The new health care overhaul, made official on Tuesday, March 23, 2010 by President Obama, is expected to tighten regulation of insurance companies as well as extend health coverage to over 30 million uninsured Americans.   Some changes will appear to reduce current benefits for some groups, with people who earn more paying more towards health insurance premiums.  However, the new health reform goals are designed to make health care more accessible to everyone in the long run.   Although the reforms  are fairly complicated and difficult to detail, below are how some major changes and how they will affect certain groups of people:

Health Care Reform Saves Piggy Bank

* Married couples with a disabled spouse, insured through Medicare

Good: The current threats of Medicare coverage cuts due to the troubling economy will be eliminated until 2014 for adults and 2019 for children.  In addition, the disabled spouse could receive more services and support through state incentives.

* Single mother who is employed but uninsured with a dependent who has asthma

The Dilemma: The current insurance dilemma for this group is that they don’t make enough to qualify for private insurance and they make too much to qualify for public options. In addition, because her current employer does not offer health benefits and she can’t afford private insurance because of coverage denial for conditions such as asthma or require higher premiums, this family struggles to obtain good health coverage. In addition, the family isn’t eligible for public programs because their income level is too high.

Good: The new reforms will not allow private insurance to refuse coverage for a child’s pre-existing medical condition.  By 2014, they can receive help to buy state health insurance with caps on premiums and out-of-pocket expenses based on the mother’s income.

* Married couples insured through Medicare

Good: They will receive more discounts and rebates for prescription drugs, which is one of their major problems, currently.

Bad: In 2010, subsidies to the more expensive Medicare Advantage plan will be cut which will result in higher premiums or benefit reduction to those who have this plan.

* Older couples who are married and currently insured making more than $500K combined annually

Good: Current benefits cannot drop coverage if they get sick or put caps on lifetime limits.

Bad: By 2013: They will contribute almost 1% more of their income to medicare. Flexible spending accounts will be reduced from as much as $5,000 to $2,500 and will not cover over-the-counter drugs.

Brought to you by direct payday lender, Pay1Day.com.

Traditional Banks Offering Alternative Payday Loans

The Consumer Overdraft Protection Fair Practices Act and the Credit Card Accountability, Responsibility and Disclosure Act may have encouraged banks to offer alternative loans, such as payday loans, causing competition among payday loans direct lenders and national banks observes Solomon Finance.

Because these enactments have muffled bank’s major sources of revenue, marked with Bank of America’s recent declaration that the overdraft fee legislation will be put into effect this coming summer, banks are reducing risks and pursuing other sources of income.  These changes include raising interest rates on credit cards, offering less free checking accounts, limiting student loans, requiring more spending to engage in credit card perks and competing against payday lenders by increasingly marketing payday loan type products under different names such as Direct Deposit Advance, branded by Wells Fargo.

As lending options continue to narrow in availability, national banks are not the only institutions competing for payday loan customers: credit unions such as Kinecta Federal Credit Union are also offering these types of services.

Short term cash loans are not the only thing that payday lenders and national banks have in common:  Both have been the largest contributing efforts to challenge federal financial regulations.  However, national banks may have an unfair advantage, argues Steven Schlein, spokesperson for the CFSA, as he mentions that national banks are exempt from state laws limiting interest rates. He adds, “banks caused the financial meltdown, and they’re spending millions and millions to spare themselves from tighter regulation while throwing the consumer lending industry under the bus,” he said. “They’re trying to divert attention to us.”

Although extra attention has been given to payday loan lenders during these financial reforms, it is unlikely that they will be significantly impacted in comparison to 2006, when Congress passed a bill that capped interest rates to 36% for active military members.  An interest rate cap at 36% on small loans ranging from a payday loan amount of $500, on a typical two week pay period term would yield insufficient profits to sustain business operations.

The industry is constantly changing: by subscribing to finance newsletters or reading industry payday loans blogs, one can stay informed and educated about traditional and untraditional lending options.

