you've exhausted all other options. Federally backed loans are always the gold standard, in the following order: subsidized loans, unsubsidized loans, and then PLUS loans. If you need to take out a private loan, go over the terms with a fine-toothed comb and pay special attention to the sections dealing with interest rates and repayment options.

More Credit Unions Offer Student Loans [The Wallet]
(Photo: debaird™)

Last month I paid of my Home Depot card balance of over $8500 (yeah zero balance!) Then yesterday I got a new statement from Home Depot with a balance due of $130 in finance charges. I have paid off several credit cards before and in every case if the balance reached zero before the end of the month that was the end of it.

I called Home Depot to find out what was going on and was told that new finance charges start piling up from the minute the statement is sent out. The customer service representative's only suggestion to avoid this was for me to "estimate the finance charges since the bill was sent". I know I am not a financial expert but my basic math skills tell me this balance would be impossible to pay off making the payment due because next month there will be interest on the $130 in interest, even if I pay it off. Then there would be interest on that balance, and so on, and so on....

The customer service representative I spoke with was unable or unwilling to give a better explanation and was quick to waive the interest when I complained. This seems to me to be an admission that this is a sketchy policy at best. Can anyone give an explanation of how this is possible/legal?

Any similar experiences or ideas, Consumerists?

(Photo: IHP)

Consumers Union has set up an action alert where you can call your Senators toll-free and tell them you're sick of being screwed by banks and credit card companies, and you'd like them to support S. 414, the Credit CARD Act.

To find out more about the current credit card legislation, check out last week's post, or the text of the House and Senate bills themselves.

(Photo: TheGiantVermin)

He writes,

It's amazing how they'd be willing to lose a few thousand dollars in interest, an excellent and very loyal customer of over 7 years, plus some additional negative publicity over something like this. At this point I'll be taking them up on that 5.4% credit offer, paying them off completely and never using them again if possible. I won't close the accounts since it'll probably do my FICO no good, but oh well. I'll just be the customer they hate, the type that earns them no interest, the type to use Visa, it's accepted absolutely everywhere anyway.

"Cheeky American Express, double the interest but a 5.4% credit in return." [coreygo.com]
(Photo: TheTruthAbout...)

Travis says:

I'm writing because I was recently notified that HSBC was closing one of my credit cards due to inactivity. I know that this practice is becoming more common in this economic environment, what I don't know is what, if anything, I can do about it.

I called HSBC today and asked them to re-open the account and they said that they couldn't though they would be happy to let me apply for another card. I checked my FICO score and its taken a hit because of this. It was one of my older cards, completely paid off, with a high limit so without it in my history I'm left with the few newer, low limit cards that I have. One thing I did notice on the reports that I got this afternoon was that its listed as "Account closed at consumers request". Is it worth disputing that? Is it going to be worse if its changed to "closed by creditor" or does that part even play into the decision process.

I'm kinda' freaking out over it because it took me down a whole 'level' on my FICO. I had credit trouble when I was in school but since I started working I haven't had any problems, it just takes awhile to rebuild. Now I'm getting ready to go back to school, which I'll have to use student loans to pay for a portion, and I just took a pretty big hit on my FICO. Do I have any recourse in this or am I SOL?

Well, it's unfortunate that HSBC didn't give you any warning before canceling the account, because there's not a whole lot you can do once it's canceled.

The best thing to do is to concentrate on improving your credit score. Let's talk a little bit about why your FICO dropped the way it did.

• Your credit utilization probably dropped. Credit utilization is the amount of available credit that you are currently using. It counts for about 30% of your score. If most of your available credit was on this card because you'd paid it off — that could be a big hit.

• Your credit history is shorter. Since this was also one of your oldest cards, your credit history is now shorter than it used to be. Length of credit history counts for 15% of your score.

There are three ways to do this: Ask HSBC to give you a new account with the same credit limit as the old one. This new account will cause your score to take a slight hit because it's new — but that effect is only temporary.

Second, and most important, you can pay off more debt. The less debt you have the better your utilization will be.

