Debt, Credit Card & Consolidation Current News Digest

When you take out a new home equity loan, make sure you understand how the interest you will pay will be calculated. Your lender should go over your index, margin, and interest rate caps at the time of your application. Make sure that the terms originally presented to you by your lender are what you find in the Note you sign at closing. The Note and Deed are what make the transaction legally binding.

What You Should Find In The Note

The Note is the document that outlines the terms of repayment. You should find your starting interest rate. Many home equity loans have a “teaser,” such as 1.99% for three months. After the teaser, you need to know your index, margin, and interest rate caps. The Note will also tell you how long you have to repay the loan. It is common for home equity loans to become due within fifteen years. You should also find the dates that your payments are due each month. If there is a prepayment penalty, or any type of balloon payments due, your Note will outline the specifics.

Index And Margin

The most common index for a home equity loan is Prime Rate. The Prime Rate normally tracks the Fed Funds Rate plus 3%. The Fed Funds Rate is set by the Federal Reserve and is the cost of money between US banks overnight. Right now the Fed Funds Rate is targeted to range between 0.000%-0.250%. Prime Rate is currently 3.250%.  If your home equity loans are tied to a different index, search online for your specific index and become familiar with how it works.

A margin is the percentage added to the index for the profit of the lender. Margins can be anywhere from zero to 5% or more. The better your credit history and the lower the loan to value ratio, the lower your margin. If your home equity loans are based on the Prime Rate plus a margin of 2%, you would be paying 5.250% in interest on your balances at today’s current rates.

Interest Rate Caps

Each time the interest rate on your home equity loans adjust, they will be limited to the caps outlined in your Note. Most home equity loans adjust every month and so have no cap for the monthly adjustments. If your loan is fixed for a period, say one year, you would have a cap on how much it could adjust at the first adjustment period. Pay careful attention to the life cap. The life cap is the maximum your loan can ever adjust. If you start at 1.99%, and your life cap is 10% over the start rate, the most you could ever be charged would be 11.99%.

Search for home equity loans here.

If you have been trying to eliminate credit card debt, good news is ahead. In an attempt to help consumers get out of debt faster, the Federal Reserve has new rules going into effect this month. Beginning February 22, 2010, you can expect the following from your credit card company.

• No more unexpected changes to the terms of your credit card! Credit card companies will now be required to notify you a full 45 days in advance of any interest rate changes, fee changes, or other significant changes to your account’s terms. Some exceptions apply. You will have the option to close the account before the changes take effect. However, the credit card company would then have the option to increase your monthly payment for faster payoff.
• You will now be able to see, on your monthly statement, exactly how long it will take to pay off your current balance making just the monthly minimum payments. It may just shock you into paying more each month to see in print that making the minimum payment means years and years of indebtedness. You will also be given a payment amount for a pay off in three years. Seeing these payment choices on your statement each month should motivate you to eliminate credit card debt faster.
• On new credit cards, the card company cannot raise your interest rate for the first year. Some exceptions apply. If the interest rate increases after the first year, the new interest rate can only be applied to new charges. Your old balance will continue to be charged the old interest rate.
• You will now have the opportunity to opt-out of over the limit transactions. Instead of being approved at the point of sale, you can choose to be declined. This will save you having to pay an over the limit fee on your statement. It may also cause you to keep a more careful watch on your balance so that you won’t suffer the embarrassment of a declined credit card.
• Under aged consumers, those younger than 21 years old, will now have to prove the ability to repay their debts before they can be given a credit account. No more throwing cards at the youth of America before they are really ready.

If you feel you need to speak to a professional about debt solutions, follow this link.

Though it’s hard to envision now because so many people are still involved in a crisis, there will come a time when the mortgage finance market settles into some form of normalcy after this intense period of volatility.

One question that no doubt must be considered is what impact the loan modification trend will have on the long term health and practices of the refinancing market.

Here are some thoughts on what mass loan modifications might mean to refinancing five years from now:

1. Government Involvement Here to Stay?

Government involvement in the mortgage markets, at this point, is so thorough and penetrating that it’s a wonder that a representative of the U.S. government is not called upon to sign on the dotted line before any mortgage is granted.

