Last week, a grave injustice was done in America. A government-sponsored website appeared, naming and shaming some of America's leading corporate citizens. Capital One (COF) and Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM) -- even American Express (AXP), the one bank whose products no Americans in their right mind would ever "leave home without" -- had their good names smeared by government fiat.
But never fear. When there's injustice in the world, a minority being oppressed, a "little guy" being crushed by the jackbooted bullies of the government's consumer protection agencies ... the American Bankers Association is there to help.
On Tuesday, the Consumer Financial Protection Bureau launched its new public Consumer Complaint Database. As the name suggests, this is a database of consumer complaints, filed by consumers wishing to chastise their credit card providers for misfeasances, malfeasances and other ill behaviors.
Full of issues ranging from mundane billing disputes and complaints of usurious interest rates to problems involving identity theft, unwanted credit card offers, troubles collecting on card "rewards," and everything in between, the main database runs to some 17,000 individual instances of consumer credit card rage, logged between the months of July 2011 and May 2012. At present, only the most recent complaints (those filed since June 1, 2012) are searchable -- 137 records in all -- and even these aren't the easiest to access or make sense of.
It is, however, a start -- and if the bankers have anything to say about it, that's all it will ever be.
Don't Ask, and We Won't Tell
According to the ABA, and its allied Consumer Bankers Association and National Association of Federal Credit Unions, out of the 383 million credit card accounts currently active in the U.S., fewer than 1% have ever had a complaint submitted about them to the CFPB. Now, one wonders whether 1% of credit card holders have ever even heard of the CFPB. But regardless, the bankers think that the small number of complaints being registered means there's really no need for the database to exist.
But if it must exist, the bankers would like to suggest some improvements. As you can see on the site, banks' names are named, accusations leveled, and protestations that the bank responded in a "timely" manner to the complaints are disputed -- but the identities of the consumers doing the naming, accusing, and disputing are hidden. Only the names of the banks in this case are published.
This, worries the ABA, creates a situation in which "the bureau's plan to release unverified data is disappointing and could mislead consumers." The CBA objects that "there are many complaints that at the end of the day are not justified." And when unfounded accusations are made and published then "there is a significant chance of a reputational hit." Thus, NAFCU laments that "given the nature of viral media, disclosing all complaints may paint a misleading picture and trigger reputational risks for solid institutions that could raise safety and soundness concerns for the financial institutions in question."
And you know if there's one thing bankers hate, it's seeing people get undeservedly "painted" with a bad reputation. Why, that would almost be like...
A Bad Credit Report
Lots of factors go into building a person's credit report. According to website CreditSesame.com, the number of credit inquiries made on your account, the amount you owe on your cards, and the percentage of your credit limit these owed amounts represent are just a few of the factors determining your "reputation" as a user of credit. What really hurts your credit score, though, are reports of unpaid or late-paid bills -- reports that, by the time they show up in a person's credit report, are hard to dispute and harder to resolve. And in some cases, it's hard to be sure who's even making the allegations.
Similarly, the banks' worry that unsubstantiated complaints by a few crank callers could raise "soundness concerns" regarding "solid institutions" echoes objections that consumer advocates used to make against the banks' system on universal default. Before this system was banned by the 2010 CARD Act, if you paid just one bill late on a single credit card, you could quickly find yourself punished with interest rate hikes on all your credit cards, regardless of who issued them or whether you were current on most of them.
In short, the banks may be right that the manner in which the CFPB reports consumer credit card complaints is flawed and unfair. In fact, when pointing out how the system is rigged against them, they shouldbe right.
After all, they're the ones who figured out how to rig it that way against their customers in the first place.
Credit Card Banks Complain About Consumer Complaint Database
By Tamar Snyder
750 is the new 720 -- at least as far as average credit scores go. As today's lending requirements remain tight, credit is harder to come by, and it's tougher to get an above-average credit score than it used to be. A higher score could translate into a better interest rate and save you thousands of dollars. Whether you're thinking of refinancing your mortgage, purchasing a new home, or taking out a car loan, it's especially crucial today to understand what affects your credit report -- and what doesn't.
There are common misconceptions about credit reports, and believing in untruths can hurt you. Read on to learn more.
Myth: I can boost my credit score by closing credit cards I don't use.
Fact: Think twice before closing an account -- especially if it's a credit card you've had for several years. Your credit rating is determined in both the duration an account has been open and the balance in relation to the card's limit, says Rodney Anderson, managing partner of Rodney Anderson Lending Services in Plano, Texas. If you're inclined to close your account, you're much better off just sticking the card in a drawer, but keeping your account active by using it at least once every three months.