Finally, you can contact your other creditors and ask for larger credit limits.

Readers, have you had this happen to you? How did you fix it? Do you have any suggestions for Travis?

Also, just as a footnote, there's lots of good information about student loans out there, please be sure to educate yourself as much as possible about the different types of loans before you jump in headfirst.

About Credit Scores [MyFICO]
Your Credit Card Account Could Be Closed Due to Inactivity [About]

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
The Word - Have Your Cake And Eat It, Too
colbertnation.com
Colbert Report Full Episodes Political Humor NASA Name Contest

"April 14, 2009: The Word - Have Your Cake And Eat It, Too" [Colbert Nation]

Warren says:

Home Depot consumer card interest rate is now at 25.99%. This is not the default rate - the rate you pay if you miss payments - this is the rate they say they charge to their best customers. They said "interest rates have gone up" really - especially ours. I informed them they have lost a customer. Will pay off my card and shop elsewhere.

We took a look at Home Depot's financing offers and sure enough:

Rates as low as 17.99% APR; Actual rates from 17.99% - 26.99% APR; Fewer than half of applicants will qualify for a rate of less than 25.99% APR. Default APR 29.99%b (rates may vary). Minimum FINANCE CHARGE: $2.

The card also comes with a No Payments, No Interest for 6 Months offer on items over $299 — which may lead you to believe that the interest rate on the card really isn't important. The fact is, these promotions can backfire — leading to staggering interest payments.

If, for example, you were to fail to pay off the entire balance before the 6-month promotion ended or if you made a late payment — all of the interest that had been accruing would come due.

FINANCE CHARGES will be added to your Account for the entire promotional period if qualifying purchases (including premiums for optional credit insurance) are not paid in full before the end of the promotional period or if you fail to make any required payment on your Account when due or make a payment to us that is not honored.

Something to keep in mind.

The Home Depot Consumer Credit Card [Home Depot]

During the 2007 Christmas season, Office Depot had a big sale promotion on certain laptops, including a large rebate, plus no payments and interest-free financing until January 2009, if the customer used the Office Depot Visa card, run by Chase.

I bought a laptop as a gift, using my Office Depot (Chase) Visa credit card. In the closing months of 2008, I began paying on the balance. By December 2008, I owed $187.65. My Chase Visa statement in early January '09, stated that next payment was due by February 2, 2009. But, I noticed that the promotional period was ending on January 31, 2009. So, I made an electronic payment for the full balance on January 29, 2009, two days ahead of the no interest promotion's end date, and five days before the bill's due date. That should be that, right?

Guess what? My next Chase Visa statement had an extra $37.31 in "finance" charges posted on February 2!

I received my statement on February 18 and called Chase. The customer rep checked my records and confirmed that Chase received my payment on Jan. 29 — within the promotional period — and agreed that there should have been NO finance charge. She said she was reversing the improper $37.31 in interest for me. She also indicated that "we" (meaning Chase) had been having "problems" like that with the Office Depot card a lot.

So, I wonder just how many thousands of other customers, paying on time, are getting ripped off but don't catch this overcharge?

We agree, it's probably an easy charge to overlook if you don't keep an eye on your credit card statement. But Mike points out another trick that probably catches a lot of consumers who assume they're following the rules correctly: the promotion period ended two days before the standard payment due date:

It's dubious fairness any way to have a "promotional rate" that ends on a date other than a payment due date, but at least those dates were disclosed on my statement. Even so, how many people missed that distinction, paid their balance "on time" by Feb. 2, only to discover that they got socked with a large interest charge because the "promotion" ended 2 days before they paid their bill on time?

But, what Chase did to me is totally inexcusable: I honored all the terms of our contract, and Chase still tried to charge me almost $40 for interest on a no-interest promotion.

Ya gotta watch your back when dealing with Chase, Mike. They're sneaky like that.

(Photo: Logan Antill)

You can, of course, decline the hike if you got a letter like this. If you do decline, they will close your account and you will be able to continue to repay your loan under the current terms.