From the Fed’s purchase of mortgage-backed securities, to the FHA’s increasing role in helping people buy homes, to the absorption of Freddie Mac and Fannie Mae into the government itself, the U.S. government has played a giant role in the mortgage market of the past years.

Loan modifications are yet another instance of this trend. Five years from now, will the government still be the tacit co-signer on 90 percent of refinances that happen in this country?

2. Loan Modifications and Credit Scores

Although certainly there were unsavory activities on the part of both borrowers and lenders, there really are some people who got caught up in the foreclosure problem through no–or not much–fault of their own.

It will be interesting to see how the credit rating agencies and the banks treat such people in future years. If you have a loan modification or a foreclosure on your credit report, will banks refuse to refinance your home loan ever again, or will a more lenient attitude be adopted?

3. Refinancing and Equity: Forever Linked

The first two of these thoughts have ended with questions. This third section deserves a declarative sentence:

Banks and borrowers alike have realized the importance of having equity in a property when it comes time to refinance a home loan.

Without equity–without value that the bank can take in the event of default–there is no reason for a bank to do a refi deal. Likewise, homeowners must always remember that “cashing out home equity” is something that is not to be done lightly, because that opportunity may happen only once in a lifetime.

Good news from the Federal Reserve this week. The interest rates on your home equity loans should remain low for a while longer.

How The Rates On Your Home Equity Loans Work

The interest rates on your home equity loans are most likely based on Prime Rate. Prime Rate usually tracks the Fed Funds Rate plus 3%. The Federal Reserve’s Federal Open Market Committee (FOMC) is the body that decides when to raise or lower the Fed Funds Rate. The FOMC decided this week to leave the Fed Funds Rate unchanged, signaling several more weeks of cheap home equity loans.

The Current Fed Funds Rate

Currently the Fed Funds Rate has been at 0.000% - 0.250% for over a year. The Feds have been keeping interest rates low in order to stimulate the economy. As the economy shows signs of slow growth, the FOMC has been considering when to start raising their key interest rate. Interest rates will have to go up as a tighter monetary policy becomes appropriate, primarily to fight inflation.

What The FOMC Said This Week

The committee’s press release reiterated that interest rates on loansshould remain low for an “extended period.” While it may feel like you’re hearing the same old news, there was something different this time. One of the Fed Governor’s dissented, making the vote to keep interest rates unchanged at 9-1. Kansas City Fed President Thomas Hoenig commented that the economy was doing much better and that low interest rates should not be expected to continue. This may not seem like big news, but it is a change. If the next time the FOMC meets, another Governor dissents, it will surely mean that the FOMC is nearer to raising interest rates.

Find A New Home Equity Loan

Because home equity loans are so cheap, now is an excellent time to use the equity in your home for college tuition, home improvements, or credit card debt consolidation. The equity in your home might be the answer to solving any number of problems you may be having. Use the equity to start a business or meet other life goals. A new home equity loan can make a big difference in your life. Speak to a lender about home equity loans today.

Arianna Huffington made waves recently when she went on national television calling on  consumers to dump their big banks and deposit all their money into local, community banks.  Huffington's site, HuffingtonPost.com, threw its weight behind a Web site designed to make breaking up with your bank a little easier — MoveYourMoney.info. It includes a ZIP-code based locator to help consumers pick through the thousands of banks in the U.S. It even sports a short, cleverly edited video that juxtaposes the classic film “It's a Wonderful Life” with images from testy congressional hearings about the banking industry.

Driven largely by Huffington's media popularity, the site quickly gained traction. Huffington's appearances on MSNBC's Countdown and CNN's Larry King Live, among many others, had some observers calling MoveYourMoney a movement. One of Huffington's partners in the venture, Dennis Santiago of Institutional Risk Analytics, says visitors have searched for banks in more than 16,000 ZIP codes — better than half the ZIP codes in the country. 

It's far too early to tell if Huffington has done something that might genuinely take a bite out big banks — real data probably won't be available for months.   But Huffington is tapping into frustration that has been building since 2008 banking collapse and bailout, say advocates for credit unions and smaller, community banks.

