Sunday, November 19th, 2017

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If Your Bank Fails Are You Off “Debt” Free?

Q:  Will you still have to pay the outstanding debt owed to a failed bank? 
A:  Yes.  However, you’ll pay someone else and perhaps on different terms.

Q:  Is there a chance your interest rate could suddenly jump?
A:  Yes. 

Q:  Is it likely? 
A:  No.

“Term changes are the main thing cardholders of failed banks need to watch for,” notes Ben Woolsey, Director of Marketing and Consumer Research for CreditCards.com.  "Additionally, those who use credit cards to access home equity lines of credit (HELOC) should pay particular attention to what’s happening with a failed bank.”

How can you best protect yourself as a cardholder should your bank fail?

• Monitor your mail:  Read all mail from your credit card issuer – at least until the dust settles.  That’s where you’ll be notified of any changes.  This notice will typically give you the option of “opting-out” – or rejecting the new terms – which you generally must do in writing and within a defined time frame.

• Think twice before opting out:  If you decide to refuse the new terms offered by the new account owner, there’s a very good chance that they will close your account to new charges, allowing you to repay any remaining balance on the original terms.  This can potentially harm your credit.   
• Dial for information:  If you have questions, call the customer service number listed on the back of your card, not the local branch of the now-defunct bank.

• Use it or lose it:  Continue to use your existing cards as you would, should your bank be acquired.  Inactivity can potentially trigger account closures by acquiring banks looking to trim operating costs.  Acquiring banks normally reissue new credit and debit cards with their brand down the road, but will typically go to great lengths to ensure a seamless customer experience, often retaining the same account numbers when possible.

• Pay your bills:  Continue to make those credit card (and loan) payments.  There’s a good chance the payment address will change.  So, never use old envelopes or statement addresses. 

• Don’t fear modest levels of debt:  As unlikely as it may seem, carrying a manageable balance over time can potentially be seen as a positive by acquiring banks.  Be sure to continue to demonstrate the ability to pay on time, pay more than the minimum due and avoid using too much of your available credit.  Banks actually prefer "revolvers," people who carry a balance, because they contribute the lion’s share of revenue in the form of interest charges and lucrative penalty fees.

• Minimize your risk:  Consider carrying cards from more than one bank.  If your bank fails, your account can be closed to new charges.  Don’t put all your eggs in one basket:  have at least one other card as a backup.

“As a cardholder, be aware of bank changes that might affect you,” advises Woolsey.  “Don’t panic.  Even if your bank is acquired, the acquirer will most likely do its due diligence to honor the contracts made by the failed bank.”

CreditCards.com is a leading online credit card marketplace, bringing consumers and credit card issuers together.  At its free Web site, consumers can compare hundreds of credit card offers from America’s leading issuers and banks and apply securely online.  CreditCards.com is also a destination site for consumers wanting to learn more about credit cards.  Offering advice, news, features, statistics and tools, these features are all designed to help consumers make smart choices about credit cards.  In 2008, more than 12 million unique visitors used CreditCards.com to search for their next credit card.

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