Saturday, June 13, 2009

Are you responsible for your late parent's debts?

By Erica Sandberg

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of Expecting Money: The Essential Financial Plan for New and Growing Families.

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Question for the expert

Dear Opening Credits,
I was on the phone just now with my father's credit card company. I was asking about the "credit protection" that all credit cards seem to have these days. Customer service stated if I remove this from his account and he gets sick or dies, I would be responsible for his bill. (They stated that all credit card debt is passed onto the children.) I am not on ANY of my father's accounts, but I do believe I am the executor of his will. Will that make a difference? I am having a hard time believing that this is happening or even legal. Can you please let me know? -- Sherri

Answer for the expert

Dear Sherri,
I, too, am aghast at the proposition that you'd be held responsible for your father's post-mortem credit card bills! Unlike in medieval times, liabilities are not passed down by bloodline until some relative finally scrapes up the cash. In fact, the very idea smacks of bonded labor (or debt bondage), where children may be forced to work off their parents' debts, an ancient practice that's been against international law since the United Nations banned it in 1956.

I'll give that customer service representative the benefit of the doubt, though, and assume the rep was confused about the law and not deliberately trying to mislead you.

Simply put, if neither you nor anyone else is a co-signer on your father's accounts, whatever balances he has are his alone. If Dad passes away while still owing money to the banks, the remaining sum will come out of his estate -- assets and property at death -- and be directed to his creditors. In the event there is no estate, the debt will depart with him. Your role as the will's executor may provide you with some power in determining the order of how his liabilities are paid, but it certainly won't make you personally accountable for imbursement.

For confirmation of this, I asked Los Angeles attorney Christopher Missick, author of the consumer bankruptcy book "Begin Again," to comment on your situation. "Of course, it varies based upon what state you live in," says Missick, "but generally, there is no legal obligation to assume the debt of a deceased loved one, if in fact, you were never a party to that debt. The only recourse the creditor may have is to seek payment from the estate. As the executor of the estate, there will be a responsibility to settle the debts of the estate and distribute the assets accordingly. A violation of the fiduciary duty as executor may lead to other legal issues, but generally, she shouldn't worry about inheriting credit debt."

Therefore, you had difficulty believing that you'd be held responsible for your parent's debt because the very prospect makes no sense. It's nice to know your gut reaction is correct, isn't it?

Of course, it varies based upon what state you live in, but generally, there is no legal obligation to assume the debt of a deceased loved one, if in fact, you were never a party to that debt.

-- Christopher Missick
Author, bankruptcy expert

And now for the credit protection issue. These insurance products protect cardholders against financial and credit report damage caused by unemployment, illness and even death. If your dad experiences an inability to pay that meets the policy's specific criteria, his monthly payments and interest charges would be suspended for a set time period. As you noted, most credit card companies offer these plans to their customers. The reason they are heavily promoted is because they are a good source of revenue for credit issuers. Cardholders are not required to purchase them, however, and are free to drop them at will.

Now, the idea behind credit protection plans is fine, but you are also right to question their real-life merits. For more than a decade, I have spoken to people in debt. I have rarely come across a case where credit protection worked to a distressed borrower's advantage. For the monthly fee one pays, there are usually too many restrictions to make them worth the cost.

You didn't mention why you are involved with your father's financial affairs at this moment, but if you are beginning to assume control because he cannot manage them himself, I urge both of you to seek legal counsel before you get too deeply involved. Setting clear boundaries and expectations is always helpful in these situations.

I hope by this point you've stopped worrying, Sherri. The next time you speak with a credit card company employee who is telling you something you know to be incorrect, be sure to politely vocalize your understanding of your rights and responsibilities. And if the mood strikes, go ahead and share the history of bonded labor and debt repayment law, too. It's fascinating stuff.

