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Wells Fargo to Report Profits

This past Thursday, Wells Fargo released a surprising first quarter earning report that displayed profits, mirroring what Citi Financial profit reports stated a few weeks ago.  Stocks of Wells Fargo surged to their highest level in 2 months, shooting way past the expectations of financial analysts.  More specifically, Wells Fargo reported that it expects earnings of approximately $3 billion for its first quarter; The Dow rose 246.27, or 3.1 percent, on Thursday to 8,083.38.  According to information released on Forbes.com, “the profit forecast of 55 cents a share is more than double the Street’s consensus estimate.”

You may be wondering how Wells Fargo doing so well amidst the recent credit crisis that America faces?  They have stated that acquiring Wachovia has achieved better results than previously anticipated.  Wachovia has contributed approximately 40 percent of its total revenue, which comes to $20 billion.  Many believe this may be a sign of better times to come for the banking industry, which means better times to come for the people of America.

Wells Fargo’s CEO, John Stumpf, commented that “Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group.”

These profits have sent waves of encouragement throughout Wall Street during an otherwise relatively quiet week; this type of positive news has been rare during these tough economic times.   The hope is that Wells Fargo’s success this first quarter will spill over to other banks as well.  Furthermore, The New York Times reported that all 19 banks would pass federal regulators’ ongoing “stress tests”; the objective of this government-imposed test is to estimate how banks would hold up if the economy were to crash even further.

So what does this mean for consumers with regard to loan financing options?  Wells Fargo earned good fees; simultaneously, low interest rates drove 450,000 customers to either purchase new homes or to refinance existing loans.  Doing so has successfully lowered people’s monthly payments.  As a result of the Wachovia acquisition, along with an increase in the number of mortgage applications, the low amount of borrowing activity is likely to increase.

Furthermore, The Federal Reserve has helped reduce mortgage interest rates by buying lots of the Fannie and Freddie-backed loans packages.  President Obama echoed the widespread enthusiasm, stating that “A lot more people can take advantage” of the refinancing program.  He also urged Americans to find out if they are eligible at the website www.makinghomeaffordable.gov

Credit Card Regulations – Senator Dodd’s Push

In response to the financial crisis, Americans need to be well-aware that changing our frivolous spending habits is crucial; however, this week, Congress is holding credit card companies responsible for their practices as well.   Consumers are subject to credit card companies’ terms and conditions upon signing their detailed agreements; however, what happens to consumer rights when these credit card companies change terms at their own discretion?  The results have proved disastrous for everyday Americans’ bank accounts, as abusive credit card practices find new ways to create endless amounts of monthly fees.

Credit Card Companies’ Abusive Practices

To understand both the importance and potential impact of laws that protect consumers against credit card companies, it is crucial to be aware that credit card rates change unexpectedly.  Fees often appear on your monthly statement out of nowhere, even when you pay your bills on time and have made serious efforts to be in good credit standing.  These companies raise interest rates and dramatically cut credit limits, with little or no regard for how these changes affect loyal customers.  Struggling consumers are left with a large bill and little support-until now.

Senate Banking Committee Approves Bill to Regulate Credit Card Companies

Good news: the Senate Banking Committee, led by Chairman Senator Chris Dodd of Connecticut,  approved legislation that will begin the fight against unfair credit card company practices.  Below is what was outlined in the bill:

  • “Protect consumers from “any time, any reason” interest rate increases and account changes.”
  • “Prohibit unfair application of card.”
  • “Protect cardholders who pay on time.”
  • “Limit abusive fees and penalties.”
  • “Prohibit issuers from using a consumer’s card history with another creditor to raise interest rates.”
  • “Prohibit issuers from charging interest on debt that has already been repaid.”
  • “Ensure that cardholders are informed of the terms of their account.”
  • “Protect young consumers from aggressive credit card solicitations.”

What will the Credit Card Accountability, Responsibility, and Disclosure Act do for Everyday Americans?

This bill will give a voice to consumers that goes beyond the 24/7 customer support that most credit card companies offer.  The consumer’s voice will now have legal backing, as the government is taking the first step to acknowledge the role credit companies have played in the US financial crisis.  According to The Consumer Federation of America’s Legislative Director Travis Plunkett, “Congress is taking a strong stand against the traps and tricks that many credit card companies use to increase their profits at the expense of financially vulnerable consumers.” With a July 1, 2010 deadline to implement the bill’s outlined changes, Americans can begin to feel good about the progress we are making towards fixing the credit crisis.  The crisis certainly cannot be fixed overnight, but bills like this make accountability a priority for both businesses and consumers.  With legal backing, credit card companies will be forced to take an active role in getting our economy back on track.

What Does the Latest HSBC News Mean for Me?

Europe’s largest bank, The Hong Kong and Shanghai Banking Corporation (HSBC), announced that it will scale back its US lending as a result of failed sub prime mortgage investments.  Coming off of their worst quarter ever, HSBC will be eliminating 6,100 jobs nationwide by closing all 800 of its Household Finance & Beneficial Offices here in the US.

