The price of identity theft protection
There are a slew of services promising to protect you from ID theft, but how well do they protect you from the headaches?
By Jessica Dickler, CNNMoney.com staff writer
Last Updated: August 27, 2008: 11:12 AM EDT
NEW YORK (CNNMoney.com) -- Even weeks after Brenda Clarke's identity was stolen and thousands of dollars in illegitimate credit card charges were discovered, she is still saddled with extremely high interest rates on her credit cards and a damaged credit score.
"It's been very frustrating, very time consuming," she said.
Clarke's situation is not uncommon. Approximately 15 million Americans are victims of identity theft each year, according to Gartner research firm. And although anyone with a social security number is at risk, safeguarding your information isn't easy.
Identity theft occurs when someone uses your information to open credit cards or bank accounts, write bad checks or take out loans. Victims can be left with countless charges, years of bad credit and endless aggravation.
Proactive safekeeping of your personal information, including your birth date, social security number and credit card numbers, may be the most effective weapon against identity theft. But if you're more interested in saving time than money, then there are also many identity theft protection services that will do some of the legwork for you - for a price.
But keep in mind, most services can only warn or insure you against I.D. theft after the fact. And once your identity has been compromised, good luck clearing your name and your credit report.
Credit monitoring
All three credit bureaus offer credit monitoring for about $15 a month. That includes unlimited access to your report and notifications of any changes to your credit file, plus a few fancy extras.
For example, Equifax's ID Patrol searches suspected underground Internet trading sites for your personal information. Experian's Triple Advantage sends you email alerts of suspicious account activity and TransUnion's 3-Bureau Credit Monitoring includes identity theft insurance up to $25,000 with no deductible.
Other credit monitoring services are available from your bank. Wachovia's CreditProtectX3 service costs $12.99 a month for daily credit checks. For $11.99 a month, Chase's Identity Protection will also reimburse up to $100,000 of identity fraud expenses.
Identity theft insurance
If damage control is what you're after, identity theft insurance is offered by credit card and insurance companies for generally less than the cost of credit monitoring.
But while that may cover some of the expenses associated with identity theft, it does not reimburse you for any money that was stolen, which is often covered by your bank or credit card issuer. Many policies only cover nominal expenses for things like certified mail and long-distance telephone calls.
While it can't protect you from the headaches associated with recovering from I.D. theft, insurance should cover lost wages and legal and out-of-pocket expenses, advises Linda Foley, founder of the Identity Theft Resource Center.
Policy terms and cost can vary widely. Foley suggests looking for an insurance policy with a premium under $50 and a deductible less than $250, otherwise "it's not worth it."
Even after paying for credit monitoring and insurance, experts agree that no identity theft prevention service is foolproof. "There's not going to be any product out there that's going to be able to completely guarantee that your identity isn't going to be stolen," said Demitra Wilson, a spokeswoman from Equifax.
The do-it-yourself approach
While these services can throw up red flags at the first sign of trouble and help limit losses, "they're not doing anything for you that you can't do for yourself," Foley said.
Shredding your mail, using unpredictable passwords and secure networks, keeping careful tabs on your bank statements and monthly bills and even monitoring your credit report can all be done for little or no cost at all.
Passwords should be at least seven characters, with numbers and upper and lower case letters, says Todd Feinman, identity theft prevention expert and CEO of Identity Finder, a company that sells software aimed at I.D. protection.
Consumers are also entitled to one free credit report a year from each of the three credit bureaus, Equifax, Experian and TransUnion. Bill Hardekopf, CEO of LowCards.com, recommends staggering the reports strategically so you'll get one every four months. To get your report, go to annualcreditreport.com - the official site set up by the three credit bureaus to comply with federal law.
If you feel like you're in greater risk, then setting up a fraud alert will ensure that creditors notify you before issuing credit in your name. Alerts can be set up for free through one of the consumer credit reporting agencies and last for 90 days.
For an even more aggressive approach, a credit freeze prevents creditors from issuing credit altogether and blocks others, including potential creditors, landlords and employers, from viewing your credit report. Freezes are free for identity theft victims, but for others can cost around $10 to activate, temporarily lift, or remove, depending on the state. The Consumers Union's Guide to Security Freeze Protection lists each state's security freeze laws.
The Identity Theft Resource Center advises that credit freezes are the best way to stop identity theft before it happens, but there's a trade off. You won't be able to apply for any new credit while the freeze is in effect, and it takes about three days for the credit agencies to unfreeze your credit.
But that could be a small hassle considering the alternative.
quarta-feira, 27 de agosto de 2008
sábado, 23 de agosto de 2008
THE NEXT CREDIT CRUNCH
The next credit crunch
Our easy access to plastic is about to dry up - and with it our ability to fake living the good life.