Fannie will lower its credit score requirements, reduce the amount of income verification needed, and waive the need for appraisals. These changes apply to loans which the company owns or guarantees.

"To allow more borrowers to take advantage of today's historically low interest rates and help the lending community break the logjam in mortgage refinancing, the company is extending its refinance offerings," a Fannie Mae spokesperson said in an e-mailed statement. The program "will streamline" refinancing "for potentially millions of current mortgage holders," he said.

Fannie Mae to Loosen Rules for Home-Loan Refinancing (Update2) [Bloomberg]
(Photo:cmorran123)

Oden didn’t like the situation. He didn’t even want anyone to see him walking into the place. But he saw it as short-term —- one or two months at most. That would buy him time, he hoped, to collect some of the tens of thousands of dollars he is owed from builders in financial trouble. If all else failed, he knew he could ask his dad for a loan.

“I knew how expensive it was going to be,” he said, “and I weighed all that in my head without thinking of a repo.”

But the ultimate cost of the $2,000 loan exceeded Oden’s worst-case scenario: The Expedition, with a retail book value of about $13,000 was repossessed and sold. He lost every penny of its value.

The AJC says that auto title loans are only legal in 18 states — and in only two Georgia and Alabama — the transaction is treated as a "pawn," as in you are technically pawning your car. The result? The "auto title lenders" can sell your car for more than you owe them — and keep the difference.

Oden, the contractor who pawned the Expedition, soon learned exactly how Georgia law works.

He made his first payment late and short: paying $200 of the $507 finance charge 11 days after the first due date.

Oden said he called the Lawrenceville business, which operates simply as Title Loans, and promised to catch up. He said he was assured that they wouldn’t take the Expedition, which his wife used for her real estate business.

The next payment was due on a Saturday in November. Oden said he called the store, owned by Optimum Financial Inc., and promised to make the payment the following Monday. He says he was told that would be OK. Instead, Oden says, someone knocked on his door in the wee hours of that Monday morning.

“She said, ‘I’m here to take the Expedition,’ ” Oden said. And she did.

Oden said he went to the title loans office later that day with money in hand to try to get the car back. Instead of taking his money, he said, an employee handed him the personal belongings from the car and told him to come back the next day to talk to the manager.

When he returned, Oden said, he was told the car had already been sent off for auction.

Oden said he couldn’t believe it. “I was shaking,” he said.

He described the car as “immaculate” and loaded: Eddie Bauer trim, a DVD system and seats that were not just heated but cooled.

“It was a real pretty car,” he said.

Title loan’s price high [AJC]
(Photo:meghannmarco)

Take reader Kevin for example. The interest rate on his Bank of America credit card just doubled.

My interest rate doubled from 7.99% to 16.49% and my minimum payment increased from 1.5% to 2.5%. When I asked a rather rude customer service representative about this, she didn't have an answer for why they're doing this. I have never missed a single payment of any type in my life and I have good credit.

According to CNN, Bank of America received $15 billion in bailout money and they're turning around and sticking it to struggling consumers such as myself. I don't mind the higher minimum payment, but the interest rate increase is wrong and unfair. I hope you can help make this public so people know what's going on.

Sure thing, Kevin.

Universities say the contracts bring in badly needed funds, although the example in the article—$8.4 million over 7 years to Michigan State in exchange for students' names and addresses—seems hardly worth it once you consider the long term damage done to unprepared students who enmesh themselves in debt, or the black mark against Michigan State now that the public knows that it sold off student contact info.

Banks say they cap credit cards at $2,500, but that's hardly a "low" credit limit for what are essentially unemployed or part-time employeed customers. The Times cites a US PIRG survey that found graduating "seniors with balances had an average debt of $2,623 on their cards."

A spokesman for Michigan State gives the paper an unintentionally telling quote about their concern for students:

“It provides money for scholarships and other programs,” said Terry R. Livermore, manager of licensing programs at Michigan State. He said that the program was aimed primarily at alumni and the university would not include sharing student information in future credit card contracts. “The students are such a minuscule portion of this program.”

