Stupid Credit Tricks

By Dayana Yochim
The Money Fool
June 29, 2004

According to Bank One (NYSE: ONE), Citibank, PayPal, Fleet, and eBay (Nasdaq: EBAY), my accounts have been compromised; for this egregious wrong to be righted, I need to check in with each immediately to provide my Social Security number and other identifying information.

This whole ordeal would be quite alarming -- if I had ever done business with any of these companies.

Perhaps you've gotten a few such emails (or, like me, found 13 in your inbox after a weekend away from the computer). Netizens have a name for the latest in e-fraud: "phishing." The ruse is elaborate: The crooks copy a legitimate institution's logo, create convincing websites, and compose corporate-sounding emails that are sent out en masse. (Spell-checkers, apparently, are not part of the spammer's e-arsenal.) The unfortunate few who click the handy URL provided are spirited to a fake corporate website and prompted to disclose personal data. With these few key pieces of information, the crooks then open lines of credit (or access existing ones) in the victim's good name.

The scam is pervasive. As I finished typing the previous paragraph (and I'm being 100% truthful, folks), the envelope icon alerted me to the arrival of the following note from "US Bank":

During our regular update and verification of the Internet Banking Accounts, we could not verify your current information. Either your information has been changed or incomplete, as a result, your access to use our services has been limited. Please update your information. To update your account information and start using our services, please click on the link below.

I know someone is falling for this line (why else would my deleted items folder be clogged with growing numbers of phishing attempts?). Do I have to repeat the warning?

I guess I do. Here's the Golden Rule of doing business in the 21st century that will protect you from the majority of bad guys out to sully your good name and credit record. Do not disclose personal information unless you are 128% sure that the inquiry is legitimate. For those still fuzzy on the dictum, personal information includes your Social Security number, any password you have ever had, your address, your digits, your mother's maiden name, an account number, your favorite color, shoe size, pet name for your significant other -- a-n-y-t-h-i-n-g. When in doubt, pick up the phone (remember this device?), and call the institution directly to verify.

This lecture would be over, except for one important point: Sometimes you have to protect yourself from the good guys, too.

Keep your eye on the dealer
Before you shed a tear for the phishy business plaguing Bank One and its ilk, let's take a look at the legitimate offers extended by our nation's fine lending institutions.

Want an increased line of credit? Sure you qualify (even though you're up to your ears in debt). Your banker thanks you for making those minimum payments (and not one penny more) on time. Your "business" (translation in lendingspeak: your hefty interest payments) puts a smile on Fleet's face.

Convenience checks put a kick in Citibank's step. No wonder: Interest starts accruing immediately on those balances. So here's a blank check for that new pair of Jimmy Choos you've been eyeing. Go ahead and don those heels -- you deserve it.

What makes MBNA's (NYSE: KRB) day? Credit insurance. Don't bother doing the math. Because, really, isn't peace of mind worth overpaying for?

I'm not singling out Bank One, Fleet, Citibank, or MBNA. Sleight of hand is status quo for the entire lending industry. Heck, even my friendly bank teller is trying to get me to sign up for her credit card. Banks are in business -- and they must turn a profit to survive. With rock-bottom interest rates and a savvier customer base card-hopping to get the best deal, they're relying on fees to pay to keep the lights on.

Boy, are we paying the price, though. In 1995, customers paid on average $20 when they messed up. Fee revenues in the industry were just $8.3 billion. Last year, the industry reaped an all-time high of $24 billion in late fees, over-limit fees, activation fees, and annual fees. Today, customers pay 134% more for their foibles (up to $45) than in 1994. Income from penalty fees was a whopping 33% of profits last year.

How about those fraud protection promises being touted on TV? Sorry to burst your bubble, but it's not your identity lenders are graciously protecting. It's their bottom line: Billions of dollars are lost every year because of credit card fraud. You can bet the house that bankers are doing something about it -- and creating clever ad campaigns to make you feel like they've got your back.

The finger wagging doesn't stop here, I'm sorry to say.

Stupid human tricks
If you're looking for a fall guy for the state of America's finances, better take a gander in the mirror. At the end of last year, U.S. households had $10.4 trillion in outstanding debt, and one out of every 73 filed for bankruptcy. The Commerce Department reports that our personal savings rate is a wafer-thin 1.8%. As a nation, we're borrowing money at a record clip to pay for a lifestyle well beyond our means.

I don't care what the Joneses have parked in their garage. Evidently, a lot of other people do. On average, we carry eight credit cards per person and have a balance of $8,400 in credit card debt. Twenty percent of our cards are maxed out, reports, which tracks the lending industry's machinations. And just 40% of Americans pay off their accounts in full at the end of the month. The average line of credit is around $3,500. (A decade ago, it was just $1,800.) The average household pays its lender $1,000 a year in finance charges.

It's not just that we're borrowing more money and paying it back more slowly; it's that we're spending money we used to consider off-limits. Home equity loans are more popular than ever as people borrow against their home to feed their spending binge. Today, average homeowners owe nearly 50% of their home's value. Twenty years ago, that figure stood at 30%.

Succumbing to human nature costs a bundle: whipping out the plastic because it feels like "free money"; paying for ID theft protection without reading the fine print; putting off paying your bills because the big game's on.

So perhaps I should modify my Golden Rule of credit protection. Do not disclose personal information unless you are 128% sure that the inquiry is legitimate -- and think twice about that "must-have" purchase before you put it on plastic.

Now please excuse me while I deal with "Citibank's" request for me to "click on the link below and enter in the small window your Citibank Debit Card number and PIN that you use on ATM."








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