So what happened to HSBC’s profits?  In 2007, HSBC reported profits of $19.1 billion.  Their 2008 profits came in at a much less $5.7 billion.  Unable to predict the deterioration of the US economy, HSBC purchased Household International six years ago for $14 billion.  This purchase made HSBC the largest subprime mortgage lender in the US.  Forming the Household Finance & Beneficial offices, this unit began lending money to borrowers that did not have strong credit history.  What was predicted to be a successful and profitable acquisition turned ugly in 2008, when consumer loans considered 60 or more days delinquent rose dramatically from 7.7% to 12.5%.

Stephen Green, group chairman for HSBC, stated that “In light of this, we have taken the difficult decision that, with the exception of credit cards, we will write no further consumer finance business through the Household Finance and Beneficial brands in the U.S., and will close the majority of the network.”

In official statements, HSBC has promised that despite the halt on its consumer lending practices, it will continue to help its current customers pay off their loans, helping them avoid foreclosure.

What does this mean for me?  Green also vowed that HSBC is “not turning our backs on the US“, as they will continue to issue and promote credit cards.  Simply stated, this is good for consumers!  The credit card HSBC is bringing back, Orchard Bank card, is their subprime card for bad credit borrowers.  Originally pulled from the web on December 1st of 2008, it is available again for consumers.  With the lowest rate among subprime cards, HSBC’s Orchard Bank Card does not have outrageous upfront fees to pay. This card is designed for people who are looking to rebuild their credit.

To sum it up: HSBC’s decision to discontinue its consumer lending business actually benefits the millions of consumers who are looking to re-establish a strong credit history.  It is important to remember that you have many options when choosing a credit card company, as companies like HSBC promote specific credit cards to help people with poor credit.  Check out sites like Credit.com to learn more about the various credit card options you have as a consumer.

Loan Fraud: How to Protect Yourself From Fake Lenders

With Consumer Protection Week wrapping up today, we wanted to focus our third article in this series on how to protect yourself from financial scammers.  The fact of the matter is there are a lot of crocks out there looking to scam you out of something as sensitive and as serious as your finances.  We feel that the conclusion of consumer protection week is an especially appropriate time to advise you on how you can steer clear of Loan Scams and Fake Lenders.

How do Loan Scams Work?

The scam usually starts with a fake lender sending you an offer in the mail.  The scammers often reference a well-known name of a legitimate lender to reel people in.  After all, if they mention that they are affiliated with a company that you know is legit, they must be for real, right?  WRONG!  Here is how they manipulate victims day after day using their well thought out tactics:

1.      You respond to a letter or email you get that offers you a loan.

2.      Within the email or letter, you are asked to call a “third party consultant” that will get your application started.

3.      During this phone call, you are asked to give your personal information, such as your date of birth and social security number-then suddenly, after quickly assessing your information over the phone (or so you think), your loan is magically approved!

4.      The scammer will then either fax a bogus loan package to the person or will ask them to visit a website, where they will enter their bank account information.

5.      Lastly, the person is asked to wire an advanced payment to the scammer.

6.      Boom-the fake lender disappears into thin air, with all of the person’s personal information-and their advance payment.  They never receive a loan, and are left with nothing but an emptier bank account and a stolen identity.

Signs You are Working with a Fake Lender

There are certain things a legitimate lender will never do.  Below, we list things that should raise a huge red flag:

  • They contact you – legitimate lenders will not be harassing you via email or via mail.
  • They guarantee your loan will be approved, no matter what – this isn’t realistic! If you hear these words, run for the hills! No legitimate lender will ever make this guarantee up front. The background check legit lenders perform includes checking your credit and contacting your references. It is simply impossible to approve a loan over the phone that quickly!
  • They ask for advance payment to an individual – legitimate lenders will not ask for an advance payment, especially not to an individual person.
  • They direct you to a website to enter more personal information – these scammers often imitate legitimate loan websites, stealing logos and information. When the window appears, it actually takes you to Microsoft’s website. Be sure to type the correct url into the window yourself to see if the website is legit.

How to Protect Yourself from Loan Fraud

Now that you are aware of the red flags to watch out for when it comes to fake lenders and loan scams, it is important to be aware of the additional things you can do to protect yourself.

  • Subscribe to an identity theft protection service: If you believe you may have mistakenly fallen for one of these scams, as many consumers do, it is crucial to subscribe to an identity theft prevention service. If you have handed over personal information, you can be sure these scammers are taking full advantage of possessing your personal information. These identity theft services will run a check to see where your personal information is being used, and will help resolve any issues they may find.
  • Do your homework-comparison shop: If you need a loan, do your research. Look online to see what other consumers are saying about the legitimate lenders they have worked with. The time you take to investigate will help you learn about specific experiences other consumers have had with lenders. Talk to your friends, ask people at your work-get a referral from someone you trust. Don’t sell yourself short by responding to an email or letter from a potential fake lender-it will cost you in the end!