"It has been developing for the last several months," said Bill Hampel, chief economist of the Credit Union National Association. "Annual growth in credit union members had been very weak for the past several years…but during the first 11 months of 2009, our growth rate doubled." Credit unions added 2 million new consumers  during that stretch, Hampel said.

Karen Tyson, spokeswoman for the Independent Community Bankers Association, said her 5,000 member banks were experiencing similar, frustration-driven growth.

"Community banks have, since the onset of the financial crisis, gained new customers," she said.   

The American banking system appears to provide seemingly endless alternatives.There are 8,000 banks and 7,600 federally insured credit unions, according to the American Bankers Association.

"The good news is people have choice," said Nessa Feddis, spokeswoman for the American Bankers Association.  "There's lots of competition, and if people are dissatisfied they should look around and vote with their feet."

But most don't.  A tiny group of large banks dominate.  In 2009, four banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo — held 39 percent of all deposits in FDIC-insured banks, according to Reuters. 

The high concentration of account-holders — combined with a low concentration of good will – certainly seems create the potential for a mass exodus. So why the need for a Huffington Post-prompted movement?

It turns out the breaking up with your bank is hard to do. 

In 2008, the Federal Reserve published a study around what economists call "switching costs" — the pain and suffering consumers must face when trying to leave one bank to join another.  The results were disturbing.  The study, by Fed senior economist Timothy Hannan, found it was incredibly difficult for consumers to get reliable information about the true costs of the new bank, for example, and described what a "bargains-then-rip-off" strategy to reel in customers and then exploit them. 

The euphemistic  name for the strategy is a “two-period” model. )  Period one is a free toaster.  Period two is cascading overdraft fees.

Even worse, the true costs and fees levied on account holders may not even be available to consumers until they've committed to the new bank. In many cases, fee schedules aren’t listed on generic Web sites and  can only be viewed by account holders after they’ve logged in – so there is literally no way to comparison shop.

“There may be some lack of transparency with regard to pricing,"acknowledged American Bankers Association chief economist Keith Leggett.

The switching costs become apparent when trying to extract your old bank's tentacles from your new financial life.  Today, most consumers use their checking account for a dozen different activities — direct deposit of payroll checks, automated online bill payment of mortgages and auto loans, recurring debit card transactions, automatic savings plan deductions, credit card bill payment and so on.  Ending all these transactions, and starting the payments anew, is such a hassle that "inertia" often takes over, says Hampel.

"Changing where you have your checking account can be a royal pain in the neck," he said. "It's like if you lose a credit card and have to inform all those people you have a new one, only much worse than that."

To combat the switching cost problem, many credit unions have developed "switch kits" to grease the skids, including forms that help new consumers track the changes needed for all payments and deposits. Those may ease the pain a little, but ultimately getting a new bank means fighting through a lot of red tape.

Still, consumers should look past the hassle and find a bank or lending institution that suits their needs, says Leggett.

"Who you do banking with is very important.  It may be the most important financial relationship of your life, so you should do your homework," he said. 

Leggett welcomed the discussion about switching to smaller banks and credit unions started by the Huffington Post, but he cautioned consumers against a "knee-jerk" reaction to it.

"In not every case is a credit union better than a bank with regard to pricing or fee structure," he said, saying that credit unions have also been guilty of charging annoying fees, just like big banks. "People have to realize when looking for a financial provider that they should always shop around and find a provider who offers the appropriate level of convenience.

Smaller banks and credit unions, he warned, will not provide the same "product mix" as larger banks, and are less likely to offer benefits for using multiple products – such as free checks or discounted loans.

But credit unions provide obvious benefits – in the form of better interest rates, both on loans and deposits, said Hampel.  According to Datatrac Corp., average credit union credit card rates are currently more than one full interest point lower, car loans are 1.5 percent lower, and one–year CD rates are 0.30 percent higher.  (Banks currently enjoy a small edge over credit unions in mortgage rates.)

Meanwhile, community banks offer something big banks find nearly impossible to compete with — local ownership and the ability to talk with a familiar face in the event of unexpected financial hardship, said Tyson of the community bankers group.