But of course none of this would matter if students knew better than to exchange their future financial independence for items as trivial as a tshirt, mug, or blanket. Yes, blanket:

Abigail D. Molina, a second-year law student at the University of Oregon, applied in 2007 for a Chase Visa offered at a tent outside a football game. In exchange, she received a blanket. “I mostly wanted the blanket,” Ms. Molina said.

Please, do not be like Ms. Molina (or like me—I made the same stupid choices in college). Meg's "10 Commandments of Credit" is a good place to start for advice on how to approach credit cards and consumer debt.

"Colleges Profit as Banks Market Credit Cards to Students" [New York Times]

RELATED
"Consumerist's 10 Commandments of Credit"
(Photo: cheri0627)

The reaction on Wall Street was jubilant.

From Bloomberg:

“The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,” William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington, said in an interview with Bloomberg Television.

The Fed Goes To Zero [WSJ]
Fed Cuts Rate to as Low as Zero, Will Use All Tools (Update2) [Bloomberg]
(Photo: Spirit365 )

Here's a quick summary of the list:

1. Oil! Oil prices have dropped 50% in 3 months. Maybe this means that you won't have to burn your furniture to stay warm.
2. Car makers are waking up. They've realized that you want more fuel efficient cars. Finally. Also, don't forget about 0% financing. Assuming you have good credit, of course...
3. Low interest rates. Kiplinger's says "The interest rate on a traditional 30-year fixed-rate mortgage is averaging 6.5%, the highest it's been since the summer of '07, but still not too far from the historic low of 5.8% reached in 2003-05 and 1963-65."
4. Real estate is less expensive. If you have the money for a down payment, perhaps a deal can be yours.
5. Your bank savings are safe. FDIC insurance is now $250,000. FDIC insures small business non-interest bearing accounts, and a temporary program is in place to guarantee Money Market Mutual Funds, says Kiplinger's.
6. Stocks are cheap. Bonds are looking good. "Triple-A-rated tax-free bonds, an extraordinarily safe investment, are paying 5%-plus for ten years and 6% for 20. That's more than the Treasury offers for bonds of the same maturity."
7. Technology is awesome and cheap. You can buy a big TV and use it to keep you from crying all the time, apparently.
8. We grew a lot of stuff. "The fall harvest is shaping up as one of the best ever, despite the destructive weather and floods in the Mississippi River corridor since last spring. Exports of U.S. farm products will increase more than 40% by value this year."
9. New government. Whoever wins, it will be someone new.
10. Holiday bargains. If you still have some money, you can expect some crazy deals. "Both brick-and-mortar and online retailers are gearing up to offer huge discounts to boost sales." Just try not to get trampled, especially if you have substandard health insurance.

10 Things That Are Going Right [Kiplinger's]
(Photo: taberandrew )

"Every customer who calls in is a mark. It's a great big con," said Colombo, who estimates that she alone sold almost a quarter of a billion dollars in the four years she worked for MBNA before it was bought in 2005 by Bank of America."

The bankers told CNN that their job was to convince people that they needed to borrow more money than they thought they did. They were trained to look for "trigger words" — mentions of difficulty making car payments or college tuition, for example. They were even trained on how to get around the law — if someone called in to try to get a cash advance for a down payment on a house (not legal) they were told to say:

"I cannot give you money to use as a down-payment on a home. However, what I can do is, I can deposit some money into your checking account, and once it's there, the funds are there, it's yours to do with what you please."

Most disturbing of all is the fact that the bankers say that the vast majority of people didn't want to take on that much debt:

"I would say 90 percent of the time, people were pragmatic. They would say, 'I don't need $100,000,' and we would find a way to convince them they needed the money," Ellingwood recalled.

They also said they were pressured not to let the stockholders down — and were chastised for letting people get away without maxing out their available credit.

Bank of America, which now owns MBNA, says that these accusations are "inaccurate."

"Our call center associates are focused on serving customer financial needs and responding to questions about their accounts," said Bank of America.

Luckily, one of the former bankers provided her performance review to CNN.

