Still, a new survey, conducted by the Consumer Federation of America and VantageScore Solutions, a credit score firm, shows that some consumers don’t know enough about credit scores to be able to protect themselves in the marketplace. Among the survey’s key findings:

• About 40% of those surveyed did not know that mortgage lenders and credit card companies considered credit scores in their decision-making processes;

• 31% of respondents did not know that their credit score could go down if they co-sign a student loan and the student is late in making a payment;

• Between 25% and 30% of participants were not aware of important ways to keep credit scores high, for example, limiting the balance on credit cards.

The credit-scoring system is complicated, but it’s critical for consumers to familiarize themselves with their credit histories and how scores are calculated. To learn more about how to raise your credit score, see Consumer Reports’ tips for consumers.

Consumers Union believes that everyone should have the right to get their score for free and to get the same score that lenders do. That’s why we’re supporting a bill in Congress, the Fair Access to Credit Scores Act, that will guarantee free access to the credit score that lenders use. Your help is essential in enacting this bill – please call upon your Senators to support your right to a free credit score! And, if you’ve had any problems with your credit score — for example, if you’ve received a different score than your lender or been charged for a score that you thought was free — please share your story!

Since many of the applicants aren’t able to repay the loans when they are due, they often are forced to roll over their loans for additional fees, and can find themselves owing over three times as much as what they had borrowed in the first place. Some consumers have expressed outrage that a quick loan can lead to overwhelming debt.

Crystal, from Missouri, strongly resents payday lenders and shared her story with Consumers Union. She writes:

“[F]or several years, my husband and I were both sucked into very high interest loans that literally made our lives fall apart. We both had a $500 loan (each) that cost $150 a month just to extend, without anything going towards the balance…so we were spending $300 a month between the both of us to just extend the loans without having anything going towards the balances at all. . . . I praise God that we are out from underneath them and pray that we will NEVER have to use them again!”

Crystal’s comments highlight the need for reform of the payday loan industry. Consumers may need access to loans in an emergency, but they should not have to pay outrageous interest rates that dig them further into debt and leave them worse off financially. We support the guidelines set out in the Military Lending Act, which went into effect in 2007. The legislation caps rates on payday and auto title loans to servicemembers at a maximum of 36% APR. We believe that these interest rates should be extended to all consumers. And, as a recent ProPublica piece notes, some policymakers believe these protections should apply to a broader array of loans as well.

We’re looking to the Consumer Financial Protection Bureau as our best chance for strong national rules on payday lenders. In a recent report, the Bureau expressed willingness to enhance consumer protections for payday loan applicants. However, the CFPB’s power to make strong rules could be in jeopardy if the director, Richard Cordray, is not confirmed by the Senate before his term concludes at the end of the year. Currently, a minority of Senators are blocking his confirmation, demanding changes to the CFPB that would weaken its effectiveness as a consumer watchdog.

We need your help in ensuring Richard Cordray’s confirmation. Please send a message to your Senators demanding a vote to confirm Richard Cordray so the CFPB can stop abusive payday loans and other unfair financial industry practices!

CFPB en Español can be accessed at: www.consumerfinance.gov/es.

Also, Consumer Reports en Español offers a lot of  great information and advice for consumers in Spanish.  Check us out here:  http://espanol.consumerreports.org/content/cre/es.html

The AG claims that “At nearly every stage of the collection process, [Chase] cut corners in the name of speed, cost savings, and their own convenience, providing only the thinnest veneer of legitimacy to their lawsuits.”

Consumers Union has long been calling for an overhaul of the debt collection system.  Our 2011 joint report with the East Bay Community Law Center featured stories from real consumers who were hounded by collectors and subject to unfair and abusive practices.  We continue to work with states and the federal government to try and rid the industry of these abuses and fight for fairer treatment of consumers struggling to repay their debts.

Have you had bad experiences with debt collectors?  Do you think the industry needs reform?  Tell us in the comments.

This week, a new report by the Consumer Financial Protection Bureau  found that student loan debt is having a long term damaging “domino effect” on the economy by making it even more difficult for young adults to purchase their first home, start a small business, and save for retirement.

The report identifies a number of potential solutions, including giving private student loan borrowers the ability to refinance their loans and negotiate better lower payments over time – two reforms Consumers Union has been asking for.