“They always put customer service first, and doing right by the community first.  They will not give you a

loan purely to make a profit. And you’re not going to be just a number,” she said. “You’ll be able to walk in the door and you can find the bank president, and know that he lives in your community. … It's a different sort of a custoimer relationship.”

Like Huffington, Tyson sees the switching issue in a larger context.  Federal law provides for a nationwide "concentration cap" of 10 percent, meaning no one bank can control more than 10 percent of the U.S. deposit market. 

Because of the banking collapse and resulting consolidation – leaving four banks with nearly 40 percent of deposits —  the cap is currently being threatened, leaving the U.S. financial system concentrated in too few hands, Tyson said. Through its "Fix Too Big to Fail" marketing campaign, the community bankers group  is lobbying Congress to lower the cap and force large banks to divest some of their holdings.

"The only way to change the dynamic is to have legislation in place that makes it not as appealing to be … large institutions," she said.

RED TAPE WRESTLING TIPS
Marketing campaign and blog-initiated movement aside, it’s always a good idea to review your financial relationships and see if you can get a better deal.  Consumers interested in investigating a move away from big banks should know it takes a bit of work, but there’s plenty of help available online, and one or two lunch hours should do the trick. Here are some tips:

* Rates aren't everything, and people matter. Leggett points out that many consumers are far too concerned with the published interest rate they'll earn on savings and checking accounts, and sometimes pick banks based on small differences.  Given that current rates are so low, earned interest should be of little concern at the moment; fee schedules are more significant. But even more important is the likelihood that the bank will treat you like a human being should anything go wrong; if, for example, you accidentally overdraw your account and land a series of overdraft fees.  Will a familiar teller help you, or will you end up stuck on a long voice mail tree?  We all make mistakes. It’s hard to put a price tag on the reassurance that you’ll be treated like a person, and not a criminal, when your turn comes.

* Don't forget the middle child. Feddis points out that there is middle ground between the four huge banks and thousands of small banks — what she calls "medium-sized" institutions.  They might offer the best of both worlds.

* Beat the feared late fee:  The real fear over switching comes from the potential for a missed loan or credit card payment, or double payments that could lead to an overdraft. There are several ways to ease the transition between institutions, although all of them involve a little extra money.

The easiest thing to do is double up. Keep both accounts open and keep all your payments turned on until you can confirm that new payments have been received by the old payee.  This will require having a lot of extra money to spare. A variation involves paying with your new account a full 10 days earlier, giving you time to cancel scheduled payments from your old account. You'll still need the extra money in case a payment lands in limbo. In either case, it's good to set up overdraft protection on both accounts by linking the checking account to a credit card, savings account or line of credit, so there's backup if you screw up.

The simplest – but most time-consuming — method is to open the new account without closing the old one, and then switching one bill payment one month at a time to the new account, making sure each one is set up properly before switching the next one.

*If your credit card issuer has cut you off: Many consumers find they are losing available credit on their cards or losing their cards altogether.  This hurts their credit score.  Hampel said consumers thus spurned should still apply to a credit union for a new card and will likely get the account as long as their credit isn't severely damaged. Expect a lower credit limit than you're used to, however — credit unions are much more stingy about credit card maximums.  That's a good thing, Leggett says:  that's partly why the bank credit credit card default rate  is currently around 10 percent, while credit union rates are down near 2.5 percent.

*Finding an alternative. While credit unions have certain limitations on membership, Leggett says that virtually all U.S. adults are eligible to join at least a few credit unions.  If you're stumped, try the credit union locator at

http://icba.org/consumer/BankLocator.cfm?sn.ItemNumber=51757

To find a small bank, try the bank locator

http://icba.org/consumer/BankLocator.cfm?sn.ItemNumber=51757

or use the Huffington Post tool, which lists only banks graded B or higher on Institutional Risk Analytics’  scale.

——————-

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Auto Loans Easier to Find

When Susan Tompor came to research a feature she was writing about auto loans for the Detroit Free Press recently, she uncovered a whole truck load of positive news. She spoke to a number of analysts, and financial executives, and their verdict was unanimous: there’s a definite improvement in lenders’ willingness to provide the credit that people need to buy a car or truck.