By Geoff Colvin, senior editor at large
(Fortune Magazine) -- We made it through the bursting of the Internet bubble and now the bursting of the real estate bubble. Next we may be approaching the end of the most worrisome bubble of all: the standard-of-living bubble.
That conclusion comes from the latest data on credit card debt. It's growing fast, but the problem is bigger than that - and to understand what it means, we have to take a few steps back.
For the past several years, the average inflation-adjusted total pay of American workers hasn't been increasing. That means we haven't been building a foundation for increases in our living standard. You might be tempted to say that by definition our living standard couldn't have increased, but that's not quite right. Even with stagnant real incomes, we can always live a little better every year through borrowing and pretending that our living standard is still rising, just as it was for decades.
So the Great Bull Market made us feel rich, and we felt justified in saving less and borrowing - and spending - more.
After stocks collapsed, home prices took off, making us feel rich all over again. So we continued saving less and spending more, creating the illusion that our living standard was still rising. In 2005 our personal savings rate went negative, but even that didn't slow us down, because our homes were still appreciating - and rising home values meant that household net worths weren't declining. (Don't be fooled by that saving-rate spike in this year's second quarter; it was probably a one-time event resulting from the federal stimulus payments.)
Of course, we don't hear those assurances anymore. Stocks are back where they were eight years ago, and home prices are where they were five years ago. But personal debt is much higher than ever before, and average pay is still going nowhere in real terms. So now how do we live as if our living standard is still rising?
End of easy money
That's where the credit card reports come in. Last year, just as the subprime crisis happened, credit card debt took off. The home-equity ATM had been shut down, so people turned to the last source of easy money they had left, the most expensive debt on the menu, credit card borrowing.
Since credit card debt has been growing much faster than the economy - more than 8% in last year's third and fourth quarters and over 7% in May (the most recent month reported)- people are apparently using it as a substitute for income. Thus, for the past year or so we have still maintained the standard-of-living illusion.
But a big crunch is coming - and here's why. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup (C, Fortune 500), one of America's largest credit card lenders, just reported that it lost $176 million in the second quarter through securitizing such debt. That happens when the buyers of those securities observe rising delinquency rates and rising interest rates, and decide the debt is worth less than Citi thought. More generally, the amount of credit card debt that is securitized nationwide has plunged by more than half in the past five months because it's getting riskier. That means credit card issuers will be charging customers higher interest rates, and since the banks can't offload as much of the debt as before, they'll have less money to lend to cardholders.
The squeeze has already started, which is why Congress is in the process of passing the Credit Cardholders' Bill of Rights, which would prevent issuers from changing rates and terms without warning, among many other provisions. But bottom line, the credit card money window is going to start closing - and soon.
So now what? It's hard to see where consumers can turn next. Home prices seem highly unlikely to start rising again soon. Stocks? You never know, but the Great Bull Market looks like a once-in-a-lifetime event. Homes and stocks are households' biggest asset classes by far. There isn't much else to borrow against.
It may be that the standard-of-living bubble finally has to deflate. Sustainable increases in living standards have to be earned, not borrowed, and that means performing ever higher value work that can't be outsourced. We haven't been meeting that challenge very well; doing so will probably require much more and better education for millions of Americans, which takes time and money.
The result may feel like deprivation, but I don't see it that way. Who knows - we might even find that living within our means and saving a little money actually isn't so bad.
Our easy access to plastic is about to dry up - and with it our ability to fake living the good life.
By Geoff Colvin, senior editor at large
(Fortune Magazine) -- We made it through the bursting of the Internet bubble and now the bursting of the real estate bubble. Next we may be approaching the end of the most worrisome bubble of all: the standard-of-living bubble.
That conclusion comes from the latest data on credit card debt. It's growing fast, but the problem is bigger than that - and to understand what it means, we have to take a few steps back.
For the past several years, the average inflation-adjusted total pay of American workers hasn't been increasing. That means we haven't been building a foundation for increases in our living standard. You might be tempted to say that by definition our living standard couldn't have increased, but that's not quite right. Even with stagnant real incomes, we can always live a little better every year through borrowing and pretending that our living standard is still rising, just as it was for decades.
So the Great Bull Market made us feel rich, and we felt justified in saving less and borrowing - and spending - more.
After stocks collapsed, home prices took off, making us feel rich all over again. So we continued saving less and spending more, creating the illusion that our living standard was still rising. In 2005 our personal savings rate went negative, but even that didn't slow us down, because our homes were still appreciating - and rising home values meant that household net worths weren't declining. (Don't be fooled by that saving-rate spike in this year's second quarter; it was probably a one-time event resulting from the federal stimulus payments.)