"You cannot sell what you don't offer," it reads. "Understand the importance of selling at the highest possible rate."

Ex-bankers on pushing customers to rack up debt [CNN]

Reuters says:

The House passed the bill, 312 to 112, but it was not expected to advance in the Senate as Congress tackles the Bush administration's $700 billion Wall Street bailout plan before adjourning as soon as Friday.

Credit-card issuers like Bank of America and Citigroup could still face restrictions from the Federal Reserve, which is expected to finalize similar rules by the end of this year.

The bill would prevent banks from retroactively increasing interest rates until the card holder is over 30 days late, and would require banks to mail statements 25 days before the due date.

House passes credit-card reform bill [Reuters]
(Photo: balmes )

Hello!

Today, I got a nice little email reminder from my bank that I had a new bill from Citicard! This was very surprising to me, as I had just paid off my balance last month. So, I log in to my online bill pay and sure enough, there is a new bill from Citicard for $12.39! Hmmm.... I wondered what that could be for, as I had cut up my card months ago, and I knew I had just paid off the balance. So, naturally, I logged into my online account with Citicard and took a closer look. And to my sheer amazement, I found I was indeed charged a $12.39 finance charge on my account. "Did they not get my payment!?!?", I wondered. So I look a little closer, and pull up my latest statement, and this is what I found!

Now, even though it didn't exactly show what my "previous" balance was at the time this statement was generated, it does show that I made two payments in that billing period. One, which was a balance transfer that I decided to make, (thanks to a lovely post about saving money with lesser- or no-interest balance transfer cards that I saw a couple weeks back on Consumerist.com), and a smaller payment that was the difference in the balance on the card and the amount of the balance transfer payment. I also check the statement from the previous billing period, just to make sure that I had paid the correct amount.

The two amounts matched up, so I quickly snatched up the phone. I called up Citicard, and just held on the line without entering my account number or anything, ( I learned several calls ago, not to enter in my account number and I will eventually get a real person on the line,) and told the customer service lady what my problem was. She was very courteous and even though I had to be put on hold for about 3 minutes, she was able to see the error on Citicard's part and take off the finance charge with no hassle whatsoever.

Being an avid reader of Consumerist.com, I just felt it was worth the time to share this story with the rest of your readers, and to remind them to be vigilant in paying attention to all those little things. Had I not paid close attention to my accounts, I might just have sent another payment in. Thank you Consumerist.com!

Sincerely,
Thalen's Mom

(Photo: TheTruthAboutMortgage.com)

Yep, you read that right. Thanks to Consumerist, I was able to launch a successful EECB that will end up saving me over $10,000!

A couple of years ago, I consolidated $20,000 in credit card debt into an MBNA GoldOption loan. I figured making one payment to MBNA rather than six or eight payments to various cards with various interest rates. I was approved for a $30,000 line of credit at 18.99 percent. Since I only needed $20,000, I inquired about getting a lower interest rate, being that my credit was solid, I figured I could get around 12 percent or lower. I was told that if I took out the loan, I could easily get a rate reduction after six months of on-time payments. Since cash flow was the issue at hand, and the consolidated loan was going to save me about $100 a month and give me a scheduled payoff date, I agreed. Needless to say, MBNA was acquired by Bank of America, and after about of year of making on-time full payments, I made the phone call. I was pretty much laughed at and told that the only way I could get a lower interest rate is if it was negotiated by a credit counseling service, and that since I had been making my payments in full and on time, I wasn't eligible. I hung up the phone pretty irate, as I felt I was being told that someone with a deadbeat status had a better chance of getting their interest rate lowered. I launched an EECB to several top executives at Bank of America, and within a couple of hours, I had a reply from a Senior VP that someone would be contacting me soon regarding this. Later that afternoon, I had a voicemail and the next day I was on the phone with the head of Consumer Financing, who lowered by rate by 10 percent, saving me $120 a month for seven years!

For more information about how to learn to launch your own EECB (Executive Email Carpet Bomb), click here.

