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Read the current version of the Credit CARD Act of 2009 (formerly Credit Cardholders’ Bill of Rights), H.R.627, as presented by the Congress to the President (May 20, 2009)

The Credit Cardholders’ Bill of Rights Act of 2009 (Credit CARD Act)

by Flexo on April 30, 2009

in Credit

The following timeline and details will be updated as the Credit Cardholders’ Bill of Rights, now merged with and known as the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, progresses through Congress and as the bill makes its way to the President to be signed into law. Visit this article often for the latest information and to read the current versions of the bills as they are amended, voted upon, and revised.

Credit Cardholders’ Bill of Rights Reverse Timeline

May 22, 2009: President Obama signs the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, (which has been merged with the Cardholders’ Bill of Rights), H.R.627, and the new regulations will begin to take effect starting in February 2010.
May 20, 2009: The House of Representatives agrees to the Senate’s version of H.R.627 and sends the bill to the President to sign.
May 19, 2009: The Senate passes H.R.627 with a vote of 90 to 5.
May 12, 2009: The bipartisan Senate Banking Committee has agreed on the Credit CARD Act of 2009 (S.414).
May 11, 2009: The Senate proposed an amendment to the Credit CARD Act (H.R.627) as passed by the House of Representatives.
April 30, 2009: The House passes H.R.627 with a bipartisan vote of 357 to 70.
February 11, 2009: S.414 is introduced in the Senate
January 22, 2009: H.R.627 is introduced in the House.
January 14, 2009: The Credit Cardholders’ Bill of Rights (S.235) is introduced in the Senate.

Credit Cardholders’ Bill of Rights Details

On April 30, 2009, the House of Representatives passed a bill commonly called the Credit Cardholders’ Bill of Rights Act of 2009. This bill goes a long way to end some deceprive practices used by credit card companies to lure and trap consumers into expensive debt. While many of the problems resulting from these practices can be avoided by using credit wisely or not at all and adjusting your expectations to assume that the companies only care about their bottom line, not their customers, not all the blame can be placed on the consumer.

Thus, the government is stepping in with this effort to protect credit card users from practices such as abrupt rate increases, retroactive rate increases, and double-cycle billing, a situation in which customers are charged interest even after the last monthly bill to include charges for spending is fully paid off.

Here are some interesting points included in the House version of the bill.

Credit card issuers will be required to maintain low introductory rates for at least six months.
Issuers must warn consumers if they are spending close to their credit limit, allowing them to avoid a penalty.
Issuers cannot charge customers a fee for paying their bill over the phone or online.

The changes to credit card regulations will begin taking effect in February 2010. When President Obama signed the bill into a law on May 22, 2009, he reminded the public about the importance of personal responsibility:

So we’re not going to give people a free pass; we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.

A similar bill passed the house last year but did not get much further.

The following are older versions of related bills:

Read the Senate’s Credit CARD Act of 2009, S.414 (February 11, 2009)

Read the Senate’s Credit Cardholders’ Bill of Rights, S.235 (January 14, 2009)

U.S. House acts to protect credit card users, Reuters, April 30, 2009

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Is Your Home an Asset or Liability?

by Flexo on February 16, 2009

When is your house a liability? Does the fact that you have a mortgage make your house a liability? Or do you have to owe more than the house is worth? What is a liability, anyway?

Well, it depends. Looking at your house from a financial perspective, which you should do because if you’re like many people in the United States, most of your wealth is “tied up” in your house, it is not a liability. A liability is defined as something you owe to someone else. You do not owe the house to the person from who you purchased it, nor do you owe the house to the bank. You may owe the balance of your mortgage.

A house, like any other object that comes into your possession, is classified as an asset. An asset is something you own. A house has a value. Whether you assign the value as the price at which you purchased the house or the price at which you believe you can sell the house, that amount is how much your house is worth.

You can offset the value of the asset with the value of the mortgage, your liability. Your house, an asset, subtracted by your remaining mortgage, your liability, results in your wealth due to your house. That’s commonly called your “equity,” but that has a murky definition, too.

So why do so many people claim that your house is a liability if it’s clearly incorrect from a financial standpoint? Most of this stems from one personal finance “guru.” Robert Kiyosaki, a successful marketer of products, believes an asset is anything that provides cash to you, while a liability takes your cash away. These are not the traditional meaning of the words, but this establishes a framework for the ideas Kiyosaki tries to sell. Kioysaki believes you should strive to increase the assets that provide positive cash flow (Kiyosaki-assets) and reduce the assets that require negative cash flow (Kiyosaki-liabilities).

