The Pennsylvania Bar Association and 33 local bar associations across the state are launching a credit rights public education campaign and offering a free brochure, Know Your Credit Rights - Be an Educated Credit Consumer, that includes details about the new rules and a number of other credit issues impacting today's consumers.

The new rules recently put into effect by the Federal Reserve are designed to protect credit card users from unreasonable late payment and penalty fees and require credit card companies to reconsider interest rate increases. In addition, new rules from the Federal Trade Commission are designed to crack down on unscrupulous debt-settlement companies making fraudulent claims about their abilities to reduce consumers' debt balances, interest rates and penalty fees.

"As credit consumers, all of us have many rights and responsibilities, and it's important to understand them - especially during difficult economic times like these," said Gretchen A. Mundorff, president of the Pennsylvania Bar Association, who announced the campaign during a news conference at the state Capitol Rotunda.

"Some consumers who can't pay their bills are getting caught in a downward spiral of credit problems. Some become victims of companies that offer credit cards and loans imposing high penalty fees and companies claiming to have the ability to 'fix' bad credit," Mundorff said.

Consumers need to act with caution when considering use of debt consolidation companies and companies that claim they have connections with government loan forgiveness program, said Alexis Barbieri, executive deputy attorney general and director of the Public Protection Division of the Pennsylvania Office of Attorney General.

"If you are in a precarious financial situation, you should be wary about paying high fees to an outside company claiming it can clean up the situation or claiming affiliation with state or federal government programs that eliminate debt," said Barbieri. "Consumers struggling with credit issues should turn to non-profit organizations that provide credit counseling at little or no cost."

The Pennsylvania Department of Banking is on constant alert for unscrupulous mortgage brokers and for-profit credit counselors who are taking advantage of consumers during the economic downturn, but consumers need to do some homework to be sure they deal with legitimate companies.

"The old saying that 'what sounds too good to be true usually is' applies when borrowing money and when attempting to repair credit problems," said David Bleicken, deputy secretary, Non-Depository Institutions and Consumer Services, Pennsylvania Department of Banking.

"Be skeptical and ask a lot of questions. Be sure lenders and the credit counselors are appropriately regulated and licensed by Pennsylvania and always use good common sense when determining your level of borrowing so that you do your best to avoid a credit crisis and possible bankruptcy. And when consumers are wrestling with their debts and seeking advice, they should fully understand all of their options, including how some might negatively affect their credit rating," Bleicken said.

The ability to borrow money is largely determined by the consumer's credit report, which includes the total amount a consumer owes to creditors, the amount of monthly payments and late payments. Credit reports help creditors decide if a consumer is a good risk for receiving loans and credit extensions.

"Credit card consolidation as a means to maintain a good credit report sounds like a good option, but, it is not a quick fix," said Jeffrey Golembiewski of Gau and Golembiewski, Greensburg, who has been practicing bankruptcy law for 18 years. "In fact, credit consolidation can come at a high cost, and it doesn't necessarily prevent damage to the credit report."

After exhausting all other options to pay creditors, consumers may face a bankruptcy proceeding, which limits access to future credit for up to 10 years. Golembiewski said consumers should educate themselves which type of bankruptcy proceeding best applies to their personal situations.

"One type of bankruptcy liquidates most of the consumer's assets to pay a portion of the debt and the other type allows the consumer to pay debts over a longer period of time," said Golembiewski. "Bankruptcy is not a 'one size fits all' type of proceeding."

Both types of bankruptcy do not eliminate all debts. Child support, alimony and taxes are among the debts that must continue to be paid.

Mundorff said that the Know Your Credit Rights campaign is a project of the Pennsylvania Bar Association Community and Public Relations Committee and is funded by the Pennsylvania Bar Association and a grant from the Pennsylvania Bar Trust Fund.

Joining Mundorff, Bleicken and Gau at the news conference were Linda Williams, chief deputy attorney general and director of the Bureau of Consumer Protection, Pennsylvania Office of Attorney General; J. Marie Webb of Pittsburgh, chair, Pennsylvania Bar Association Community and Public Relations Committee; and Robert H. Davis, Jr. of Harrisburg, vice chair, Pennsylvania Bar Association Community and Public Relations Committee.

