Defend Yourself Against High-Pressure Persuaders

Have you ever bought something from a door-to-door salesperson, or donated money to someone soliciting funds for a charitable cause, only later to wonder why you willingly forked over your hard-earned money for something you didn't want or didn't care about?

I have, and I always kick myself for getting suckered.

How is it that door-to-door salespeople, marketers, car dealers, politicians, strangers, con artists, and cult leaders are able to persuade people to do things that they wouldn't ordinarily do? That's the question Robert B. Cialdini asked himself after falling victim to a huckster's influence one time too many. But instead of shrugging his shoulders, this professor of psychology decided to study the phenomenon and find out if there is a set of common techniques used to convince people to hand over their money or time against their better judgment. And he discovered that indeed there was, and wrote a book about it called Influence: The Psychology of Persuasion.

The book covers the six methods used to influence people to do things that aren't necessarily in their best interest. They are:

1. Reciprocity -- People tend to return favors out of a sense of obligation. Influencers exploit this by extending a small favor (buying them a Coke from a vending machine) in order to get a bigger favor back (having you buy a car from them).

2. Scarcity -- When people are made to believe something is rare ("a limited time offer!"), they will desire it more. In Influence, Cialdini writes about an Indian jewelry store that attempted to get rid of a line of jewelry by lowering the price. Nobody bought it even though the store lowered the price again and again. But when a new salesperson misread the price tags and told customers that the jewelry cost 10 times as much, the items quickly sold out.

3. Liking -- People like other people who are members of their "tribe." Influencers seek to find common interests with their victims, tell jokes, and pay compliments. Flattery, Cialdini found, will get you everywhere.

4. Authority -- Influencers who convince their clients, customers, or marks that they are authorities or experts can gain control over them. That's why they hang diplomas (not always genuine) and pictures of themselves posing with famous people on their walls.

5. Social proof -- People are herd animals. They copy each other. When a magazine salesman came to my door a few years ago, he showed me a stack of subscriptions cards that "people in the neighborhood" had filled out. He pointed out that most people bought subscriptions to three different magazines. Fortunately I had recently read Cialdini's book and I knew he was using the "social proof" technique. I didn't buy anything. (And I'll bet most of the subscription cards were fake.)

6. Commitment/consistency -- People like to behave in a consistent manner. Cialdini recounts a personal experience he once had with a young woman with a clipboard who approached him and asked him if he was a patron of the arts. He said yes. She then said she was selling membership to a club that offered discounts to different kinds of artistic events. Cialdini wrote, "I bought the entertainment package, even though I knew I had been set up. The need to be consistent with what I had already said snared me."

Influence is a user's manual for survival in a hard-sell, high-pressure society. Filled with lucid examples and colorful anecdotes, Influence is not only profoundly insightful, it's a lot of fun to read.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

The Credit CARD Act: Payment Allocations & Billing Cycles

We're wrapping up our week long series on the Credit CARD Act.  For those of you just joining us, we've been gearing up for the final changes that are scheduled to go into effect on Aug. 22.

So far we've covered all of the major provisions that have gone into effect to date, including what you need to know about interest rates and account changes, fee restrictions, student protections, and enhanced consumer disclosures.

The final section of the Act relates to how your payments are allocated, statement mailing requirements, and billing cycle changes.  Here's what you need to know:

• Credit card issuers are required to mail your statement at least 21 days before your payment is due and your monthly due date must be the same date each month.


• Double-cycle billing, or the practice of calculating interest charges on both the current balance and the previous month's balance, is prohibited.


• Any payment over the minimum balance due must automatically be applied to the highest interest balance first.

What you need to know: Before a credit card issuer can open a new account, they must first take into account your ability to repay. A card issuer cannot open a new credit card account, or increase an existing credit limit, unless they first consider your ability to make the required payments under the terms on the account.