The concept is sound, but Kiyosaki’s use of the words “asset” and “liability” angers those of us who understand finance and prefer not to confuse the general public by redefining words. But taking a step back from finance, consider this:

There is at least one other legitimate definition or “sense” of liability. In a broader sense, a liability is anything that puts an individual at a disadvantage. Yes, debt is a liability, both financially and generally. You may love your children, but if they’re chronic behavior problems, they may be a liability.

If you own a business that makes millions of dollars each year — and wouldn’t that be nice — chances are you could sell that business if you need to, and command a very high price. That business is a good example of an asset (even if the business itself contains assets such as buildings and liabilities such as debt). But if that business is legally risky, and there is possibility of being arrested for operating it, you could argue that the business is a liability to your ability to continue living freely.

Once you start looking at the big picture, the line between asset and liability, usually neatly drawn down the center of the balance sheet, looks a little fuzzier.

Ask anyone with a financial background whether your house is an asset or liability, and they will unequivocally tell you that it is an asset, contributing to the total of your net worth. but that definition only takes you so far. If owning your house prevents you from using your money for better purposes, you could argue that it is a liability in the broader sense of the word.

Just don’t try to put the value of the house on the right side of your balance sheet.

Update: In response to this post, Mighty Bargain Hunter shares his thoughts about the practicality of Kiyosaki’s redefinitions.

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Home Prices Keep Falling

by Flexo on December 30, 2008

Six or seven years ago, a couple I knew married each other and bought a house right away. I can’t claim to know their personal financial details, but I am sure the value of the house was well beyond three times their combined income. The husband explained to me that house values never go down, so the purchase was a good investment.

It’s true that for many years, the New Jersey county they lived in has seen incredible increases in average housing values. And according to the Housing Price Index (HPI) offered by the Office of Federal Housing Oversight, it’s quite possible that prices in their area continued to increase, although data on their town is not available. A nearby locality has seen consistent price increases from 1997 through 2006, followed by decreases in 2007 and 2008.

The methodology for determining this index is not perfect. This area has seen almost constant development in the past ten years with larger and more expensive homes being built. The HPI only counts single-family residential properties that have had two mortgages originated by Freddie Mac or Fannie Mae. Eventually, these new homes would increasingly have two mortgages as described, some sooner than others. When these larger, bigger homes enter the index, they skew the numbers higher.

While part of the index represents actual increases in house values, some of the increase is due to newer construction and the tendency to build bigger.

Meanwhile, another housing price index, the S&P Case-Shiller index, has posted the biggest decrease ever, 18% down from the same time last year. This is the 27th consecutive month showing a year-over-year decrease.

Home prices post record 18% drop, CNN Money, December 30, 2008

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10 Tips for Buying a House in Any Market Condition

by Flexo on October 17, 2008

When you sell one house and buy another, the overall market conditions don’t matter as much. Unless the two houses involved are in areas with drastically different market conditions, you are exposed to the buy side and the sell side at roughly the same time. Whether it’s a “buyers’ market” or a “sellers’ market,” you will in theory have the advantage with one deal and the disadvantage in the other.

The situation is different when you’re buying your first home. Financial wisdom would say that it would be beneficial in the long run to understand the market condition and buy only when the pricing makes it advantageous, in reality you buy your first house when it’s time. Usually external forces drive that decision.

No matter what the market condition, consider these ten suggestions from MSN Money for buying a home.

1. Determine your limit and stay within your budget. You may have heard recently that the United States is experiencing a credit crisis. Banks are freezing up their capital and not sharing with borrowers. However, if you were well qualified for a mortgage before, you can most likely still get one now. I have noticed that I’ve stopped receiving poorly targeted spam email with home loan offers, so it’s possible the more risky mortgages have dried up. But for those who qualify for a mortgage, stick to a reasonable, affordable amount.

2. Find the right real estate agent for you. A co-worker of mine had a horrible time dealing with a real estate agent provided by our company as one of our “benefits.” The agent called incessantly, wouldn’t respect her price range, showed her houses that were a poor fit, and wasted her time. She fired the agent and tried again a year later with a new agent recommended by a friend and had a much more pleasant and fruitful experience.

Before working with an agent, interview them. Discover how they like to work and whether you will be compatible.

