Regulators Focus on Access to Checking, Your Key to Stable Finances

Blunders from your past could come back to haunt you when applying for a checking account. Banks and credit unions can reject consumers based on specialized reports that track everything from your credit score to your banking history, including past bounced checks and overdrafts. And that has drawn scrutiny from federal regulators concerned about unfair exclusion from the mainstream financial system.

Around 200 million Americans use checking accounts, the Consumer Financial Protection Bureau says. But this screening process effectively creates a blacklist, one that in 2011 contributed to the 34 million people who remained unbanked or underbanked, according to the Federal Deposit Insurance Corp.

Unflattering information

More than 80% of banks use these special reporting services to decide whether to let someone open a checking or savings account, according to the National Consumer Law Center in Boston. Often, the reports contain unflattering financial information most consumers would rather forget, such as past non-sufficient funds situations and overdrafts.

“I think both of those combined is one of the root problems that are causing people to get screened out of their bank accounts and end up in the alternative system, where they’re much more vulnerable,” says Nancy Yuill, executive director of Innovative Changes, a nonprofit community development financial institution in Portland, Oregon. The group helps low-income consumers improve their finances and avoid the alternatives Yuill cites.

They can include buying money orders to pay bills, using check-cashing stores to obtain cash and payday lenders to make ends meet, moves that can spin them closer to financial trouble, according to a U.S. Postal Service study of the nation’s unbanked. It says consumers spent about $89 billion on interest and fees related to alternative financial services in 2012 alone.

Not credit reports

Separate from the traditional credit data compiled by TransUnion, Equifax and Experian, the specialized reports in question come from organizations like Early Warning and Chex Systems. As with credit reports, consumers are legally entitled one free copy each year and each time a report is used against them. Consumers can dispute information that they believe to be incorrect by appealing to the reporting agency, the FDIC says.

Low-income consumers are disproportionately screened out of checking accounts, Yuill says. As they tend to move frequently in search of affordable housing and job opportunities, bank statements and even bills don’t always follow in a timely way. That can lead to a cyclical trap where people struggling to pay rent or buy food incur overdraft fees and wind up shut out of the banking system. It doesn’t have to be this way, she says.

“If someone’s in that situation now, I suggest they look local,” Yuill says. “Look for local community banks and local credit unions that are going to listen and give them a chance to explain their situation and give them a chance to try again.”

Regulatory focus

The consumer bureau is spearheading efforts to ensure the accuracy of data collected by specialty consumer reporting agencies (CRAs) and to make it easier for consumers to review and correct their reports. Currently there are inconsistencies between various CRAs and financial institutions, which aren’t aligned on how information is compiled and used.

“We are seeking, in particular, to explore ways that account screening can move beyond the use of specialized consumer reports as crude “blacklists” where consumers are turned down for an account simply because their name appears on the list,” Richard Cordray, the bureau’s director, said in a statement prepared for an Oct. 8 forum on access to checking accounts.

Consumers may not even know the specialized reports exist until they are denied a checking account because of the information they contain.

“A consumer who had an account closed and goes to open a new account at another institution may be utterly unaware of how his or her application will be judged,” Cordray said.

So if you’re looking to open a checking account soon and your financial history could be described as checkered, be prepared to dive into your past to remedy mistakes before you face a nasty surprise.

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Regulators Focus on Access to Checking, Your Key to Stable Finances

Blunders from your past could come back to haunt you when applying for a checking account. Banks and credit unions can reject consumers based on specialized reports that track everything from your credit score to your banking history, including past bounced checks and overdrafts. And that has drawn scrutiny from federal regulators concerned about unfair exclusion from the mainstream financial system.

Around 200 million Americans use checking accounts, the Consumer Financial Protection Bureau says. But this screening process effectively creates a blacklist, one that in 2011 contributed to the 34 million people who remained unbanked or underbanked, according to the Federal Deposit Insurance Corp.

Unflattering information

More than 80% of banks use these special reporting services to decide whether to let someone open a checking or savings account, according to the National Consumer Law Center in Boston. Often, the reports contain unflattering financial information most consumers would rather forget, such as past non-sufficient funds situations and overdrafts.

“I think both of those combined is one of the root problems that are causing people to get screened out of their bank accounts and end up in the alternative system, where they’re much more vulnerable,” says Nancy Yuill, executive director of Innovative Changes, a nonprofit community development financial institution in Portland, Oregon. The group helps low-income consumers improve their finances and avoid the alternatives Yuill cites.