There's no question that the CARD Act is a great step forward for consumer protection, but we have one final phase left to go. The remaining provisions will go into effect on August 22, 2010, and include the final rules that limit fees on gift cards and also gives consumers the right to earn back their previous interest rate if they are able to make continuous on time payments for 6 months.  Join us on Monday, where we'll review the final provisions and wrap up the final chapter in this series.

Protecting Homeowners' Credit History Act

Congresswoman Jackie Speier introduced the Protecting Homeowners' Credit History Act on July 15, stating, "Homeowners shouldn't have their credit scores damaged for doing the right thing. Rather than rewarding responsible homeowners who modify their mortgage payments to keep their homes, the credit reporting system punishes them."

Of course, she's partially right and partially wrong.

The loan modification process has largely been a train wreck since day one. Originally mortgages were reported to the credit bureaus as a "Partial Payment Plan" – which is considered a major derogatory item in your credit scores. Further, delinquent payments now pollute credit reports thanks to the mortgage lender requiring the homeowner to make less than their contractual payment just to prove that they can. Add to that the workload disasters that are causing some loan modification applications to take 6-9 months to be processed, and then denied, and you have a failure of epic proportions, which is considered a major derogatory item by credit scoring models.

She's wrong about the fact that this is a credit reporting issue and that consumers are being punished by the reporting system. The credit bureaus did not create HAMP. They also did not create a 6-9 month backlog of applications causing ascending late payments as the homeowner makes their partial monthly payment, at the lenders request.

While shielding a consumer's credit report from the fallout of a loan modification is a solid hypothesis, it might not be the right thing to do. If research yields findings that consumers who modify their loans are an elevated credit risk then the negative credit impact was warranted. But we don't know this yet because we've yet to see whether there is sufficient performance among consumers who've modified loans.

What we do know is this: Many consumers are simply trying to lower their monthly payments through a formal process with their mortgage lender. Does that sound familiar? It should, it's called a refinance. Assuming that the desire for a lower payment equates to a riskier borrower has not been proven and seems misplaced considering that we'd all like lower payments, for everyone.

What the legislation should include, and I don't believe it does, is a requirement that ALL loan modification applications must be fully processed within 30 days. That would all but guarantee no credit impact at all. The requirement to prove that you can pay less than you have been paying is comical and shouldn't be a requirement of the program. This would get HAMP back on the right track.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

The Credit CARD Act: Enhanced Consumer Disclosures

All week long we've been reviewing the major provisions under the Credit CARD Act and what they mean for you.  So far we've covered the new laws governing interest rates and account changes, fee restrictions, and student credit card protections. Next on the list we're covering the new consumer disclosure rules.

Not only does this section of the law help provide a much-needed level of transparency in regards to the time it takes to pay off credit card debt, it also put an end to one of the most popular (and annoying) marketing campaigns of all time.  You know the one, featuring a group deadbeat 20-somethings living in their parents basement and singing a tune? Yep, thanks to enhanced consumer disclosures, those deadbeat 20-somethings are looking for a new gig.  Here's what the enhanced consumer disclosures mean for you:

• Your credit card statements must now include a minimum payment disclosure that explains how long it will take you to pay off your existing balance as well as the total cost in interest if you only pay the minimum amount due each month. Additionally, your statement must include the monthly payment required, and interest cost, to pay off the existing balance in 3 years.


• Your credit card issuer must provide easy online access to the cardholder agreement for your account. Likewise, all credit card issuers are required to submit cardholder agreements to the Federal Reserve, which will act as the central repository. Find your credit card agreement with the Federal Reserve Consumer Credit Card Agreement Search tool.


• Companies that advertise "free" credit reports must disclose that the report being offered is NOT the free credit report provided under Federal law at AnnualCreditReport.com. (Read the FTC Amendment)

What you need to know: If your credit card issuer raises your interest rate, they must tell you why. This means if the increase is due to market conditions, increased credit risk due to credit scores, or a decline in credit worthiness – they must provide up to four the reasons for the increase. Under separate legislation, issuers will also be required to provide consumers with the credit score used in making that decision. The effective date for credit score disclosures has not yet been determined.