According to one analyst, up to 40 percent of people who had virtually perfect FICO credit scores (of 750 and above) were turned down when they applied for auto loans last year. Now, those in that fortunate group are being approved about 90 percent of the time.

And people who have slightly less pristine credit reports–but who are not in the sub-prime category–are today being approved in at least 75 percent of cases. It’s less easy for really risky borrowers, although about one in 20 of those are successful in finding car finance.

Cheap Loans

Ms Tompor says that “car loan rates are at record lows”. And recent data from the Federal Reserve suggest she’s probably right.

The Fed’s figures show that the average rate from a commercial bank for a 48-month auto loan for a new vehicle was lower in November 2009 (the latest month analysed) than at any time since 2004, which was as far back as the report went. So, if your credit score is anything above sub-prime, then you stand an excellent chance of finding yourself one of the all-time cheap loans of your life.

To stand the best chance of being approved, be on your best behavior over bill payment, and don’t take out other loans or credit cards for some months before you apply. Also, check your credit report before you fill in an application so that you can gauge the likelihood of success before you commit yourself.

Why the Easing?

Of course, the economy is still sluggish, and lenders will continue hurting until unemployment rates fall substantially. But people who offer credit for a living can’t make money if they’re not lending, so they’re now keen to find good risks. And their mood is made better by declining delinquency rates.

Earlier this month, the American Bankers Association published its latest Consumer Loan Delinquency Bulletin. And the report’s findings made cheerful reading. Direct auto loan delinquencies (those arranged through a bank) fell from 2.46 percent in the second quarter of 2009 to 2.04 percent in the third quarter. And the same figures were 3.26 percent, and 3.15 percent for indirect loans, which were arranged through a third party, such as a dealership.

Your Next Step

If you want to buy a new or used car or truck, you need to find a great finance deal. Get a free quote, and a fast loan decision here.

They’re up. They’re down. They’re up, then down again. Such is the teeter-totter life of mortgage rates. But if borrowers think they can time mortgage rates to get the best deal, they should think again.

Current Mortgage Rates

How mortgage interest rates are determined is a complex process that is based on a variety of factors. What happens with the 10-year Treasury bond is usually a good indicator of which way mortgage rates may go. If bond yields rise, mortgage interest rates also go up.

Changes in the federal funds rate set by the Federal Reserve can impact mortgage rates, too. Interest rates also tend to rise when there is more demand for home loans. Other market indicators that can affect the price paid to borrow money include inflation, unemployment statistics, consumer confidence, and movements in the stock market.

Lock-in Today’s Mortgage Rate

Nothing can guarantee that mortgage rates won’t change after a borrower fills out a mortgage loan application. Generally, the mortgage quote that person receives is for that day’s rate.

When a borrower finds a deal he likes, he usually has to pay a fee to lock-in that interest rate. Otherwise, the rate floats until it’s time to close on the loan. Depending upon market conditions, the mortgage rate could be higher or lower at closing.

At some mortgage lenders the lock-in fee is an upfront charge that is nonrefundable. Other lenders allow the fee to be paid at settlement. Borrowers should always try to get the commitment for a lock-in in writing from  mortgage lenders. Written proof of a lock-in can help avoid disputes later.

Co-Operate with Mortgage Lenders

Most lock-ins are only good for a specific period of time. It’s common to see lock-in periods of 30 to 60 days. To avoid having a lock-in expire borrowers should be prompt with providing all paperwork required to close on a loan. Not reponding quickly or giving incomplete documentation can hold up the process, making it more likely a lock-in is going to expire before the closing.

How Much Can I Borrow for a Mortgage?

Fluctuating mortgage rates can affect how much a person can borrow to buy a home or refinance. It’s a good idea to gather several mortgage quotes from lenders to compare rates and fees. Borrowers can also run different borrowing scenarios by using a mortgage rate calculator.

Credit Card Debt Statistics

The most recent Federal Reserve Statistical Release for Consumer Credit was published January 8, 2009. This release surprised economists. Most economists were expecting a decline in credit balances (both revolving and not revolving) of about $5 billion. The November numbers came it at an over $17.5 billion decline or more than three times expectations. Americans reduced their revolving credit card balances 18.5% from October to November or $13.7 billion. These statistics prove that Americans are seriously trying to get out of debt.