They can include buying money orders to pay bills, using check-cashing stores to obtain cash and payday lenders to make ends meet, moves that can spin them closer to financial trouble, according to a U.S. Postal Service study of the nation’s unbanked. It says consumers spent about $89 billion on interest and fees related to alternative financial services in 2012 alone.

Not credit reports

Separate from the traditional credit data compiled by TransUnion, Equifax and Experian, the specialized reports in question come from organizations like Early Warning and Chex Systems. As with credit reports, consumers are legally entitled one free copy each year and each time a report is used against them. Consumers can dispute information that they believe to be incorrect by appealing to the reporting agency, the FDIC says.

Low-income consumers are disproportionately screened out of checking accounts, Yuill says. As they tend to move frequently in search of affordable housing and job opportunities, bank statements and even bills don’t always follow in a timely way. That can lead to a cyclical trap where people struggling to pay rent or buy food incur overdraft fees and wind up shut out of the banking system. It doesn’t have to be this way, she says.

“If someone’s in that situation now, I suggest they look local,” Yuill says. “Look for local community banks and local credit unions that are going to listen and give them a chance to explain their situation and give them a chance to try again.”

Regulatory focus

The consumer bureau is spearheading efforts to ensure the accuracy of data collected by specialty consumer reporting agencies (CRAs) and to make it easier for consumers to review and correct their reports. Currently there are inconsistencies between various CRAs and financial institutions, which aren’t aligned on how information is compiled and used.

“We are seeking, in particular, to explore ways that account screening can move beyond the use of specialized consumer reports as crude “blacklists” where consumers are turned down for an account simply because their name appears on the list,” Richard Cordray, the bureau’s director, said in a statement prepared for an Oct. 8 forum on access to checking accounts.

Consumers may not even know the specialized reports exist until they are denied a checking account because of the information they contain.

“A consumer who had an account closed and goes to open a new account at another institution may be utterly unaware of how his or her application will be judged,” Cordray said.

So if you’re looking to open a checking account soon and your financial history could be described as checkered, be prepared to dive into your past to remedy mistakes before you face a nasty surprise.

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Are Cash Advances a Good Idea?

Every once in a while, we find ourselves needing cash but holding nothing but plastic credit cards. Maybe you’re at a cash-only café, maybe you only realized that your taxi driver didn’t accept cards until the end of the ride, or maybe an unexpected expense cropped up and your bank balance simply wouldn’t cover it. Whatever the reason, a credit card cash advance can seem like a tempting option. But it may not be the best financial decision.

What is a cash advance?

A cash advance is a short-term loan that you take against your credit card account. You can go up to a bank teller or an ATM, present your card and collect some cold, hard cash. Simple enough – but cash advances usually come with higher fees and interest charges. Here’s a breakdown of the differences between a cash advance and a regular purchase:

• Cash advance fee: As the name implies, this is a one-time fee charged when you take your advance, usually ranging from 3-5% of the amount. For example, if you take out a $200 cash advance, the fee of $6-$10 will be tacked on to your account balance.


• Higher interest rate: Many cards charge a higher APR for cash advances than for regular purchases.


• No grace period: Your credit card usually gives you a grace period of at least 20 days to pay off your purchase before you’re charged interest. Cash advances, though, start to accrue interest from day one.


• Lower credit limit: Some credit cards have a separate cash advance credit limit, which is lower than the overall credit limit.

What are some alternatives to a cash advance?

Since a cash advance is a short-term loan, we’ll compare it to other options for quick cash:

• An overdraft on your checking account may cost $25-$35 if your account balance goes negative but you’ve authorized the bank to allow the withdrawal anyway. You can opt out of this, of course, but it is an option for short-term funds. Be careful, though – some banks also charge extended overdraft fees.


• An early withdrawal from a certificate of deposit (CD) is another option if you need money right away. However, CD’s are meant for long-term deposits, so you might face early withdrawal penalties or have your CD canceled.


• A personal loan is typically more involved than any of the other options, as it involves you going to a bank and applying for the loan. The interest rate on 24-month personal loans is lower than most credit cards’, but the rates on short-term loans from payday lenders are often much higher.

When does a cash advance make sense?