Local bar associations participating in the campaign include:

To receive a free copy of the brochure, Know Your Credit Rights, by mail, contact the Pennsylvania Bar Association toll-free at 1-888-799-4557. The brochure also is available at no cost on the association's website at www.pabar.org and from the PA Bar Association through PALawHELP.org.

Information about recent federal changes on credit card fees and interest rates that benefit consumers

In late August 2010, the Federal Reserve implemented new rules to protect credit card users from unreasonable late payment and other penalty fees and to require credit card companies to reconsider interest rate increases.

Under the rules of the Credit Card Accountability Responsibility and Disclosure Act, consumers are ensured the following:

Credit card fees 

• Credit card companies cannot charge late fees of more than $25, unless one of the consumer's last six payments was late (in which case the fee may be up to $35) or the credit card company can justify a higher fee. Previously, the common late fee was $39.
   
• Credit card companies cannot charge a late payment fee that is greater than the consumer's minimum payment. For example, if the consumer's minimum payment is $20, the late payment fee cannot be more than $20.
   
• Credit card companies cannot charge inactivity fees (fees for not using the credit card).
   
• Credit card companies cannot charge more than one fee for a single late payment.
   
• If a credit card company has increased the consumer's APR (annual percentage rate), it must explain why and it must re-evaluate the rate increase every six months. If appropriate, it must reduce the consumer's rate within 45 days after completing the evaluation.
   

Credit card interest rates

• Credit card companies must send a notice 45 days before it increases a consumer's interest rate, change certain fees (such as annual fees and cash advance fees) that apply to the consumer's account and makes other significant changes to the terms of a credit card. (The company does not have to send a 45-day notice if the consumer has a variable interest rate tied to an index, an introductory rate expires or a rate increases because the consumer is in a payment workout agreement and has not made the payment as agreed.)
   
• If a credit card company is going to make changes to the terms of a consumer's card, it must give the consumer the option to cancel the card before certain fee increases go into effect. If the consumer cancels the card, the credit card company may increase the monthly payment, subject to some limitations. For example, the company can require the consumer to pay off the balance in five years or it can double the percentage of the balance used to calculate the minimum payment to result in faster repayment.
   
• Fees such as annual fees or applications fees cannot total more than 25 percent of the initial credit limit. For example, if the consumer's initial credit limit is $500, the fees for the first year cannot be more than $125. (This limit does not apply to penalty fees such as penalties for late payments.)

Information about new rules to cut false claims by debt-settlement companies

In late September of this year, the Federal Trade Commission put new rules into effect to crackdown on unscrupulous debt-settlement companies selling debt relief services over the telephone. The rules specifically take aim at for-profit companies making fraudulent claims about their abilities to reduce consumers' debt balances, interest rates and penalty fees.

A debt-settlement company must disclose the following information to potential clients: 

• How long it will take the debt-settlement company to get results
• How much the debt-settlement company charges for its services
• The potential negative consequences of seeking debt relief

A debt-settlement company is prohibited from misrepresenting its success rates such as the percentage of debt reduction for a typical client.

Additional FTC rules to take effect on Oct. 27, make it illegal for a debt-relief service to charge upfront fees. A company selling its services over the telephone can't get paid until it successfully settles or reduces a client's credit card or other unsecured debt.

Previously, debt-settlement companies often told their clients to stop paying their bills and send money to the debt-settlement companies to pay creditors. Under the new rules, a dedicated account must be established at an insured financial institution and the money belongs to the consumer, who can withdraw it at any time with no penalty.

Important note: The new rules only apply when consumers receive phone calls soliciting them for debt relief services and when consumers make calls in response to advertisements for debt-reduction services. The rules do not apply if there is a face-to-face meeting with a debt-settlement company representative before a contract is signed or if the transaction takes place entirely online. Companies falsely claiming nonprofit status are subject to the new standards; legitimate nonprofit organizations helping consumers renegotiate their debts are not.