Debt Relief Trends

From 2004 until Q3 of 2008, Americans were steadily increasing their credit card debt from month to month. Beginning in Q4 of 2008, that trend turned around. The American culture was saturated with debt, both credit card debt and mortgage debt. Almost at once, and certainly triggered by a number of factors, the American public started to reduce debt. It was in great part related to the housing market, but even those who don’t own their home are spending less and trying to get out of debt.

Ramifications On The Economy

Ultimately, a country that uses less credit and saves more money should be financially healthy. It will be a big adjustment and a big change from the previous American economic culture. At one point over 70% of the GDP growth was driven by consumer spending. Consumers are using many of their resources to reduce debt, which has an affect on consumer spending. Consumer spending is dramatically lower than in the past. This in part caused the recession and is in part hindering a robust recovery. The government has had to take extreme measures to keep the economy from complete collapse.

Find A Debt Consolidation Program

You may be thinking that you’d also like to get out of debt and start saving money instead of loosing it all on high interest credit cards. It is a new year, and a good time to start. You will need some expert advice, a good plan, and self-discipline. It is very hard to make this kind of life change alone. Seeking a debt consolidation program supervised by a debt relief specialist will offer you the accountability you need to succeed. There is no time like the present. Get started today.

What some call America’s most notorious hidden fee is about to be dealt a serious blow, as new rules kick in that will eliminate many of the booby traps that lead to bank account overdraft fees. 

Already, in advance of the Federal Reserve regulations coming in July, many banks are allowing consumers to opt out of the "courtesy" overdraft coverage and associated, cascading $35 fees.

But it should come as no surprise that there's a catch. In fact, there are lots of them. Topping the list: Consumers who opt out of overdraft protection now may find themselves in the worst of both worlds. Their transactions will be denied and they will face a $35 insufficient funds fee anyway.

"My card is being denied and checks are being returned, but the fee remains, “ wrote Ginnie Logan, who banks at Elevations Credit Union in Colorado and recently opted out of what the organization calls courtesy pay. "Essentially the issue hasn’t gotten any better. In fact, it has gotten worse."

Logan’s sentiment would sting consumer advocate groups who spent years fighting high bank overdraft fees. Expect a new round of consumer frustration  this year as insufficient funds fees make a comeback and consumers try to understand why. We'll try to explain.

Much of the frustration with overdraft fees came from the element of surprise.  While most consumers understood the danger of writing a check that might send their account balance into the red, few realized that they could overspend their balance by swiping debit cards or withdrawing cash at ATMs. The new regulations are designed to end those surprises: Beginning in July, banks will not be able to honor the last two kinds of transactions charges and assess the overdraft fee unless those consumers have opted in to a overdraft protection program.

Bank of America, JP Morgan Chase and a number of other institutions already have announced that consumers may call and opt out of overdraft coverage now.  Most consumer advocates, including Consumers Union staff attorney Lauren Bowne, recommend that account holders immediately do so.

That, however, can lead to an unnerving conversation with your bank.  During a recent call to Bank of America, an msnbc.com reporter was told, "You may still incur overdraft charges in some cases," ever after opting out. That’s because lags between credit and debit transactions and the time they are posted to your account can still cause headaches.

It's possible, for example, that an online bill payment could be sent when a checking account balance is above zero, but not debited until later, after a series of other withdrawals have sent  the balance to zero.  That would still result in an overdraft fee, because the bank could not have known the "true" balance of the account would dip below zero when it initiated the e-payment.

In addition, there are numerous circumstances under which opting out would case transactions to be denied, triggering an insufficient funds fee.

Wire transfers or checks would bounce the old fashioned way, for example. At Bank of America, the insufficient funds fee is $35 – same as the overdraft fee.

Still, the Bank of America operator gave assurances that opting out would eliminate the possibility of debit card purchases leading to overdraft fees.