Compared to the alternatives above, you might very well find that a cash advance on your credit card is the least expensive option (though you might want to consider a bank account with no overdraft fees). However, it’s probably not going to be fee-free. If you do find yourself taking out a cash advance, try to pay it off as fast as you can, since you accrue interest with every passing day.

The balance might tip in favor of a cash advance if you’re using a no cash advance fee card. In that case, you need only worry about the interest payments. And in some cases, it may provide cheaper access to cash than a debit card. Say you’re traveling internationally and have a credit card with no cash advance or foreign transaction fee, as well as a debit card with a 3% foreign transaction fee. If you pay off your cash advance ASAP, you may be better off using your credit card at the ATM.

Still, the best way to avoid having to take out a cash advance …

Is to build up an emergency fund to cover unexpected expenses. Consider setting up automatic deductions to transfer money from your primary checking account to a “rainy day” account, or look at a few ways to earn extra money on the side.

If you find yourself considering cash advances solely because you’ve forgotten to carry cash, though, you might want to check out debit cards that have no ATM fees. That way, you’ll be able to use the nearest ATM without getting slapped with an out-of-network surcharge.

Woman with card and cash image via Shutterstock

Source Article :http://bit.ly/1waFWJk

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Are Cash Advances a Good Idea?

Every once in a while, we find ourselves needing cash but holding nothing but plastic credit cards. Maybe you’re at a cash-only café, maybe you only realized that your taxi driver didn’t accept cards until the end of the ride, or maybe an unexpected expense cropped up and your bank balance simply wouldn’t cover it. Whatever the reason, a credit card cash advance can seem like a tempting option. But it may not be the best financial decision.

What is a cash advance?

A cash advance is a short-term loan that you take against your credit card account. You can go up to a bank teller or an ATM, present your card and collect some cold, hard cash. Simple enough – but cash advances usually come with higher fees and interest charges. Here’s a breakdown of the differences between a cash advance and a regular purchase:

• Cash advance fee: As the name implies, this is a one-time fee charged when you take your advance, usually ranging from 3-5% of the amount. For example, if you take out a $200 cash advance, the fee of $6-$10 will be tacked on to your account balance.


• Higher interest rate: Many cards charge a higher APR for cash advances than for regular purchases.


• No grace period: Your credit card usually gives you a grace period of at least 20 days to pay off your purchase before you’re charged interest. Cash advances, though, start to accrue interest from day one.


• Lower credit limit: Some credit cards have a separate cash advance credit limit, which is lower than the overall credit limit.

What are some alternatives to a cash advance?

Since a cash advance is a short-term loan, we’ll compare it to other options for quick cash:

• An overdraft on your checking account may cost $25-$35 if your account balance goes negative but you’ve authorized the bank to allow the withdrawal anyway. You can opt out of this, of course, but it is an option for short-term funds. Be careful, though – some banks also charge extended overdraft fees.


• An early withdrawal from a certificate of deposit (CD) is another option if you need money right away. However, CD’s are meant for long-term deposits, so you might face early withdrawal penalties or have your CD canceled.


• A personal loan is typically more involved than any of the other options, as it involves you going to a bank and applying for the loan. The interest rate on 24-month personal loans is lower than most credit cards’, but the rates on short-term loans from payday lenders are often much higher.

When does a cash advance make sense?

Compared to the alternatives above, you might very well find that a cash advance on your credit card is the least expensive option (though you might want to consider a bank account with no overdraft fees). However, it’s probably not going to be fee-free. If you do find yourself taking out a cash advance, try to pay it off as fast as you can, since you accrue interest with every passing day.

The balance might tip in favor of a cash advance if you’re using a no cash advance fee card. In that case, you need only worry about the interest payments. And in some cases, it may provide cheaper access to cash than a debit card. Say you’re traveling internationally and have a credit card with no cash advance or foreign transaction fee, as well as a debit card with a 3% foreign transaction fee. If you pay off your cash advance ASAP, you may be better off using your credit card at the ATM.

Still, the best way to avoid having to take out a cash advance …

Is to build up an emergency fund to cover unexpected expenses. Consider setting up automatic deductions to transfer money from your primary checking account to a “rainy day” account, or look at a few ways to earn extra money on the side.

If you find yourself considering cash advances solely because you’ve forgotten to carry cash, though, you might want to check out debit cards that have no ATM fees. That way, you’ll be able to use the nearest ATM without getting slapped with an out-of-network surcharge.