How do you feel about the new payment disclosures? Were you surprised by how long it would take to pay off the balance by only making the minimum payment? Do you think the 3 year payment disclosure is helpful? We want to hear what you have to say.  Share your thoughts in the comments section below.

Join us tomorrow as we wrap up our week long series on the Credit CARD Act and prepare for the new laws that go into effect on Aug. 22 - just a few days away.

Student Loan Debt Passes Credit Card Debt, $830 Billion

What is the second largest purchase you'll ever make? Most of you probably said your car. It makes sense though. Your home is probably going to be the largest and a car is the second largest. That would be true if you didn't pay for college.

College, even a modestly priced college, is going to cost you much more than a car. Student loan debt used to pay for school has spiraled completely out of control. According to the Wall Street Journal student loan debt has now passed credit card debt to the tune of $830 billion. This debt is less expensive than credit card debt but is the closest thing we have to a debtor's prison because you can't ignore it, settle it (yet) or discharge it. Point being, you're going to pay it.

Opinions on the topic are going to vary. Some believe that college is a much needed resume filler. Others believe you can do just as good with street smarts and motivation. And still others believe that just because you CAN go to an expensive school does not mean that you HAVE to go to an expensive school.

Whatever your perspective is on the issue, one thing is clear: If you choose to get into a lot of student loan debt, it's a smart move to at least choose a school and major where there's a demonstrated track record of ROI. Law, medicine, nursing and engineering are probably safe bets. Liberal arts degrees (like mine) are fine but a $60,000 price tag, which is really $100,000 after interest, doesn't make a lot of sense unless you can pay out of pocket or fund it using grants or scholarships or mommy and daddy.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Are Debit Card Fees Coming?

My husband got a new debit card, and it came with new transaction fees. If he uses the card as “credit” (with no PIN) there’s no fee. But if he chooses “debit” and enters a PIN, the credit union charges him a 25 cent fee – for every transaction! A couple of times, he says he tried to use the card without a PIN but wound up paying the fee anyway. Needless to say, he's not happy with the change.

New Fed debit card overdraft rules went into effect this past weekend (I’ve been getting calls from my bank urging me to opt into overdraft protection – have you?) and the FDIC recently released an advisory letter to the banks it supervises urging them to make sure they comply fully with the new regulations, and go one step further and contact customers who use overdraft protection more than 6 times in a year to discuss less expensive alternatives.

Now that financial institutions will be taking a hit in overdraft revenue, are new debit card fees in order? Maybe.

Keep in mind that merchants aren't supposed to charge debit transaction fees – they are prohibited under Visa and Mastercard’s merchant agreements. In other words, a retailer isn’t supposed to tack on an extra fee if you want to pay with your debit card. Nevertheless, the California legislature recently passed a bill prohibiting debit surcharges. (Credit card surcharges are already illegal in California.)

But issuers are free to charge debit card fees, as they do in my husband’s case. Annual fees, transaction fees, or fees for certain types of transactions may become more commonplace – so watch your statements.

If you’ve been charged a debit card fee, we’d like to hear about it here. Share what kind of debit card fee your issuer charges, and feel free to name names!

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.

What the Credit CARD Act Means for the Under-21 Crowd

You're tuning in to our week long series on what the Credit Card Accountability, Responsibility and Disclosure (CARD) Act means for you, the consumer.  Yesterday, we covered how the CARD Act aims to curb excessive fees charged by credit card issuers.

Today, in the third installment of this series, we talk about the protections for students – or those consumers under the age of 21. 

This one carries mixed implications.  On one hand, it does a great job at protecting students from predatory credit card practices. On the other, many feel that it does little to address the lack of financial education needed to teach college students real life financial management skills. The argument is that without the additional financial education requirements, are 21-year-olds really any more prepared to make smarter financial decisions than they were at 18? 