That should reassure consumers who aren’t so sure. Several have e-mailed msnbc.com recently suggesting they are still seeing overdraft fees related to debit card swipes after opting out.  The confusion is understandable, given the complexity of the systems involved. It doesn’t help that Bank of America operators won’t provide paper documentation of the procedure, its terms and conditions, or confirmation of the account change. The only way to confirm overdraft protection had been removed is to call after five days and ask another customer service representative to check, she said.

At operator at Logan's credit union gave a less black-and-white answer to the debit purchase/overdraft question.

"From what I've seen that's not happening," he said. "But it is possible."

 He described some potentially thorny time-lag situations. Not all merchants immediately process transactions — many transmit transactions in batches every hour or two, for example –  so it would be possible for a consumer to swipe their debit card four or five times in different stores during a day before the bank realizes the account holder's balance had gone south of zero.

Consumers who use ATMs outside their own banks' network could also face this problem, as some ATMs perform what are called "stand-in" authorizations, and don't transmit transaction information until later in the day.  That could also result in an overdrawn account.

Still, he said such situations were extremely rare.

The American Bankers Association offered several warnings about this kind of confusion last year while arguing against overdraft reform. But Nessa Feddis, spokeswoman for the trade group, said much of the confusion should be cleared up by the time the new Fed rules kick in this summer.

"The rule is very consumer-oriented,” she said. “… The Fed did a lot of testing and the rule forces banks to do things the way consumers would want them in each situation.” After July, she said, banks will not be able to charge a fee because of a lag in batch transactions, for example, because the Fed decided that consumers could not be expected to know about merchant transmission procedures.

The new rules aren’t perfect, however. Many consumers would want small debit card transactions or ATM withdrawals denied when their balance is at zero (saving a overdraft $35 fee), but prefer that checks be honored (since they would result in an insufficient funds fee anyway, and they would also lead to additional fees from the jilted merchant).  But many banks' systems can't handle such a split decision, Feddis said. Overdraft protection must either be on or off.

Consumers who misunderstand their overdraft protection has been removed may wind up bouncing a lot of checks.

"There are a lot of operational issues that still have to be solved," Feddis said.  "Some of these things will be resolved, but it might be through a different kind of product.” One possibility: banks will offer incentives to customers to keep larger minimum balances in their accounts to avoid overdraft situations, she said.

Despite the confusion, and the "worst of both worlds" possibility, the Consumer Union’s Bowne said she's sticking by her initial advice.

"Overall, I still think it is sound advice to opt-out of overdraft, when possible, as we wait for the rule to go into effect," she said.  "I cannot envision a scenario where a bank would charge a consumer for ‘attempting’ a debit or ATM transaction in which the consumer never completes the transaction. … That being said, nothing much surprises me with respect to these bank practices and without seeing the actual terms and conditions from the different banks it is hard to be certain."

Red Tape Wrestling Tips
You should opt out of overdraft protection now if you bank allows it. The end goal here is to avoid overdrawing your checking account through debit purchases or ATM withdrawals. You never want to pay $40 for a $5 hamburger, as has happened to many people in recent years. But there are hazards.

If you have overdrawn your account in the past year, think before you opt out. A bounced check can have more far-reaching consequences than an overdraft fee.  You might end up in the ChexSystems database and lose check-writing privileges, for example.  So don't opt-out until you are ready to stay out of the red.

Consumers who live near a zero balance will find that so-called “account holds” placed on debit purchases by gas stations and some other businesses can cause headaches in a post-overdraft-fee world.  Holds, which exceed the transaction price, can freeze funds for days and cause confusing time lags. Be cautious using your debit card for purchases at firms that place holds.  One tip: If you must use debit, use a PIN instead of a signature. PIN-debit transactions generally are processed faster than signature-debits, so that will help you keep your account balance up to date.

When July comes, look for a mandatory notice from the bank about the new procedures. Don't fall for comes-ons advertising "courtesy" protection.  If you do nothing, you won't have it. And that's probably your best choice.

After you opt out, and the fed rule kicks in, when might you be hit with a fee?  When the bank has to “return” an attempted payment to you – a bounced check, for example, or an e-payment that can’t be honored. 

The safe way to protect yourself from overdrawing your checking account is to link it to other accounts – your savings account, a credit card, or even a line of credit. Everyone makes mistakes. Yours will be less costly if you borrow your own money through linked accounts than if you borrow the bank’s money through a “courtesy.”