Woman with card and cash image via Shutterstock

Source Article http://ift.tt/1y39EC7

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Steps to Opening a Small Business

Although a budding entrepreneur’s to-do list may seem endless, that shouldn’t stop you from launching your own small business. By breaking down the individual components of starting a company, you’ll find that the process isn’t as overwhelming as you initially suspected. Here’s what to keep in mind before getting started.

Create a business plan

First things first: Come up with a strong business plan. Your ideas will have a much better chance of coming to fruition if you put them down on paper. This document, typically no longer than one page, should describe your company’s goals and provide a clear roadmap highlighting how you’ll achieve those objectives. As well as explaining your mission to potential investors, a business plan can help you better understand your own company.

Find funding

Speaking of investors, you may want to consider securing outside funding to help your company get off the ground. While plenty of successful companies are bootstrapped, know that you’ll have several sources of funding to choose from, including venture capital firms and small business loans from banks or credit unions. Peer-to-peer lending is also gaining steam, especially among businesses that have some sort of social cause. Make sure to figure out how much money you’d need as well as how that cash would be used.

Select a business structure

Before deciding how you want to structure your company, take the time to learn about your various options. This step is crucial, as it will determine which taxes you’ll end up owing. There are important differences between a sole proprietorship and a limited liability company (LLC), for example. It’s up to you to determine which arrangement will work best for your business.

Know your tax responsibilities

To paraphrase Benjamin Franklin, nothing is certain but death and taxes. This sentiment certainly holds true for small business owners. Finding out exactly which taxes you owe will depend on what type of business you operate and where it’s located. If you owe federal taxes, you’ll need to apply for a tax ID.

Take care of permits and licenses

If you’re planning on opening a bar, you’ll need to apply for a liquor license. Stores that sell firearms will also need certain licenses and permits. The fees for operating your business without the proper documentation can be stiff, so be sure to double-check whether this applies to your company.

Spread the word

Once you’ve taken care of the necessary paperwork, shift your attention toward building a strong marketing campaign. You’ll want to zero in on creating a strong website that can help drive business at a time when your brand is still relatively unknown. Your job is to highlight how your company is different (read: better) than the status quo. What do you offer that competitors don’t? Using social media is a cheap yet effective way to answer those questions, which will quickly broaden your audience.

Find and retain talent

Along with securing new customers, a strong marketing campaign will also attract top-tier talent. As your company expands, so too will your need to bring more people aboard. Because your first few employees are so instrumental in establishing your company’s culture, you’ll want to be meticulous about hiring the right people.

Final thoughts

Opening a small business is like assembling a piece of furniture. From tax forms to funding, everything you need is out there, and it’s your job to use the right tools to make all the pieces fit together. Approaching the building process one step at a time will result in a sturdier and more durable business.

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Image of small business owners via Shutterstock.

Source Article :http://bit.ly/10Waoh2

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Steps to Opening a Small Business

Although a budding entrepreneur’s to-do list may seem endless, that shouldn’t stop you from launching your own small business. By breaking down the individual components of starting a company, you’ll find that the process isn’t as overwhelming as you initially suspected. Here’s what to keep in mind before getting started.

Create a business plan

First things first: Come up with a strong business plan. Your ideas will have a much better chance of coming to fruition if you put them down on paper. This document, typically no longer than one page, should describe your company’s goals and provide a clear roadmap highlighting how you’ll achieve those objectives. As well as explaining your mission to potential investors, a business plan can help you better understand your own company.

Find funding

Speaking of investors, you may want to consider securing outside funding to help your company get off the ground. While plenty of successful companies are bootstrapped, know that you’ll have several sources of funding to choose from, including venture capital firms and small business loans from banks or credit unions. Peer-to-peer lending is also gaining steam, especially among businesses that have some sort of social cause. Make sure to figure out how much money you’d need as well as how that cash would be used.

Select a business structure

Before deciding how you want to structure your company, take the time to learn about your various options. This step is crucial, as it will determine which taxes you’ll end up owing. There are important differences between a sole proprietorship and a limited liability company (LLC), for example. It’s up to you to determine which arrangement will work best for your business.

Know your tax responsibilities

To paraphrase Benjamin Franklin, nothing is certain but death and taxes. This sentiment certainly holds true for small business owners. Finding out exactly which taxes you owe will depend on what type of business you operate and where it’s located. If you owe federal taxes, you’ll need to apply for a tax ID.