Of course, we don't hear those assurances anymore. Stocks are back where they were eight years ago, and home prices are where they were five years ago. But personal debt is much higher than ever before, and average pay is still going nowhere in real terms. So now how do we live as if our living standard is still rising?
End of easy money
That's where the credit card reports come in. Last year, just as the subprime crisis happened, credit card debt took off. The home-equity ATM had been shut down, so people turned to the last source of easy money they had left, the most expensive debt on the menu, credit card borrowing.
Since credit card debt has been growing much faster than the economy - more than 8% in last year's third and fourth quarters and over 7% in May (the most recent month reported)- people are apparently using it as a substitute for income. Thus, for the past year or so we have still maintained the standard-of-living illusion.
But a big crunch is coming - and here's why. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup (C, Fortune 500), one of America's largest credit card lenders, just reported that it lost $176 million in the second quarter through securitizing such debt. That happens when the buyers of those securities observe rising delinquency rates and rising interest rates, and decide the debt is worth less than Citi thought. More generally, the amount of credit card debt that is securitized nationwide has plunged by more than half in the past five months because it's getting riskier. That means credit card issuers will be charging customers higher interest rates, and since the banks can't offload as much of the debt as before, they'll have less money to lend to cardholders.
The squeeze has already started, which is why Congress is in the process of passing the Credit Cardholders' Bill of Rights, which would prevent issuers from changing rates and terms without warning, among many other provisions. But bottom line, the credit card money window is going to start closing - and soon.
So now what? It's hard to see where consumers can turn next. Home prices seem highly unlikely to start rising again soon. Stocks? You never know, but the Great Bull Market looks like a once-in-a-lifetime event. Homes and stocks are households' biggest asset classes by far. There isn't much else to borrow against.
It may be that the standard-of-living bubble finally has to deflate. Sustainable increases in living standards have to be earned, not borrowed, and that means performing ever higher value work that can't be outsourced. We haven't been meeting that challenge very well; doing so will probably require much more and better education for millions of Americans, which takes time and money.
The result may feel like deprivation, but I don't see it that way. Who knows - we might even find that living within our means and saving a little money actually isn't so bad.
HOUSING RESCUE LAW
Bush signs housing rescue law
President enacts controversial measure that aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: July 30, 2008: 11:12 AM EDT
NEW YORK (CNNMoney.com) -- President Bush on Wednesday signed into law a sweeping housing bill that aims to boost the struggling housing market and bolster mortgage finance giants Fannie Mae and Freddie Mac.
The Senate voted 72-13 in favor of the bill on Saturday, after the House passed it three days earlier.
"We look forward to put in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac," said White House spokesman Tony Fratto. "The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes."
The new law, one of the most far-reaching on housing in decades, marks the centerpiece of Washington's efforts to address the nation's housing meltdown.
The legislation has two principal objectives: to offer affordable government-backed mortgages to homeowners at risk of foreclosure, and to bolster Fannie and Freddie with a temporary rescue plan and a new, more stringent regulator.
The White House last week reversed its long-standing threat to veto the bill. In fact, the administration still objects to parts of the legislation, including aid to states to buy foreclosed properties.
But the president decided to sign it since "oversight of the housing government sponsored enterprises (GSEs) and the new temporary authorities requested by [Treasury] Secretary [Henry] Paulson are urgently needed now, and they'll contribute to confidence and stability in housing and financial markets," Fratto said last week.
Helping at-risk borrowers
Provisions that will most directly affect consumers and communities include:
A larger role for the Federal Housing Administration. The FHA will be allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes' current appraised value.
The cost of the new FHA program - which would begin on Oct. 1 and be in place for just a few years - will be funded by fees from Fannie and Freddie, along with fees paid by both lenders and borrowers.
While the law authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO's assessment of who is likely to qualify under the program and accounts for a certain number likely to default anyway.
(Here are more details on this provision.)
A stronger regulator for the GSEs. The new regulator will have a greater say over how well funded the two government sponsored enterprises (GSEs) are - a major concern in the markets that has sent stocks in both companies plunging in the past two months.
A permanent increase in "conforming loan" limits. The law will permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,500 from $417,000.
The FHA maximum loan limits for high-cost areas would also increase to a maximum of $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because those mortgages are more likely to be traded if they are considered conforming.
A new home-buyer credit. The new law includes a tax refund for first-time home buyers worth up to 10% of a home's purchase price but no more than $7,500.
The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments.
A ban on down-payment assistance from sellers. The new law eliminates a program that has allowed sellers to provide down payment assistance for FHA loans.
The law would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.
A new affordable housing trust fund. The law establishes a permanent fund to promote affordable housing. The fund will be paid for by fees from Fannie and Freddie.