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This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

Your net worth is based not only on how much moolah you have in the bank, but also on your human capital — that is, your ability to earn income. “We can think of human capital as assets specific to each person, such as intelligence, education, specialized skills, work ethic, and social skills in the workplace,” wrote Motley Fool contributor Doug Short (who has turned his own human capital into an investing website that’s popped up as far away as an Australian business TV show — it’s amazing what smart, retired people can do in their spare time).

These days, jobs are few and far between — and unemployment is poised to rise and stay high for a very long time. At a town hall meeting last year, Federal Reserve Chairman Ben Bernanke said gross domestic product growth would have to exceed 2.5% for the unemployment rate to fall. Unfortunately, consulting firm McKinsey says that newly-thrifty baby boomers, who are now saving at rates not seen in decades, will reduce GDP growth to just 2.4% annually for the next 30 years.

So to survive in a world of long-term high unemployment, we can’t take our jobs — or our human capital — for granted. Ask yourself these ten questions to make sure you’re investing in your most important money-making asset: You!

What’s going on in your industry and location?
Employment and wage trends aren’t the same across the country. The unemployment rate is in the mid-single digits for business and financial managers, but almost 20% for those in the construction industry. North Dakotans have the lowest unemployment rate, while Michiganders have the highest. Stay up on the news to know who’s being hired, fired, promoted, and downsized in your area. It could help you land a job — or know when it’s time to leave one.

How does your company make most of its money?
Most companies have more than one source of income, but not all of those revenue streams are of equal importance. Determine your company’s essential sources of income, and become an integral player in those parts of the business.

What can you do to protect your job and salary?
Pretend you’re your boss and you have to decide who gets a raise and who gets a pink slip. What qualities would you look for? What makes someone indispensable at your company?

If you own a business, how can you make yourself essential to your customers?
Even if you’re self-employed, you have bosses. They’re your customers, and they can fire you as easily as Donald Trump can. What can you do to make that hard for them?

Which skills could you acquire that would make you more valuable or diversify your human capital?
Your value in the workplace depends on your abilities. How many things can you do, and how well do you do them? Consider working toward a degree or starting a late-night self-study regimen that expands your human capital. Keep it focused on efforts that will really pay off. Simply getting an extra degree in the sociology of Star Trek could be a waste of money.

What would you do if you were fired today?
You’d probably: (1) apply at a few other places, or (2) change careers. If you’d apply elsewhere, ask yourself, “What can I add to my résumé to make them want to hire me?” If you want to begin a new career, ask yourself, “What should I be doing in my spare time to prepare?”

What can you do that you’re currently paying someone else for?
Expanding your human capital includes learning how to do things so you don’t have to pay someone else to do them. This pays off even for retirees. Think about doing your own home repairs, taxes, or (ahem) financial planning (though not until you know what you’re doing).

Can you pick up side jobs to earn extra income?
In our Rule Your Retirement service, we pay a team of retired financial professionals to answer subscribers’ questions. The previously mentioned Doug Short makes a tidy little income from advertisements on his website. Dabbling in extracurricular part-time work can pad your cash flow, expand your skill set, and could lead to a whole new career.

Can you sharpen your people skills?
I believe it was columnist Ben Stein who said your career depends on your affability as well as your ability. (Unfortunately for Stein, that didn’t spare him from being dropped by The New York Times after showing up in commercials for a credit-score company, violating a corporate policy.) Your career depends at least partially on how pleasant, cooperative, collegial, and fun you are. So play nice!

What do you want to do with the rest of your life?
You’ll probably do your best work if you’re doing what you enjoy most. This economy might not provide the greatest opportunities for you to pursue your dream job, but you can start preparing now so you’re ready when the market is.

Live long and prosper!

—
Related Articles at Get Rich Slowly:

• Daily Links: Great Lessons Edition
• Investing 101: An Introduction to Asset Allocation
• What Makes a Resumé Scream “Don’t Hire Me!”
• What Squirrels Can Teach Us About Investing
• Ten Tough Retirement Questions

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