Credit Card Debt Management

By now, there’s been plenty of hoopla about U.S. Sen. Chris Dodd’s (R-Nev.) housing bill to provide some relief for homeowners (and their lenders) in mortgage distress. The bill would put about $300 billion in a fund to refinance overly burdensome home loans at an amount 15% less than the original loan amount. This would make the payments more feasible for homeowners, but it would mean huge losses for lenders, particularly industry giants Freddie Mac and Sallie Mae.

The bill, currently stalled on the Senate floor but expected to reach President Bush’s desk this week, has spurred some public outcry. There is a perception that we, the taxpayers, are forking over taxpayer money to “bail out” homeowners who never should have qualified for these home loans in the first place. Hartford Courant blogger Jesse A. Hamilton addresses that point fairly well:

“I have to point out that the money source for this loan guarantee of $300 billion actually comes from revenue of GSEs (loan giants Fannie Mae, Freddie Mac and the federal home-loan banks.) It’s not taxpayer funded, which was Sen. Shelby’s main contribution… And the money is actually supposed to sit in a kind of fund that will guarantee newly refinanced fixed-rate loans that replace questionable subprime loans… the amount of the financing must be less than the current market value of the home, so the chance of default is less. Those that do default will be backed up by the fund.”

However, the housing bill is now coming under fire for another reason. A provision, apparently inserted deep in the proposal mid-June, calls for more stringent reporting requirements on credit card transactions. This isn’t just Visa, MasterCard, American Express, Discover. This is Google, Amazon, eBay, Paypal — any card company or third-party payment processor.

There are obviously some serious privacy issues here. Not only with credit card data and transaction data, but also with the social security numbers that double as tax identification numbers for thousands of small business owners across the U.S. Costs associated with collecting, organizing reporting the data could be a serious threat to small business owners on a budget, especially in these tough economic times. Read a concise summary of the problem, as well as an excerpt from the Senate bill summary itself, at Fort Hard Knox blog or on FreedomWorks.org.

Why does the government need to include this monitoring provision in a bill on housing assistance? It doesn’t make sense. While I do believe there is a link between irresponsible credit card spending and inability to meet your mortgage obligations and other bills, I do not think the government should stick its nose in the pot. Either help distressed homeowners or don’t, but do not use it as an excuse for increased governmental oversight and nosing around.

The list of corporations signing on to offer Paypal as a payment option for customers is growing ever longer. Over the last year and a half, airlines such as Northwest and Southwest have jumped on board, allowing customers to use Paypal accounts to pay for flights. Now, the almighty Delta Airlines has followed suit as well.

Paypal offers a truly revolutionary service in that it covers a variety of payment options and is truly completely secure. While it may be easier to hack into a merchant’s system records and uncover scores of customers’ payment details, it is probably a bit trickier to hack into Paypal. Simply because financial transactions make up that company’s sole focus, its security is very likely top-notch and on par with a bank web site.

So customers can now use Paypal as the channel to make purchases on several major airlines with a credit card (including frequent flyer rewards cards), debit cards, bank account transfer or Paypal account funds. And it’s about time. With more than 60 million active accounts in 190 markets and 17 currencies around the globe, it appears Paypal is not going anywhere any time soon. And since it’s here to stay, it’s high time these companies stood up and recognized Paypal for the financial giant that it is. And to think it was once primarily regarded only as a side arm of eBay. That’s so late 90’s.

Do you sign the back of your credit cards? There are varying schools of thought on this, the latest being a Small Life Blog post explaining why you should sign the back.

Apparently, a recent Money magazine article claimed that the practice of shopper identification verification by merchants is forbidden by Visa, MasterCard and Discover, and strongly forbidden by American Express. A credit card with a signature on the back is identification enough, the companies say. Therefore, while shoppers may hear a request to provide photo ID at the cash register, they are under no obligation to provide it and the merchant cannot retaliate by stopping the transaction.

This bit of information was verified by Small Life Blog with a quick check of the actual credit card companies’ web sites. What’s their rationale? Protection against identity theft: a cashier may get your credit card number, security code, and expiration date, but when you add in the address and zip code that appears on your driver’s license, they can do major damage.

It’s an interesting perspective, but what are the odds a merchant is going to be able to gather and memorize or write down all this information in the split second they see it? The print is so small on driver’s licenses that they probably can’t even see it anyway, or you can just hold it out for them and cover the address with your thumb. You might also use another form of identification, like a gym membership card.

Indeed, it seems to me like this is the least secure of all strategies. I subscribe more to the ideas expressed in the lifehacker blog — do not sign the back of your credit card, but instead write “Check Photo ID” in the little white space. The likelihood that a credit card thief could wind up with your credit card in their possession and try to use it fraudulently seems much greater than the likelihood that a merchant is going to record all your personal data off your credit card and photo ID. I only subscribe to this belief because I’ve seen it in action during a high school stint as a retail sales clerk, when a savvy cashier interrupted a credit card thief’s shopping spree. Frankly, I appreciate it when cashiers ask for my photo ID and have no problem with providing it. Though it may take a little more time to show your photo ID, it could really protect you long-term.