Last year, for the first time, spending on VISA debit cards surpassed spending on VISA credit cards – not just by the total number of transactions, but also by the total number of dollars spent.   With the ubiquity of debit card use and given that there are certain misconceptions about fraud coverage on both debit and credit cards , we, at Wallet Blog, thought consumers should be offered a comparison centered around the level of protection and convenience both types of accounts provide to consumers who have been exposed to fraud.

According to the FTC, consumer liability for fraudulent debit and credit card charges is limited to $50.  VISA and MasterCard, who control 100 percent of the U.S. debit card market, as well as most of the major credit card networks, have gone beyond what the law requires, and mandated that all of their card issuers adhere to a zero percent liability rate for their customers, and that they grant immediate refunds on disputed charges.

Given the recent economic upheavals, as well as the unprecedented manner by which the government is handling these dilemmas, a lot of people are worried about what inflation will do to our savings and investments.  One option that investors have to safeguard against inflation is to put money into Treasure Inflation-Protected Securities or TIPS.

Basically, the principal investment for TIPS is adjusted by the Consumer Price Index (measures inflation) + A Fixed Yield that is unique for each TIPS (recently it has been around 2%).  This means that your investment primarily rises or falls along with inflation.   To use a simplified example, if you put in $100 in a TIPS that has a 2% ‘Fixed Yield’ and the nation goes through 5% of inflation in a year, then the value of the TIPS will raise from $100 to $105 over that year (as a result of the 5% inflation)+ 2% of $105 to a total value of  $107.1. 

According to realtytrac.com, 300,000 homes went into foreclosure last month.  Bloomberg reports that the U.S. delinquency rate rose to 9.4% and foreclosures rose to 1.37%.  According to Moody’s Investor Service, 42 percent of outstanding 2006-vintage subprime loans are at least 60 days delinquent, in foreclosure, or held for sale.  As we all know, the housing crisis and rising unemployment rates have served to make it difficult for many Americans to pay their mortgages on time, and the result is that many of the nation’s home owners are in dire straights.  The problem is bad, and banks need to change the way they modify mortgages if they hope to provide adequate assistance.  They are now concentrating on fixing disasters as they arise rather than preventing them in the first place.

With so many people in financial trouble, mortgage lenders like Bank of America, Wells Fargo, Wachovia, Chase, and Citigroup are finding themselves too understaffed to deal with these excessive defaults.  Given that a bank only has so many resources to extend to their borrowers, the dilemma becomes who to work with first.  Basically, the bank has to perform a kind of triage, like in a hospital, to determine which of their clients demands immediate attention, and which clients can wait.  The lender faces different kinds of repayment problems.  Specifically, they have people who cannot repay and who are defaulting right now, and people who have done everything in their power to repay (tapped into savings, changed their lifestyle, etc.) but who cannot sustain their payments any longer; they have not defaulted yet but soon they will.  According to a survey by ProPublica, it seems that most major lenders have been focusing on borrowers who are most delinquent at the expense of borrowers that are current but will quickly become delinquent unless they get help.

Because of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the process of getting a credit card is going to drastically change for people under 21 years of age.  Starting on February of 2010, people under 21 will not be allowed to get a credit card without a co-signer or proof that they can repay their credit card debt.  At Wallet Blog we have already made it clear that this part of the credit card law is completely unfair and ridiculous as it singles out people under 21 years of age for special treatment, even though they are legally adults.  

No matter what politicians decide, credit history is going to continue being a critical factor in determining loan amounts and loan interest rates (as it should be).  However, since it is now harder for people under 21 to get credit cards, they will have less time to build up their credit history and will be at a disadvantage for anything that requires a credit check (like getting a loan or even renting an apartment).

This recession has been characterized by the presence of companies that are so vast and influential that their failure actually endangers the American economy.  The names of these companies, GM, Chrysler, AIG, Citibank, Bank of America, and so on, are all too familiar to us from their prominent place in news stories about economic disaster.  In order to prevent systemic economic collapse, America has resorted to bailouts and political bankruptcy,  essentially changing the “rules of the game” in order not to have these failing companies take our economy down with them.  What is clear is that the benefits reaped by the economy in allowing the existence of these financial giants is nothing as compared to the damage caused by their collapse.  Companies that are too big to fail should simply not be allowed to exist.

We should remember that capitalism is based on free market principles in which companies compete with each other.  If one fails, other and presumably better companies take its place.  Thus, the market evolves so as to better meet consumer demands.  Companies fail in a free market economy because they are unable to compete with stronger business models.  Moreover, they should be allowed to fail in these circumstances so that better business models can take their market share.

I recently found a great high-yield savings account. United Federal Credit Union has introduced a 6.01% APY Interest Plus Checking account on balances up to $25,000 for qualifying members. The rate is guaranteed “until at least 2010,” and the account also includes “free ATMs nationwide.”

Unfortunately, I don’t qualify for this credit union. I can’t become a member based on this list, nobody in my family is a member, and I don’t do business in their geographic area on a regular basis.

The Federal Deposit Insurance Corp, aka FDIC, has voted to bar shaky banks from hiking up interest rates to attract more customer money. This change is known as Section 29 and will go into effect on  January 1, 2010. Section 29 says that banks that are struggling to stay in business will only be able to offer interest rates with a top limit of 75 basis points above the national rate.  The national rate is an average of all rates paid by reporting banks.

As a result, you will be getting the best interest rates from well-capitalized banks and we should expect around 3 percent of banks to be affected by Section 29. Some higher-yield banks, such as  Ally, the institution formerly known as GMAC Bank, which has been advertising all over the place and boasts of high capitalization, will likely be able to continue offering high interest rates to its depositors.