3. Research beyond the information provided by your agent. For this I recommend a useful tool: the Internet. Search listings to find houses you’d like to see. Find out as much as possible about the community in which you are considering living. If it’s relevant for your family, look into the local public school system. Find blogs written by residents about the community.

4. Visit the neighborhood. I can explain from first-hand experience why this is a good suggestion. for me, it has applied to my search for apartments in the past. Don’t only visit the neighborhood, visit the neighborhood at night. the character of the community might change, either for better or worse.

5. Be ready to negotiate. Houses are usually priced with negotiation in mind. This also goes back to your choice for agent. Since they may receive 3% of the sale price if split with another agent, they might not be extremely motivated to work with you to negotiate a lower price. Also, if the same agent represents the buyer and seller, it’s in the agent’s best interest to keep the price high.

If the house has been on the market for a while or if the local market is weak, you may have the ability to offer a price 20% lower than what the seller is asking.

6. Use caution when buying foreclosed properties. Across the country, foreclosures are at all-time highs. These homes can present great values, but they can be risky. It’s going to be difficult to snag a great deal because the best foreclosed houses in the best areas are priced knowing that there will be a lot of interested buyers. The best deals are left for the people who are willing to put a lot of work into fixing up a house to get it to the point that it is appealing for living.

7. Find the right lender and mortgage. MSN Money suggests dealing with lenders with roots in their communities but still look for the best deal. If you’ve been saving for a down payment and you have good credit, you’re in a good position to find the best interest rates.

8. Find a good home inspector. The same co-worker who had problems with her agent had problems with her inspector. They did not keep appointments and did not complete the job. Stay with the inspector while he or she walks through and around your prospective purchase and ask questions about anything that looks suspicious.

9. Buy long-term. Try not to view the house you plan to live in as an investment. Yes, it is a major purchase and will provide you with a major asset, but don’t go into home ownership thinking that you’ll make a lot of money. First of all, to see any appreciation, you’d have to sell the house. most likely you’ll buy a new house with the proceeds (if any) when you sell. Over the long term, real estate barely beats inflation. And keep in mind that if you consider your house an “investment,” your mortgage interest, maintenance costs, community fees, and any other house-related expense should be considered your “cost basis.” That will reduce whatever you consider your “profit” when you sell.

10. Don’t time the market. For the last four years or so, people around me have told me that the best time to buy a house, when the prices will be at their lowest and homes will be most affordable, will be in 2009. The best time to buy a house is when you need to buy a house (if ever).

10 home-buying tips for uneasy time, David Koeppel, MSN Money

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Home Improvement Cost vs. Value (2007)

by Smithee on August 13, 2008

As first-time homeowners, we watch more than our share of DIY Network / HGTV / buying and selling home shows. My wife and I work as a team: she concentrates on making home improvements, and I’m concerned with making sure things don’t fall apart. I also worry sometimes that any project we undertake might be a waste of money, or at least, not realize the return that some people promise.

I’m sort of haunted by this phrase that shows up in a commercial for DIY Network’s show “Sweat Equity”, where the host Amy Matthews is heard to say, “You’ll get two dollars back for every dollar you spend.” That might have been true when she said it, depending on which project she was talking about in the specific real estate climate she was in at the time. I asked my parents, who have dozens of years of real estate experience between them, and my father, who is as scientifically-minded as I am, found me a good resource:

Remodeling Online has a “Cost vs. Value Report” that analyzes the average cost of 29 common projects one might undertake to increase the resale value of a home – if not the resale value, at least the likelihood that someone will buy it.

What’s more, they have specific information for different regions of the country, even down to the City level in some cases. Where we live, for example, remodeling the bathroom will recoup 90.9% of what it cost us, when the national average is 78.3%. But none of the projects listed indicate a cost recoupment of over 100%, nationally or regionally, so we’ll probably never get even one dollar back for every dollar we spend. But that doesn’t mean we’ll stop making improvements. It just means that the main reason to make home improvements is for the sanity of the current owners. I’m okay with that.

(Here’s a direct link to where the average numbers come from, as well as complete descriptions for each project analyzed.)

Update: Justin points out in the comments (below) that my comparison isn’t quite fair, since in the Sweat Equity scenario, you’d be doing all the work yourself. The Cost vs. Value table assumes that you’re paying full price for labor, so there’s bound to be some percentage that you’d be saving / recouping by doing it yourself.

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