Take care of permits and licenses

If you’re planning on opening a bar, you’ll need to apply for a liquor license. Stores that sell firearms will also need certain licenses and permits. The fees for operating your business without the proper documentation can be stiff, so be sure to double-check whether this applies to your company.

Spread the word

Once you’ve taken care of the necessary paperwork, shift your attention toward building a strong marketing campaign. You’ll want to zero in on creating a strong website that can help drive business at a time when your brand is still relatively unknown. Your job is to highlight how your company is different (read: better) than the status quo. What do you offer that competitors don’t? Using social media is a cheap yet effective way to answer those questions, which will quickly broaden your audience.

Find and retain talent

Along with securing new customers, a strong marketing campaign will also attract top-tier talent. As your company expands, so too will your need to bring more people aboard. Because your first few employees are so instrumental in establishing your company’s culture, you’ll want to be meticulous about hiring the right people.

Final thoughts

Opening a small business is like assembling a piece of furniture. From tax forms to funding, everything you need is out there, and it’s your job to use the right tools to make all the pieces fit together. Approaching the building process one step at a time will result in a sturdier and more durable business.

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Source Article http://ift.tt/1y39EC7

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Safe Deposit Boxes Remain Useful Even as Demand Wanes

Looking for a place to keep your platinum ingots, important documents or precious family heirlooms? A decade ago, you might have gone straight to the bank and opened a safe deposit box. But with virtual finance on the rise—more than half of U.S. adults bank online—it’s becoming less convenient and it makes less sense to travel to a bricks-and-mortar location to store valuables. Are safe deposit boxes still relevant? What are they, when should you use them and what are the alternatives?

Safe deposit boxes explained

Safe deposit boxes are compartments within financial institutions’ vaults where customers can stow important or valuable papers and personal treasures such as birth certificates, government bonds and prized jewelry or precious metals. More secure than ordinary home safes, they protect customers’ valuables from loss, theft and destruction by natural disasters.

Annual rental fees range from $15 to $150 depending on size, according to the Safe Deposit Specialists, a consulting firm in Houston. The boxes can be as small as 2 inches by 5 inches to as large as 10 inches by 10 inches and are usually 22 inches long.

Customers should use safe deposit boxes to store items they won’t need to access immediately, such as property deeds, car titles and U.S. savings bonds, the Federal Deposit Insurance Corp. advises. The FDIC doesn’t insure the contents the way they do with deposited cash, so currency kept this way could be at risk. It’s safer to keep your dollars in a savings account so your funds are covered by the FDIC and earn interest.

Deposit boxes shouldn’t be used to store anything you might need in an emergency, because your access is limited—you can’t get to the box after office hours and on holidays. For example, power of attorney documents, which give family members the right to make financial or health decisions for a loved one, should be kept at home for accessibility anytime.

Alternate options

Safe deposit box use is on the decline, as many of those that exist are empty, the Boston Globe reported in March. Barclays, HSBC Group and other banks have discontinued the service in recent years, according to BBC News in London. So where do you keep essential documents and valuables if you choose to forgo a bank vault?

Many people have turned to home safes for tangible items such as heirloom jewelry and gold ingots. These systems are better than nothing, though not as secure as a bank safe deposit box, the FDIC says. Thieves can break into or carry off a strongbox even if it weighs a few hundred pounds. Rather than take that risk, consumers can scan important paperwork and store the digital copy. But some documents are only legally useful when they carry a signature and a notary’s seal, so the originals still need to be preserved.

Another popular option for documents is a virtual safe deposit box. These are offered through some financial institutions and third-party platforms. Examples include:

• Estate Asset – An online product that lets users upload wills, life insurance policies, passwords and more, and share that information with loved ones.

• My Virtual StrongBox – A free cloud-based service offered through banks, credit unions and wealth management companies to store wills, mortgages, tax documents, family photos and more.

• DataVault – A drop box for online banking, DataVault stores documents online in a secure location and lets banks and customers send copies of things like loan agreements to each other.

Whether you stick with a traditional safe deposit box, store your precious objects in a home safe or vital papers on a personal hard drive, or choose a virtual product for those documents, it’s important to have some method of safeguarding your valuables from theft and destruction. There are more choices today for documents, but for things like heirlooms and platinum, a safe or vault may still be the best option.

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