Myth: Checking my credit report will lower my score.
Fact: A "hard credit pull" -- the type of examination that's made for those applying for a new credit card, say, or a mortgage -- stays on a credit report for at least six months, and it will lower a credit score. But checking your own credit report, contrary to hurting your score, is "a great tool, especially when you're making big-ticket purchases," says Charles Harris, an executive at FreeCreditReport.com. "The higher your score, the more likely you may be able to negotiate lower interest rates, which gives you more control over your personal finances."
Myth: My age, race, gender, marital status, religion, or income can affect my credit score.
Fact: Not true, says Lynnette Khalfani-Cox, author of Zero Debt: The Ultimate Guide to Financial Freedom. Federal law prohibits credit scoring from taking any of those factors into account. In fact, records maintained by the reporting agencies include no personal demographic information apart from birthdates.
Myth: If I negotiate with my credit-card or mortgage company, my credit score will go down.
Fact: Not necessarily, says Spencer Sherman, author of The Cure for Money Madness and founder of financial advisors Abacus Wealth Partners. "If you're up-to-date with payments, then negotiating your credit-card or mortgage payments will not likely affect your score," he says. To protect your score, he advises, try extending the term of the loan or negotiating a reduction in interest rate, rather than trying to get the principal reduced.
Myth: I pay cash for everything and don't buy on credit or use credit cards, so my credit score should be excellent.
Fact: Having no credit history, or never using credit, can actually hurt your score, Khalfani-Cox says. Card issuers tend to view customers with neither debt nor credit cards as higher-risk than those who have cards and who manage their debt responsibly. Credit-rating agencies like to see that you have a history of paying credit obligations on time.
Myth: My $6 library-card fine couldn't show up on my credit report.
Fact: Return your overdue books at once. Even miniscule library fines can lower a credit score by as much as 50 to 100 points, says Rich Rosso, a financial consultant for Charles Schwab & Co. Same with unpaid parking tickets and utility bills. If you pay up before your debt reaches a collection agency, you should be OK; your library probably posts its collection-agency policy online. "Every municipality appears to have various time frames for collection based on size of the debt and the length of time it's been in arrears," Rosso says. For example, Cedar Rapids Public Library in Iowa will initiate a courtesy reminder three times after items are due. If fines are still not paid and books not returned, then the borrower's account may be turned over to a collection agency.
Myth: If I pay off a collection account, my credit score will clear immediately.
Fact: Not so. "Paying off a collection account will not remove it from the credit report," Rosso says. "It will remain for seven years." Still, a collection account is just one aspect of your credit score; if you're up to date on mortgage and credit-card payments, the collection account probably won't drastically damage your score.
Myth: As far as credit rating is concerned, all credit cards are the same, whether it's a Visa, an American Express, or a card from a department store.
Fact: Stay away from store-brand credit cards. Approximately 10 percent of a person's credit score is based on the institutions from which money is borrowed, says Anderson. Finance companies, often used by retailers that offer their own credit cards, are considered higher risk than banks. Wal-Mart cards, for example, are backed by GE Money Bank, and Ann Taylor credit cards are issued by the World Financial Network National Bank. "A prevalence of credit lines from finance companies could negatively affect your credit rating," he says.
Myth: It's OK if my card issuer lowers my credit limit a little bit -- I never max out my cards. I keep my balance lower than 75 percent, so I should be fine.
Fact: That's wrong, Sherman says. "Most people stay just at the edge of their credit limits, but you want to stay well below your maximum available credit." That's because 30 percent of your credit score depends on how much credit you use of the total credit available to you. Aim to keep your balance below 35 percent of your limit.
Myth: I don't make enough money to have a good credit score.
Fact: While people with more money tend to have better scores, your income has no effect on your credit score, says Avinash Karnani, co-founder of justthrive.com, a personal-finance management site. "People who make more money are less likely to be borrowing above their limits and paying for things on credit, rather than using existing funds," Karnani says. But anyone can improve his or her credit score by paying down debt, monitoring your credit report to track how often you're applying for cards and loans, and making sure to keep your oldest credit card open so it remains in your credit history.
Motley Fool contributor Rich Smith does not own or short shares of any company named above (but he does have a few of their cards in his wallet). The Motley Fool owns shares of Citigroup, JPMorgan Chase, American Express, and Bank of America. Motley Fool newsletter services have recommended writing a covered strangle position in American Express.