We'll let you be the judge.  Here's what you need to know:

• Credit card issuers must verify proof of income or otherwise require a co-signer before issuing a credit card to consumers under the age of 21.


• Credit card issuers cannot send prescreened card offers to those under 21 unless they have consented to receive such offers.


• Card issuers cannot raise the credit limit on an account for persons under 21 with a co-signer, without written permission from the co-signer.


• Credit card issuers are prohibited from providing free items in exchange for applications when marketing to students on or near campus. The days of "credit card swag" (free t-shirts, frisbees), in exchange for credit card applications are over. Rewards programs offered with credit cards are still allowed, however.

What you need to know: While the new rules were designed to protect young consumers, they neglect one very important component – financial literacy requirements to teach college students about credit card and personal finance management. Without financial literacy requirements, 21-year-olds will be no more prepared to manage their credit cards than they were at 18.

Do you feel the student protections go far enough? Or do they do exactly what they should?  Share your thoughts in the comments section below.

Join us tomorrow for the fourth installment of our week long series on the Credit CARD Act, in which we cover the new rules for enhanced consumer disclosures.

Back-to-School: Protecting Your Money

There’s more to protecting your money in college than avoiding credit card debt. Whether your roommate eats all your food, misses a utility payment, or friends pressure you to spend, here are six solid money management tips for college students.

1. Avoid Lending Money. In college, when roommates ask you to “spot” them for a purchase, know that they’re really asking you for free money. It’s rare to ever receive friendly “loans” back in full. Knowing this, don’t lend money you cannot afford to part with to a friend. Of course, if your friend is in a jam in the checkout line and you can spare it, spot him, but follow up by asking him to either spot you for lunch soon or pay you back ASAP. If he does opt to spot you, don’t let him forget! Address the situation quickly and you're more likely to get your money back in good time.

2. Collect Rent Online. If your name is on the lease, you need to set up a system to collect rent payments from all your roomies. Manage your rent payments online with sites like WePay.com, ShareaBill.com and BillSplit.com, which offer hassle-free online group payments and payment history tracking. (Note: these sites typically charge a small transaction fee). If a roomie fails to pay and your name is on the lease, you’re responsible for making the full rent payment on time. An out-of-hand roommate deserves to be evicted. Get help from you landlord to do so.

3. Track Utility Payments. If your roommate is in charge of collecting and making payments each month, find out whether your name is also on the bill. If she forgets to pay one month, you’re on the hook. A college friend got a phone call from a collection agency telling her she and her roommates owed less than $20 on a utility bill from several years back when they were seniors. Know the statue of limitations for collection agencies in your college’s state. WePay, ShareaBill and BillSplit can also help manage utility bills with groups.

4. Communicate Kitchen Rules. If you share an apartment with roommates, set ground rules for the kitchen, unless you want to come home to find your Pop-Tarts missing. Everyone should have a group meeting and agree on the best way to manage the food in the home and be conscious of everyone’s budget. There’s also the Grocery IQ, which you can download to your iPhone or iPod Touch to get coupons for items at the grocery store.

5. Suggest Affordable Social Activities. Avoid the pressure to spend more than you have by taking the lead when planning social outings. How about pre-gaming at someone’s apartment first to avoid spending as much at the bars? Check myopenbar.com to find free drinks and happy hours in select cities. Restaurant.com also issues coupons and gift certificates for over 6,000 eateries around the country. Sites like Groupon.com and LivingSocial.com offer major discounts on social activities across the country. And if your friends invite you to go skiing in the Alps for Spring Break, either find a job fast or simply say you have other plans for the holiday. Don’t your friends drive you into debt!

6. Get Renters’ Insurance. If your apartment catches on fire or gets burglarized, renters’ insurance can save you thousands of dollars to replace lost or stolen items from your laptop to furniture, clothes and jewelry. It costs as little as $16 a month – as much as a large pizza. If you have a roommate, each of you needs your own policy.