(Photo:Meghann Marco)

The Fed says:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

While the cut was larger than the Fed's normal quarter-point moves, investors were initially disappointed that the central bank did not cut rates by a full percentage point.

The Dow Jones industrial average fell 100 points within two minutes of the Fed's mid-afternoon announcement but it then resumed climbing and was up nearly 200 points within the first half-hour after the announcement.

Fed Cuts Rates by 3/4 Percentage Point [Portfolio]
Fed Cuts by Three-Quarter Point, Suggests More Reductions Likely [Wall Street Journal]
Federal Open Market Committee Statement [FED]

From the Kelly's website:

What distinguishes lease-purchase from a retail credit sale is that there is no interest charged to consumers, no credit is needed, and customers can return the merchandise at any time. This no-obligation, no-debt feature is the cornerstone of lease-purchase.

Or, you could stay the hell away from Kelly's, Rent-A-Center, and similar places and just put $79 in an envelope for three months, then go buy the Wii with cash.

(Thanks to Matt!)

RELATED
"Rent-A-Center More Like Ripoff Center"

Clinton's plan:

• Cap credit card interest rates at 30 percent. (The Government Accountability Office reports that 1 in 4 credit cards charges higher rates.)
• Stop credit card companies from increasing rates without written consent from consumers and prevent rate increases because of missed payments on unrelated accounts.
• Require card companies to explain terms and fees clearly to consumers.
• Increase government regulation of credit cards and other credit products through the creation of a Financial Product Safety Commission.

Obama's plan:

• Create a five-star rating system for credit cards so consumers have a better sense of the fees and rates associated with each card. Card companies would have to display their star ratings with their application materials.
• Write a credit card "bill of rights" that would stop credit card companies from making "unilateral" changes to the terms of cards as well as apply interest rate increases only to future debt. It would also stop card companies from charging interest on fees, something the Clinton plan includes as well.

By the way, if you feel like adding to our $943 billion revolving tab, all campaigns accept contributions by credit card.

The Democratic Candidates and Your Credit Cards [Alpha Consumer]
(Photo: Getty)

The only part we find hilarious is Matt's assertion that "Best Buy stores will match the online price of merchandise." Well, sure they will, since they've got that special in-store version of the website. If you can find a way around that problem—we suggest bringing in a phone with web access, or at least some screen print-outs—then you might have better luck getting a price-match without having to argue up the chain.

As a general rule, if you are using your Best Buy credit card to purchase merchandise, try to avoid buying at Bestbuy.com and picking up in the store. If the store already has the item, call the store and ask to have it held for you. When you buy from Bestbuy.com same-as-cash credit terms are ALWAYS 90 days, no matter what the in-store promo. Best Buy stores will match the online price of merchandise and you get the promo terms.

(Photo: gamerscoreblog)

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Federal Open Market Committee Statement [FED]
(Photo:Getty)

As we look up at CNBC, the down is currently down 179 points. From the NYT:

"There can be no doubt that the timing of this morning's move is aimed at supporting global financial markets after yesterday's global equity meltdown," Joshua Shapiro, chief United States economist at MFR Inc., wrote in a research note Tuesday morning.

"At this stage, you can say there is panic selling in the market," said Kwong Man Bun, the chief operating officer of KGI Asia Ltd., a large Asian futures broker. "We don't think the Hang Seng index has found its bottom yet; the index will continue to go down and will only find its bottom when external markets — namely, the U.S. market — stabilize."

"I'm not going to close the door, but I'm not suggesting that anyone believes it has to be bigger" than the $150 billion figure already discussed.
...Perino said the White House is not proposing an even bigger economic package at this point, but she declined to rule one out, either. The sharp decline of markets in the United States and around the globe is tied in part to the perception that Bush's outlined stimulus package would not do enough to avert a recession.

Perino said the White House does not comment on daily fluctuations in the market. But she did say that people should have confidence in the underlying strength and long-term prospects of the U.S. economy.

"We are not forecasting a recession," Perino said. "Clearly there is a slowdown."