Finding rewards cards with local customer support

By Randy Petersen

Cashing In
Cashing In, Randy Petersen
Randy Petersen is editor and publisher of Inside Flyer, which is considered the leading publication in the world about frequent traveler programs. At, he writes Cashing In, a weekly feature in which he answers readers' questions about credit cards rewards programs.

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Question for the expert

Dear Cashing In,
I am searching for a great travel rewards credit card that has customer support based in the United States. I have great credit, and need a high balance. I think I'd prefer miles, but don't fully understand the points system. Thanks. -- Amy

Answer for the expert

Dear Amy,
There has certainly been a number of concerns from various credit cardholders over the past few years in the area of global customer support. As a result, some of those companies are now rethinking their customer support deployment. In fact, just recently, Delta canceled its contract for offshore customer support following continued negative customer feedback.

Many companies started outsourcing customer support calls to other countries, citing the economic challenges after the Sept. 11 terrorist attacks. Other industries, notably technology companies, have tried with spotty success to rely on outsourced customer support for many years. You are not alone in making such a request, and in this case, requiring it. There's no question that customer support outsourcing is a volatile issue, and while it can touch upon social, economic and labor issues, it really is more often an issue of just knowledgeable customer service.

Based on your question, the first travel rewards credit card program that popped into my mind to recommend to you is the American Express Membership Rewards program. For whatever reason, I seldom hear many complaints about the level of customer support for this credit card and its ensuing travel rewards program. Based on the experience of thousands of program members, most -- if not all -- of the customer support is based in the United States.

American Express is certainly a friend to those with great credit since its cardholders are often given higher credit lines. So, it seems to be a perfect fit. Plus, you might be aware that you can move upward in their credit card offerings (Gold Card to Platinum Card to the Centurion or Black Card) and still retain the same consistent benefits of the membership rewards program.

In case you are wondering why I would recommend the membership rewards program versus a mileage-based or other travel rewards card, let me explain. I want to recommend a program where you would be exposed to various options of miles and points. While there are often distinct advantages of credit cards directly attached to an airline (a miles-based program), I thought it best to provide you with a program that will allow you to learn what types of rewards you actually want and need from a travel rewards program.

I often see members get in the wrong program because they haven't had enough experience and time to really decide what it is they want. If there is one thing that the AmEx Membership Rewards program can do for you is to highlight and offer you just enough choices for you to learn what it is you want. Just like you explained how you were looking for a travel rewards credit card with domestic customer support and high credit limit, I think that after a year with this rewards program, you can then seek additional advice because by then you should know exactly what you want and enjoy from travel rewards.

Hope this makes sense and to learn more, visit American Express.

Update: Chase just announced a new comprehensive miles and points program called Ultimate Rewards. As with any new program, it will take some time to determine the best use of value, and while it is certainly positioned as a worthy competitor of Membership Rewards, there's nothing in my advice that would cost you any newfound travel rewards. Once you begin to feel a bit more comfortable with miles versus points versus personal options, we will revisit.

Capital One launches nonprofit card program

Capital One Financial Corporation announced June 2 the launch of Card Lab Connect, a program to help nonprofit organizations of all sizes expand the ways in which their card-carryinhg supporters can donate to charity programs.

Capital One said it tailored the Card Lab Connect program to help nonprofits with their fundraising programs. Through an online tool, cardholders can register for the program, create a custom design and market their affinity cards toward their supporters. All rewards earned on the cards, including 1 percent of net purchases, are donated directly to the nonprofit organizations. Organizations also receive an automatic $25 donation with each new account opened.

"In the current economic climate, nonprofit organizations are facing a dual challenge of increased need and tightened budgets, and these issue are amplified for smaller nonprofits " Capital One said in a press release. "Cash-strapped consumers are finding it more difficult to provide ongoing support." Capital One cited its 2009 Card Lab Connect Charitable Giving Survey, in which 57 of respondents said they had been unable to make donations of the same size as previous years because of their own financial difficulties. According to Capital One, only 34 percent of Americans said they planned to support local organizations in 2009, a 27 percentage point plunge from 2008.