On the same day the CFPB released its report, Senator Elizabeth Warren introduced legislation that would lower the interest rate on subsidized federal student loans for one year to .75 percent – ­ the same rate at which big banks are able to borrow money from the Federal Reserve Board.  The current 3.4 percent rate on federal loans is set to go up to 6.8 percent on July 1 unless Congress acts to extend the existing rate.

In her speech introducing the bill on the Senate Floor, Senator Warren asks Congress to make the same investment in our students that the government already makes in our biggest banks.

We think that makes a lot of sense, don’t you?

We’re working hard to ensure that sensible reforms like these are put in place, so that student loan borrowers get a fair deal from start to finish.  To see our Seven Principles for Fair Student Lending, click here.

Do you or someone in your family have student loans?  What do you think should be done to fix the student loan debt crisis?  Tell us in the comments.

CFPB Report Highlights the Burden of Student Loan Debt & Options For Making Repayment More Affordable 

Consumers Union Urges Policymakers to Enable Students to Refinance High Interest Loans and Negotiate Affordable Repayment Plans

WASHINGTON, D.C. – A new report by the Consumer Financial Protection Bureau  details the staggering debt that burdens an increasing number of graduating college students.  The report highlights how this debt burden is having a long term damaging “domino effect” on the economy by making it even more difficult for young adults to purchase their first home, start a small business, and save for retirement.

The report identifies a number of potential solutions supported by Consumers Union to help students manage their debt, including giving private student loan borrowers the ability to refinance their loans, negotiate better lower payments over time, and a “credit clean slate” for borrowers in default.

“The difficulties students face paying off high loan debt are all too familiar to millions of American families across the country,” said Suzanne Martindale, staff attorney for Consumers Union, the policy and advocacy arm of Consumer Reports.  “Enabling students to refinance their loans and negotiate more favorable terms with lenders would provide much needed relief for struggling graduates and the economy.”

Earlier today, Senator Elizabeth Warren introduced legislation that would lower the interest rate on subsidized federal student loans for one year to .75 percent – the same rate that big banks are able to borrow money from the Federal Reserve Board.  The current 3.4 percent rate on federal loans is set to go up to 6.8 percent on July 1 unless Congress acts to extend the existing rate.

“Senator Warren’s bill underscores the great disparity between the extremely low interest rate big banks pay to borrow money and the higher rates that students often pay,” said Pamela Banks, Policy Counsel for Consumers Union.  “Congress needs to act to find a way to help struggling students manage skyrocketing loan debt.”

Consumers Union has urged regulators and Congress to adopt a number of student loan reforms.  For more information, see Consumers Union’s Seven Principles for Fair Student Lending.

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Contact:  Michael McCauley, mmccauley@consumer.org or 415-902-9537 (cell) or 415-431-6747, ext 126 (office) or David Butler, dbutler@consumer.org or Kara Kelber, kkelber@consumer.org at 202-462-6262.

Consumer Union Urges Local Governments to Avoid Unfair Prepaid Card Practices 

Group Raises Concerns About Fees And Weak Protections As Cities Begin Launching Prepaid Debit Cards

SAN FRANCISCO, CA – Consumers Union, the policy and advocacy arm of Consumer Reports, urged city governments today to avoid issuing prepaid cards that come with high fees and weak consumer protections.

Consumers Union is raising concerns about unfair prepaid card practices after the city Oakland, California recently launched a municipal identification card coupled with a prepaid card that came with a number of costly fees.  Other cities, including Los Angeles and Richmond, California, are in the process of developing their own prepaid cards.

In a letter sent to the League of Cities and the International City / County Management Association, Consumers Union called on local governments to keep fees to a minimum and provide cardholders with the same strong protections they get with traditional debit card.

“Prepaid cards can come with a long list of fees and don’t provide the kind of federally guaranteed safeguards consumers need to protect their money,” said Michelle Jun, senior attorney for Consumers Union, the policy and advocacy arm of Consumer Reports.  “If cities want to endorse and offer prepaid cards, they should ensure consumers get a fair deal by keeping fees low and providing strong protections against mistakes and fraud.”

When Oakland first introduced its card, it was widely criticized because it came with numerous fees, including a $2 fee if the user enrolled the card for federal benefits like social security income or unemployment benefits and $1 for every time those benefits are loaded onto the card; as well as a 75 cent fee every time the card is used to make a purchase.  Since the card was launched, Oakland has eliminated the fees associated with loading the card with federal or state benefits and has capped the transaction fees at $12.50 per month.  But consumers are still assessed a $2.99 monthly fee; $1.50 for using in-network ATMs; $1.75 for every call to customer services; and a $1 fee for loading the card at Western Union.