White House Flexible on Stimulus Plan [AP]
U.S. Markets Open With a Steep Fall [NYT]
(AP Photo/Richard Drew)

From the brochure:

At 36% APR, the total fee charged on a $100, two-week advance would be $1.38. We cannot cover the cost of originating the a loan, let alone meet employee payroll and benefits and other fixed business expenses, at this rate.

Don't Cry For The Loan Sharks [Leftwing Conspiracy] (Thanks, Hank!)

Financial institutions that have run into difficulties and need consumer deposits to fund loans and build up their capital levels. Countrywide and E*Trade Financial Corp. (ETFC), both of which have been hit hard by the credit crunch are offering some of the industry's highest rates on products like certificates of deposit.
Egan Jones, a ratings company, wrote in a report on Tuesday that Countrywide is "severely challenged and might falter if it does not receive an infusion of at least $4 billion within the next couple of weeks." It said funding is needed because of a 40% decline in mortgage originations at the savings-bank company and a shift away from formerly profitable subprime-mortgage loans.
Reacting to the bankruptcy rumors, Countrywide spokesman Rick Simon said, "There is no substance" to them "and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company."

Countrywide December loan fundings down 45% [Marketwatch]

You can take the deduction regardless of whether you itemize. You may even qualify to take the write-off yourself if your parents paid the interest on a loan for which you were legally liable (your parents, however, cannot claim the deduction if they weren't liable for the loan).

"Deducting Student-Loan Interest" [Kiplinger]

RELATED
"Student Loan Interest Deduction" [IRS]
(Photo: Getty)

From the Federal Open Market Committee Statement:

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Federal Open Market Committee Statement [FED]
(Photo:MykReeve)

In fact, the WSJ says that at the peak of the subprime boom in 2005 over half of the subprime loans went to people with good credit.

By 2006, 61% of subprime loans were going to people with good or even excellent credit scores.

Why?

The surprisingly high number of subprime loans among more credit-worthy borrowers shows how far such mortgages have spread into the economy — including middle-class and wealthy communities where they once were scarce. They also affirm that thousands of borrowers took out loans — perhaps foolishly — with little or no documentation, or no down payment, or without the income to qualify for a conventional loan of the size they wanted.

The analysis also raises pointed questions about the practices of major mortgage lenders. Many borrowers whose credit scores might have qualified them for more conventional loans say they were pushed into risky subprime loans. They say lenders or brokers aggressively marketed the loans, offering easier and faster approvals — and playing down or hiding the onerous price paid over the long haul in higher interest rates or stricter repayment terms.

So why did the borrowers fall for it?

Many borrowers figured they would refinance in a few years before the rate on their loan moved higher — but falling home prices and tighter credit standards in the past year have suddenly made that unrealistic in many cases. "Brokers and agents were telling" borrowers with high credit scores for the past several years "that it was OK" to get subprime loans, "and borrowers were wanting to take on more debt," says Mark Carrington, director, analytical sales and support at First American LoanPerformance.

Subprime Debacle Traps Even Very Credit-Worthy [Wall Street Journal]
(Photo:Getty)

The plan, as always, is to give customer service one chance to provide they help they're supposed to provide, and then to manage the situation so that you end up in the hands of executive-level customer service—usually by calling a corporate number and trying to speak directly to an executive.

At that point, he's usually transferred to Escalated Customer Service. "Here you tone down your act and say you can't believe that the company treats consumers this way and that there are other companies that want my business," says Sweet. "Always remember to be nice here."

The next step is the same every time. "They will say they need to look into it and will get back to you," he says. "They always do. I figure it's during this time that they look at your account and see how much money they will lose if you go elsewhere. That is why I assume that having perfect credit with them is important."

"Interest rates for U.S. Treasury securities have been drifting lower this month over market concerns that the housing slump and stress in the credit markets could slow future economic growth," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a result, interest rates for fixed-rate mortgages had room to slip lower this week."

That news is sure to make somebody happy.