Hit with an APR hike? Keep the card or cancel?

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I have a credit card that I've had for many years with a $30,000 limit at a fixed 7.9 percent interest. Currently, I have no balance on this account. I have impeccable credit. Today I received notification that the interest rate on this card will go to a variable rate in July with an interest rate of 17.9 percent. Is this legal? -- Marlene

Answer for the expert

Dear Marlene,
As of this week, yes, it is legal to raise interest rates on a credit card account for no reason. Many, if not most, credit card agreements currently have a clause known as "universal default." This clause allows the card issuer to raise the interest rate on the account if you are late with a payment to any creditor -- even if you have never been late with your credit card payment and otherwise met your end of the deal with the issuer.

The good news for consumers is that soon universal default and other unfriendly credit card issuer practices will end. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 was signed into law by President Obama on May 22, 2009. The bad news is that the bulk of the law's provisions will not take effect until the end of February 2010.

So from now until early 2010, consumers will need to keep a close watch on their credit card accounts. Review carefully any correspondence from your credit card issuer(s) and be prepared to make decisions on how or if to act.

I would recommend that you consider the following:

  • Most card issuers will give you the option to opt out of any changes to your cardholder agreement. If you choose to opt out, the account is closed by the issuer and you can then repay any balance under the current terms. Keep in mind that if the account is one of your oldest credit accounts, closing it could negatively affect your credit score. If you are not carrying a balance on the card and the account is a longstanding one, you might consider leaving it open under the new terms and using it occasionally for minor purchases, so you retain access to the credit line.
  • Keep a close eye on your credit limits. Creditors are not required to notify you of a change in your credit limit, although many do. If you carry a balance on an account where the credit limit is lowered, it could also lower your credit score due to an increase in your credit-used-to-credit-available ratio, also known as the credit utilization ratio. For accounts that you are currently using to make purchases, double check each statement for any changes to ensure you don't go over the limit and incur costly fees.
  • Be prepared for changes in annual fees. For those cards without an annual fee, you may receive notice that a fee will now be assessed. For those with an annual fee, you may receive notice that the fee has increased.
Also, keep close track of any rewards and points programs. You might consider cashing in now, because the programs may change or be discontinued after the new law takes effect.

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Experian: High credit score increases likelihood of ID theft

Good credit easier to steal, because you're more likely to be approved

By Jeremy M. Simon

Having a high credit score makes it easier -- and cheaper -- for you to borrow money. But a new report from credit bureau Experian reveals that a high score also makes it easier for identity thieves to secure stolen credit in your name.

The higher your credit score,
the higher the risk of ID theft

The graph shows rates of ID theft in relation to the victim's VantageScore credit score.

The higher your credit score, the more likely you are to be a victim of ID theft

"What we can say is consumers with high credit scores tend to get approved for accounts on a more regular basis," says Heather Grover, senior director of product management with Experian's Fraud and Identity Solutions group in Costa Mesa, Calif. Apparently, when fraudsters use the identifying information from these consumers, they, too, are more likely to get approved for credit.

Higher score helps ID thieves
In its first-ever study looking at credit scoring and fraud, Experian's market insight snapshot uncovered a "significant connection" between high credit scores and becoming a victim of identity thieves. Based on the credit bureau's analysis, "the occurrence rate of identity fraud rises dramatically as credit scores increase." Experian says it has no data to suggest that ID thieves specifically target those with higher credit scores.

For its study, Experian analyzed more than 800,000 records from 2007 and 2008, including data provided by bank card issuers, retail card issuers, retail banks, mobile phone providers and utility companies. Both businesses and borrowers identified instances of fraud. These instances included examples of fraud "tagged" by businesses, as well as self-reported cases -- when the consumer told the business, "I don't have an account with you. I've never applied for a credit card," says Grover.