Grants to states to buy foreclosed properties. The law grants $4 billion to states to buy up and rehabilitate foreclosed properties. The White House has opposed such funding, contending that it will benefit lenders and not homeowners.
Bolster Fannie and Freddie
A late and controversial addition to the new housing law provides temporary authority for the Treasury to lend a financial hand to Fannie Mae and Freddie Mac if the Treasury deems it necessary to help stabilize markets.
Concerns over whether Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) will have enough money to weather future losses in the housing market has sent shares plummeting in recent weeks. Since the beginning of June, Fannie's stock price has dropped 55% and Freddie's plummeted 64%. For the past year, they're both down over 80%.
Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.
The law includes provisions that let Treasury offer Fannie and Freddie an unlimited line of credit and buy stock in the companies. The provisions expire in 18 months.
Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the companies could leave taxpayers with a fat bill to pay.
Treasury Secretary Paulson has said that merely having the powers in place may boost confidence in the two companies enough to preclude the need for Treasury to step in.
The Congressional Budget Office last week estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie's and Fannie's losses could cost the government $100 billion.
President enacts controversial measure that aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: July 30, 2008: 11:12 AM EDT
NEW YORK (CNNMoney.com) -- President Bush on Wednesday signed into law a sweeping housing bill that aims to boost the struggling housing market and bolster mortgage finance giants Fannie Mae and Freddie Mac.
The Senate voted 72-13 in favor of the bill on Saturday, after the House passed it three days earlier.
"We look forward to put in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac," said White House spokesman Tony Fratto. "The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes."
The new law, one of the most far-reaching on housing in decades, marks the centerpiece of Washington's efforts to address the nation's housing meltdown.
The legislation has two principal objectives: to offer affordable government-backed mortgages to homeowners at risk of foreclosure, and to bolster Fannie and Freddie with a temporary rescue plan and a new, more stringent regulator.
The White House last week reversed its long-standing threat to veto the bill. In fact, the administration still objects to parts of the legislation, including aid to states to buy foreclosed properties.
But the president decided to sign it since "oversight of the housing government sponsored enterprises (GSEs) and the new temporary authorities requested by [Treasury] Secretary [Henry] Paulson are urgently needed now, and they'll contribute to confidence and stability in housing and financial markets," Fratto said last week.
Helping at-risk borrowers
Provisions that will most directly affect consumers and communities include:
A larger role for the Federal Housing Administration. The FHA will be allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes' current appraised value.
The cost of the new FHA program - which would begin on Oct. 1 and be in place for just a few years - will be funded by fees from Fannie and Freddie, along with fees paid by both lenders and borrowers.
While the law authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO's assessment of who is likely to qualify under the program and accounts for a certain number likely to default anyway.
(Here are more details on this provision.)
A stronger regulator for the GSEs. The new regulator will have a greater say over how well funded the two government sponsored enterprises (GSEs) are - a major concern in the markets that has sent stocks in both companies plunging in the past two months.
A permanent increase in "conforming loan" limits. The law will permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,500 from $417,000.
The FHA maximum loan limits for high-cost areas would also increase to a maximum of $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because those mortgages are more likely to be traded if they are considered conforming.
A new home-buyer credit. The new law includes a tax refund for first-time home buyers worth up to 10% of a home's purchase price but no more than $7,500.
The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments.
A ban on down-payment assistance from sellers. The new law eliminates a program that has allowed sellers to provide down payment assistance for FHA loans.
The law would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.
A new affordable housing trust fund. The law establishes a permanent fund to promote affordable housing. The fund will be paid for by fees from Fannie and Freddie.
Grants to states to buy foreclosed properties. The law grants $4 billion to states to buy up and rehabilitate foreclosed properties. The White House has opposed such funding, contending that it will benefit lenders and not homeowners.
Bolster Fannie and Freddie
A late and controversial addition to the new housing law provides temporary authority for the Treasury to lend a financial hand to Fannie Mae and Freddie Mac if the Treasury deems it necessary to help stabilize markets.
Concerns over whether Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) will have enough money to weather future losses in the housing market has sent shares plummeting in recent weeks. Since the beginning of June, Fannie's stock price has dropped 55% and Freddie's plummeted 64%. For the past year, they're both down over 80%.
Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.
The law includes provisions that let Treasury offer Fannie and Freddie an unlimited line of credit and buy stock in the companies. The provisions expire in 18 months.
Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the companies could leave taxpayers with a fat bill to pay.
Treasury Secretary Paulson has said that merely having the powers in place may boost confidence in the two companies enough to preclude the need for Treasury to step in.
The Congressional Budget Office last week estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie's and Fannie's losses could cost the government $100 billion.
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