Mortgage Rate Drops to 6.1% [Wall Street Journal]
(Photo:Scott Abelman)

"Delinquencies on these mortgages are likely to rise further in coming quarters as a sizable number of recent-vintage subprime loans experience their first interest rate resets," Bernanke testified.

"Weakness in the housing market will keep construction in a down trend," he said.

He also had some advice for those of you in mortgage meltdown land: "Get in touch with your lender because experience shows the earlier you do so you'll be able to resolve the matter."

Retailers should worry, too: "Indicators of overall consumer sentiment suggested that household spending would grow more slowly, a reading consistent with the expected effects of higher energy prices, tighter credit and continuing weakness in housing," Bernanke said.

He's a cheerful guy, isn't he? We like that about him. Maybe he didn't hear that everything is going to be ok because broke people shop at Walmart.

Fed Chair Warns Congress of Economic Slowdown [NPR]

The FRB was concerned about the "housing correction" spreading into the greater economy, according to their statement:

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

Federal Open Market Committee Statement [FRB]

Maybe another Fed rate cut will help your self-esteem? From Bloomberg (emphasis ours):

The Conference Board's index of consumer confidence declined to 95.6 this month from 99.5 a month earlier. It compared with the median forecast of 99 in a Bloomberg News poll. The U.S. currency reached $1.0511 per Canadian dollar, the lowest since 1960.

Home prices in 20 U.S. metropolitan areas fell 4.4 percent in the 12 months through August, the most since records began in 2001, according to the S&P/Case-Shiller home-price index released today.

The Fed cut its target rate for overnight bank loans by a half-percentage point on Sept. 18 to 4.75 percent, the first reduction since 2003, after losses from subprime mortgage investments roiled credit markets. The dollar has dropped against all 16 of the most-actively traded currencies since then, losing 3 percent against the euro.

Interest-rate futures traded on the Chicago Board of Trade show a 94 percent chance the Fed will lower its benchmark rate by a quarter-percentage point to 4.50 percent tomorrow.

Dollar Falls to Record Low After Consumer Confidence Declines [Bloomberg]
(Photo:Augapfel)

The Associated Press says that consumer borrowing has increased as home owners see the pools of easy credit dry up.

The Federal Reserve reported that consumer credit rose at an annual rate of 5.9 percent in August, the biggest increase since a 7.9 percent jump in May.

The increase was led by an 8.1 percent leap in revolving credit, the category that includes credit card loans. Consumers have been using their credit cards more to finance purchases now that home equity lines of credit are becoming harder to obtain.

Non-revolving credit, which includes auto loans, also rose at a faster pace in August, increasing at an annual rate of 4.7 percent, compared with gains of 3.1 percent in July and 4 percent in June.

In total, consumer credit rose by $12.2 billion to a record $2.469 trillion. The increase was bigger than the $9.5 billion gain analysts had been expecting.

Ryan Sweet, an economist at Moody's Economy.com, said that the healthy increase provided "further evidence that consumers did not pack it in" after the financial market turbulence hit in August.

Consumer Borrowing Up Sharply [AP]
(Photo:viajante)

From the AP, emphasis ours:

Washington Mutual said its loan loss provision for the quarter will total $975 million. The provision exceeds net charge-offs — loans written off as having no chance of being recovered — by $550 million. Loss provisions, on top of paying current charge-offs, are used to cover future losses.

The company will also write down the value of various loans and portfolios by about $410 million.
...
Rising delinquencies and defaults among mortgages, especially subprime loans given to customers with poor credit history, have led to the near disappearance of investors willing to buy the loans in the secondary markets and forced lenders to reserve more cash for losses.

Washington Mutual 3Q Earnings to Tumble [AP]
(Photo:cmorran123)

Ouch.

"Our expected third quarter results are a clear disappointment. The decline in income was driven primarily by weak performance in fixed income credit market activities, write-downs in leveraged loan commitments, and increases in consumer credit costs," said Charles Prince, Chairman and CEO of Citi.

Citi Expects Substantial Decline in Third Quarter Net Income (Press Release) [Citi]
(Photo:cmorran123)