Farnoosh Torabi – Credit.com Personal Finance Contributor, nationally recognized author, expert and television host. Her first book, You're So Money, is an acclaimed tell-all for young adults searching for financial independence. Her new book Psych Yourself Rich, gives readers the mindset and discipline to build their financial life.

The Credit CARD Act: Fee Restrictions

We're continuing our week long series on the provisions of the Credit CARD Act. Yesterday, we reviewed the new laws that protect you from arbitrary, any time, any reason interest rate increases and account changes.  If you missed it, be sure to go back and check it out. 

Another major protection under the new rules make headway in curbing the excessive fees charged by credit card issuers.  Remember the days of over-limit fees?  Not any longer.  Here's what you need to know:

Fee Restrictions Under the Credit CARD Act:

• Credit card issuers cannot charge you an over-limit fee unless you consent to allowing over-limit transactions prior to the fees being charged. If you agree to accept over-limit transactions, only one over-limit fee per billing cycle is permitted.


• Card issuers may not charge additional fees for accepting payments by mail, phone or online – however, they can charge a fee to expedite a payment.


• If your due date falls on a weekend or holiday when payments are not accepted, your issuer cannot charge you a late fee if your payment arrives the next business day. In addition, payments made at a local office or branch must be credited the same day.


• "Fee harvester" or sub-prime credit card non-penalty fees cannot exceed more than 25% of the credit limit when you open the account.


• Your credit card issuer cannot charge a fee of more than $25 unless you were late with a payment in the last six months (in which case you may be charged up to $35); or the credit card issuer proves that the costs incurred as a result of your late payments justify a higher fee.


• Credit card issuers cannot charge you a late fee greater than your minimum payment. Beginning August 22, 2010


• Credit card issuers cannot charge you an inactivity fee for not using your card, including fees for not charging a certain amount each month. Beginning August 22, 2010

What you need to know: The provisions haven’t stopped credit card issuers from creating new fees or increasing existing fees on cash advances or balance transfers. The fact is, credit card issuers have taken a big hit in their proverbial wallets and they’re coming up with creative new ways to make up for the revenue they’ve lost under the new provisions.

These new rules go to great lengths to put an end to excessive fees charged by credit card issuers, but does it do enough? Have you seen any new fees? We want to hear what you have to say. Share your thoughts in the comments section below.

Check back tomorrow for the next installment of our Credit CARD Act series where we'll fill you in on the new credit card protections for students under the age of 21.

Consumers Must Now Opt-In for Overdraft Protection

A heads-up for all debit card users: as of yesterday, you’ll no longer be automatically covered for overdrafts on ATM transactions and one-time debit card purchases unless you specifically opt-in for overdraft service. This means if you attempt any transaction (or transactions, as the case may be) that exceeds the amount you have in your account, you’ll get declined. The downside: you might find yourself red-faced at the checkout line. The upside: you won’t get hit with big overdraft fees.

Starting July 1, 2010, banks were ordered to start notifying customers opening new accounts of the institution’s overdraft services and fees, give them the choice of opting in, and present other options to them. On August 15, 2010, this went into effect for existing accounts.

According to tests conducted by the Federal Reserve Board, most consumers prefer not to be automatically enrolled for debit and ATM overdraft services; they’d rather have the choice to opt-in. And Credit.com found in a poll conducted this past May that 48% of consumers surveyed would consent to the service rather than get declined (while 47% would choose not to opt-in).

In other overdraft news, a California judge called out Wells Fargo last week for deceptive overdraft fee policies, and ordered the bank to pay a $203-million fine to affected customers. The bank processed customers’ transactions in order of highest to lowest dollar amount (instead of chronologically), which served to drive balances down quicker and increase the chances of incurring multiple overdraft fees on items that exceeded the balance.

Despite this decision, this practice is still legal for banks to engage in (even for Wells Fargo) – so readers, keep an eye out for it. Two bills aimed at putting a stop to such policies are in Congressional committee.