In addition to paying numerous fees, consumers using prepaid cards could end up losing money if their cards are lost or stolen and used to make fraudulent purchases. That’s because they are not protected by federal regulatory and statutory safeguards that enable debit card users to recover their money. If a consumer with a traditional debit card contacts a bank about a lost or stolen card within two business days, liability is limited up to $50 (or up to $500 if the consumer makes the report after two business days).

In addition, prepaid card users may not have the same FDIC guarantee as bank account holders that they’ll be able to recover all of their money in the event of a bank failure. Even if the prepaid card web site displays the familiar FDIC logo, it’s not always clear whether the cardholder will be able to recover the full amount on the card or a portion shared with other prepaid cardholders.

Consumers Union outlined a number of issues that cities and local transportation authorities that are considering prepaid cards should keep in mind, including:

Provide Transparent Terms, Including Fee Information:  Consumers should be provided information about fees and other terms before signing up or applying for a prepaid card.  Fee information should be provided in a simple, straightforward manner in the primary language of the prepaid cardholder and easily accessible online and on a mobile device.

Provide Favorable Fee Schedules:  Fees should be limited to a low monthly fee.  No fees should be charged for withdrawing cash from in-network ATMs, making purchases, contacting customer service, checking balances, direct deposit, inactivity, or for declined transactions.

Provide Strong Consumer Protections:  Prepaid cards should receive full protection under the federal Electronic Funds Transfer Act for disputing merchant errors and fraudulent transactions, and each account should be federally insured up to $250,000.

“Cities that offer prepaid cards should not nickel and dime consumers with an endless list of fees and make sure the get the strong protections they deserve,” said Jun.

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 Contact:  Michael McCauley, mmccauley@consumer.org or 415-902-9537 (cell) or 415-431-6747, ext 126

One soldier currently serving in Afghanistan recently fell victim to one of these schemes. His mother, Deborah, from Rensselaer, NY, explains how a credit monitoring website refused to cancel the service for which he accidentally registered:

“I am administering my son’s finances while he is deployed to Afghanistan. He applied online for a “free” credit score to determine his credit standing and ended up with monthly debits to his checking account from www.scoresense.com. He requested to stop the “service” but has not succeeded. He should have been able to receive the credit score for free, since it is personal information used by institutions to determine what he must pay to live. Military members are most affected by scams because they can do nothing about these problems while they are deployed.” 

Not only do many websites use the promise of a free credit score to trick consumers into signing up for a monthly credit monitoring service, but most likely the score that consumers receive will not actually be the score used by lenders. Lenders often use scores that are not available for purchase by consumers.

Deborah’s son is not the only military member who has experienced problems with the credit reporting industry. The Consumer Financial Protection Bureau’s Office of Servicemember Affairs mentioned in a recent report that 16% of the consumer complaints they received in the last quarter of 2012 had to do with credit reporting.

Consumers Union is fighting for passage of the Fair Access to Credit Scores Act, which is currently under consideration in Congress, to ensure that consumers are able to obtain a free credit score that lenders use with their free annual credit reports. This bill will provide consumers with a reliable score that is used in the marketplace.

But consumers are also relying on the leadership of the Consumer Financial Protection Bureau to police the credit reporting market. Unfortunately, the Bureau’s ability to properly regulate these organizations may be hampered if the Senate fails to confirm its director, Richard Cordray, whose term expires at the end of the year. Cordray’s nomination is currently being stalled by a group of Senators who have demanded changes to the Bureau that will compromise its ability to defend consumers. While it was reported that Cordray’s confirmation would be brought before the Senate this week, it now appears that the vote has been pushed back until summer.

Consumers – and particularly servicemen and women – need the CFPB working hard to rein in illegal and improper financial practices. Tell your Senators to confirm Richard Cordray as head of the CFPB. If you’ve had a problem with the credit reporting agencies, please share your story!

The CFPB will confirm and announce the venue soon.

The hearing will be held at:

Miami Dade College
Wolfson Campus Chapman Center, Room 3210
300 N.E. 2nd Avenue
Miami, Fl. 33132

The event will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public. More information on the event will follow.

The event is open to the public but does  require an RSVP. To RSVP, please email cfpb.events@cfpb.gov with your full name and your organizational affiliation (if any).