Experian considered its own VantageScore, rather than the more popular FICO score, when crafting the report. VantageScore was launched in March 2006 and is a joint venture between the three major credit bureaus -- Equifax, Experian and TransUnion. For its study, Experian defined identity theft as "any event in which a third party used the identity of another consumer" to gain access to money or services.

Fraud breakdown by VantageScore
The bulk of ID theft impacted the best borrowers. VantageScores range from 501 to 990, with a higher score indicating lower risk to lenders. Experian says the average VantageScore for U.S. borrowers is 769. Just under half of all identity fraud occurred among the segment of borrowers with a VantageScore of 815 or higher. Additionally, the top 10 percent of borrowers (VantageScores of 881 and above) accounted for almost 30 percent of detected identity theft.

That's because cheaters are most likely to pass when they target the smartest kids in class. "That range -- the 881 and above -- would be 'B+' and 'A' credit risk," Grover says.

Meanwhile, consumers with poor credit tended to be victimized less frequently by fraudsters. Borrowers in the bottom 20 percent of the sample group (VantageScore of 556 and below) only suffered 4 percent of detected identity theft.

Higher score means easier credit for fraudsters
Just as a high score enables a borrower to more easily qualify for credit, an identity thief who uses a high-score borrower's personal information to fraudulently apply for credit is also more likely to qualify. According to Experian, "just as in cases of legitimate activity, an application for credit is more likely to be approved when the applicant has a high credit score rather than a low credit score."

Just as in cases of legitimate activity, an application for credit is more likely to be approved when the applicant has a high credit score rather than a low credit score.

-- Experian

On the flip side, identity thieves who apply for credit using the information of those with lower credit scores are more likely to get rejected. "In essence, those with lower credit scores may be relatively safe from identity fraud simply because their scores are likely to be a barrier to entry in opening a credit-based account, such as a credit card or a loan," Experian says.

Preventing ID theft
Experian says that both consumers and businesses need to take steps to prevent fraud. "Having both in place is the best solution," Grover says. While businesses need to establish systems to make sure consumers are who they say they are, Experian recommends that borrowers:

  • Be careful about who they provide personal information, including not providing personal information over the phone unless they have initiated the call.
  • Shred documents that contain both financial and other sensitive information.
  • Regularly check credit reports with the three major U.S. credit bureaus.
  • Enroll in credit monitoring to be notified of any charges to their credit report.

ATM provider releases list of safety tips

ATM service provider PULSE has released a list of tips for protecting customers while using debit cards at ATMS and point-of-sale (POS) terminals.

PULSE's release coincides with the beginning of June, which the company has decreed to be ATM and Debit Card Safety Awareness Month, during which consumers are advised to quard against identity theft, fraud or even physical assault while using an ATM, POS terminal or their own computer.

"Debit continues to be a convenient and secure way to make purchases and informed consumers can take an active role to minimize risks associated with these transactions," the company said in a press release.

Steve Sievery, PULSE senior vice president, echoed the need for safety while using an ATM. "ATM withdrawals, cash back during point-of-sale transactions and PIN-based purchases are convenient ways to spend and access your money whenever you need it," Siever said. "However, any time you conduct a transaction, whether it's with a debit card or cash, it is always a good idea to take precautions to protect yourself."

Among PULSE's tips are that ATM users should:

  • Protect personal identification numbers (PINs) by memorizing it, and never writing it on your card, storing it with your card or letting someone else enter it.
  • Survey surroundings for any suspicious activity before withdrawing money.
  • Avoid ATMS that are obstructed from view or poorly lit.
  • Look for unusual looking card slots, damage or plastic overlays on the PIN pad, which could be a sign of tampering by criminals.
  • Report a lost or stolen card to keep it from being used and to limit their liability.
  • Take another person with you to an ATM whenever possible, especially if at night.
  • Never provide their PIN, card number or personal information in response to an e-mail.
  • Never let a stranger assist you with an ATM or count your money at the ATM.
  • Regularly check your account statements for unauthorized transactions.

PULSE also provides a list of safety advice on its Web site.