President Obama has come out strongly in favor of overhauling the financial regulatory system by introducing another watchdog agency known as the Consumer Financial Protection Agency.  This agency will be set up to monitor the marketing of mortgages, credit cards and other loan products.  President Obama’s proposal is obviously a response to the dangerous and deceptive practices recently brought to light in these industries.

To be clear, we agree that there were deceptive practices in the lending industry.  The mortgage industry was allowed to operate rife with fraud. Mortgage agents would misrepresent borrowers on applications to get loans for which they otherwise would not have been approved.  The excesses of the credit card industry have been blatant enough to require the federal government to step in and protect consumers.  We acknowledge that the industries have been allowed to ride roughshod over consumer rights without anyone stepping up for the little guy.

Recently, lawmakers have been questioning Bank of America’s motives for its acquisition of Merrill lynch last September.  Some are calling the merger a shotgun wedding directed by Fed chairman Ben Bernanke.  Investigations are now underway to determine whether the federal government threatened Bank of America Chief Executive Kenneth Lewis into acquiring Merrill Lynch under the duress that if he didn’t, Bank of America management would be removed from their positions.

We would like to suggest two possible scenarios related to this investigation and regarding Lewis’s responsibility in the purchase of Merrill Lynch.  Either Lewis truly believed that the Merill Lynch acquisition was a smart move for Bank of America, or Lewis, having his job threatened, abandoned all responsibility he had to his shareholders in order to maintain his position.  In the first case, we have to question Lewis’s judgment.  If his company is in financial trouble, the worst thing he could do would be to acquire another financial institution that was even worse off. Knowing what he knew about his company’s financial health, it was a ridiculous idea to put Bank of America further in danger of financial collapse by buying a company that was already collapsing.

According to CNNMoney, all of the news surrounding the stock market in the past few months, “has been good news, or at least neutral news,” but nothing bad.  The rationale for all of these happy feelings is that the market has the ability to prognosticate for the worst of times, and did so in March when we saw the Dow dip to around 6,500.  Additionally, it’s believed that 6,500 represented a worst-case scenario that never actually happened, and that therefore we’ve seen the lowest of the low. 

While this perspective fueled the three-month surge, it lacks fundamentals that can be found on page one of Investing for Dummies.  Before we fall for the hype, let’s face the facts.  We are in uncharted economic conditions, and face headwinds that we’ve never seen before and that cannot yet be fully understood. 

At the beginning of its trouble, AIG held $2.7 Trillion dollars worth of exposure on the derivative market.  Now that the United States Government has given the company $180 Billion dollars of bailout money, they still have $1.5 Trillion in exposure.  To make matters worse, AIG’s fourth quarter loss of $61.7 Billion was the worst corporate loss in U.S. history.  

We believe that AIG needs to go into prepackaged bankruptcy for three reasons: 

The most infamous offshoot of the derivative market, the Credit Default Swap (CDS), is continuing to operate in an unregulated manner.  This despite the various collapses that this $60 Trillion unregulated market has caused, and the resulting government bailouts that have forced all of us to become financially responsible for lumbering economic giants such as AIG - a company which was deemed too big for the government to allow its collapse. 

Surely, given the damage caused by this unregulated market, the first order of business for lawmakers should be, and should have been, to put laws into place which would end derivative trading in its current form.  In short, we would expect that the current recession would inspire lawmakers to make laws that would prevent another recession of this kind in the future…but they haven’t.  They’re now trying, and that’s admirable, but those laws haven’t been passed as of yet. As recently as May 13th, Treasury Secretary Timothy Geithner sent a two-page letter to congressional leaders urging them into action.

Currently, a credit card reform bill is making its way through Capital Hill as law makers attempt to stem the tide of consumer complaints against credit card companies.  Having already passed through the House of Representatives (gaining 357 votes for the bill with only 70 votes against it), the popular bill entered the Senate floor nearly assured of success there.

As so often befalls popular bills, unrelated amendments have stalled the proposed bill which reached the floor of the Senate on Wednesday May 13th.  Some of the credit card proposals within the original bill would:

Looking for a checking account that handsomely pays you back? Focus Bank of Missouri and Arkansas is offering a “MAXimum Free Checking Account” with no monthly service charges, no minimum balance requirements, and no direct deposit required.

Balances up to $25,000 earn a whopping 4.51% Annual Percentage Yield (APY). MAXimum Free Checking account holders also enjoy ATM fee refunds up to $25 per statement cycle, free wallet-style checks, free ATM/debit card, free 24-hour telephone banking, free online banking, free bill pay (with eStatement sign-up), and free direct deposit/automatic drafts. Additionally, qualified customers receive a $500 overdraft privilege, though if you’re earning 4.51% APY, I’d say that it behooves you to maintain the largest account balance possible.

On April 30th, the Senate defeated the “cram down” bill that would have allowed bankruptcy judges to adjust mortgages so as to allow those people going through bankruptcy to keep their homes.  The defeat came as some democrats sided with the bill’s opposition, mirroring a general weariness from within the banking community towards this piece of legislation.

The media balked at this defeat with claims that echoed the bill’s sponsor Richard Durbin (D-Illinois) that the banks essentially controlled congress and that senators needed to vote along with the needs of the American people rather than according to the desires of the banking and mortgage lobbies.  The accusation from Durbin, and from the media following the defeat, was that these senators (particularly the 12 democrats who voted against the bill) were essentially bought out.  The media portrayed the senate as under bank control.