Reason why the new Overdraft Fee Legislation took place: to stop banks from charging unwanted overdraft protection fees that could cost around $30 a pop.

To better explain this phenomena, imagine that you are enrolled in overdraft protection that charges $30 per overdraft occurrence and that you unknowingly have $30 in your checking account.

One day, you go run some errands,

buying $50 worth of groceries at Ralph’s

Current Checking Account Balance: – $20 | Overdraft Incurred: $30

then get gas at Shell’s for $30      

Current Checking Account Balance: – $50 | Overdraft Incurred: $60

Then your bank account was automatically debited to pay your AT&T iPhone cell phone bill of $130

Current Checking Account Balance: – $180 | Total Overdraft Incurred: $90

By the end of the day, you would have racked up $90 making three very normal, regular transactions! And guess what, if you don’t pay them on time, you can incur late fees on top of that too.  Would you rather pay $90+ worth of clandestine overdraft fees or have the option to not make those transactions by finding an alternative way to pay for them. For example, comparing overdraft protections and payday loans, the latter would probably be the better option because you are only charged a one time fee for the loan term (unless you decide to rollover). With overdraft, you are charged per transaction until you are brought current.

Maybe money management is an issue for you – maybe budgeting would be a better idea than any kind of loan or credit.  Do you like to make things by welding or soldering in the garage but end up overspending on tools or hiring help? Why not get a good work positioner to help you keep your work in place and reduce injuries? Do you like cake? Why not learn how to make it in your own kitchen instead of spending money on lavish bakeries?

Is a blind date worth an overdraft fee?

OK, maybe there are some circumstances where you may need to have this overdraft protection to save yourself from embarrassment: Maybe you’re on a date and it’s your turn to pay and you don’t want anyone to know that you don’t have anything in your bank account. Well in that case, you should probably check to make sure you have enough funds to go out before you make any commitments.

If you opt into overdraft protection, you can’t just turn it on and off arbitrarily.  Most of the time, if you knew that you didn’t have enough funds to pay for things, you would probably be better off not using overdraft protection because it can be very costly. So, when your bank has to ask you whether you want overdraft protection or not before automatically enrolling you – just say “No!”

February 25, 2010. The implementation of the Card Act of 2009 and the Overdraft Fee Legislation marks an increasingly shifted focus from traditional loan products to payday loan type services by big banks , observes a Bloomberg article and Solomon Finance.  Although the new reforms have made it difficult to sustain profitability from credit card and overdraft fees, two of banks’ most profitable products, questions arise whether the recent push for short term small cash loans, more commonly called checking advance products, will be successful for national banks while competing with direct payday loan lenders.

Recession Piggy Bank

Checking advance products are cash loans usually ranging from $100 – $500 with annual interest rates at about 120% if paid within 30 days.  These products are not new to big banks: Wells Fargo have had these loans as part of their offerings since 1994 and in 2008 by Fifth Third Bank.  These offerings are similar to payday loans with comparable interest rates and repayment time frames, usually occurring on the borrower’s next pay period with the added convenience of automatic payment withdrawals due to the issuance of the borrower’s account by the corresponding bank.

By getting into the payday loan business, big banks face two major issues: competition from established payday lenders with years and even decades of experience, and the real-life ability to profit from $500 loans with existing big-bank overhead.

Established payday lenders, whether it be online payday lenders or brick-and-mortar paycheck cashing stores, have gotten quick cash loans down to a customer service-oriented science where loans can be approved within seconds and cash can be delivered to the customer within hours; with an online payday loan lender, the entire process  can be done from the customer’s computer at practically any place in the world with an internet connection; in addition, the flexibility and added convenience such as faster customer support via multiple methods such as email, phone, fax, and the ability to customize loan features that stem from the smaller scale nature of payday loan lenders, presents a niche-barrier that may be difficult for national banks to overcome.

Replicating the payday loans business model while searching to fulfill the gap caused by the Overdraft Fee Legislation and Card Act of 2009, will prove to be an obstacle for traditional banks, interesting to follow throughout the rest of 2010.