The federal government will now pay $3,500 or $4,500 for your old, gas-guzzling car or truck when you trade it in for a new vehicle.

The Car Allowance Rebate System (as it’s formally called) runs through Nov. 1, or until the federal funding runs out.

If you qualify, the rebate is incredibly easy to get. The dealer does all the work and deducts the rebate from what you owe on the car or truck you’re buying.

Here are the basic rules:

• The car or truck you’re trading can’t be older than a 1984 model (although there are slightly different rules for larger trucks).
• It can’t have a combined fuel-economy rating of more than 18 miles per gallon. To see if your vehicle qualifies, go to fueleconomy.gov.
• The vehicle must be drivable, and legally owned and insured by you for at least one year.
• The sticker price of the new car or truck can’t exceed $45,000.
• The combined fuel economy estimate for the new vehicle must be at least 22 m.p.g.
• Your new car or truck must get at least 4 m.p.g. better than your old one. If the difference is between 4 m.p.g. and 9 m.p.g., then you’ll qualify for $3,500. If the difference is 10 m.p.g. or more, you’ll get a fat $4,500.

The rules are a little different if you’re trading a pickup, sport-utility vehicle or van in on a similar vehicle.

For small pickups, SUVs and minivans (which are considered “Category 1″ trucks in the CARS program), the traded vehicle’s fuel economy cap is the same as for cars, 18 m.p.g.

But if you’re buying another Category 1-type vehicle (trading a clunker minivan for a new minivan, for instance), the new vehicle only needs to get 20 m.p.g. to qualify for the program.

If it gets 2 m.p.g. to 4 m.p.g. better fuel economy than your old truck you’ll qualify for a $3,500 rebate. If the difference is 5 m.p.g. or more you’ll qualify for a $4,500 rebate.

“Category 2 trucks” are mainly full-size pickups and vans.

If you have one of these, you don’t have to worry about the 18 m.p.g. cap. They’re all eligible for the program.

But if you’re replacing an old Category 2 truck with a new Category 2 truck, the new one has to get at least 15 m.p.g. and deliver a 1 m.p.g. improvement to qualify for the $3,500 rebate and a 2 m.p.g. increase for the $4,500 rebate.

The National Highway Traffic Safety Administration is in charge of the CARS program and has created a Web site called cars.gov to answer questions.

If you’re shopping for a new checking account, pick the one that has all the features you need at the lowest possible cost.

The chance to win a few days at a Florida resort shouldn’t figure into the decision.

But that’s the hook Trustmark National Bank of Jackson, Miss. is using to attract new customers.

Apply for a new checking account before Sept. 25, 2009 and you’ll receive a lottery-like scratch-and-win card.

Five winners qualify for a five-night stay at the Sandestin Golf and Beach Resort on Florida’s Gulf coast between Pensacola and Panama City.

Up to four guests can enjoy a two-bedroom condo and a few perks, including a free breakfast or lunch, beach chairs and four rounds of golf.

Ten other winners will receive three-night stays for two in a standard hotel room, with a free breakfast or lunch.

The fine print says transportation isn’t provided, you’re responsible for taxes and gratuities, and you can’t go during some popular holidays like the Labor Day weekend.

The scratch cards are being given away at Trustmark Bank branches in Mississippi, Texas and Tennessee, but not Florida for some reason.

What about the nine different types of personal checking accounts Trustmark offers? They’re pretty typical of what you’ll find at most banks. None of them jumped out at us as a great deal.

Umbrella Checking, which Trustmark says is its most popular checking account, charges a rather steep $9.95 monthly fee ($7.95 for customers under 25 years old).

The Positively Free Checking account looks like a better deal to us. You get most of the same benefits, except free checks, without the monthly fees.

So if banking at Trustmark makes sense for you, by all means do it.

But don’t be swayed by the vacation offer.

In fact, here’s something else from the contest’s fine print. You don’t have to open a new checking account to get a scratch card.

You can request a game card by sending a 3-by-5 card with your name, address and phone number to:

Trustmark Bank Sandestin Giveaway
ATTN: Sales Management
P.O. Box 291
Jackson, MS 39205

The government’s new Income Based Repayment Plan may allow you to write a smaller monthly check for your student loans starting July 1.

The program will be open to graduates with one of the major types of federal student loans — Stafford, Grad PLUS or Consolidation loans made under either the Direct Loan or Federal Family Education Loan (FFEL) program.

You can have used the loans for any type of education, including undergraduate studies, graduate work or even job training. Parent PLUS loans and loans in default aren’t eligible.

To qualify, your federal student loan debt needs to be considered high in comparison to your income and family size.

To see if you might be eligible for the program, you can enter your salary, number of family members and current loan interest rate into the Department of Education’s Income Based Repayment calculator.

The calculator will estimate what your monthly payment would be under the program. If it’s lower than what your payment would be under a 10-year standard repayment plan at your current rate, it will tell you that you should be eligible for the income based program. To apply, you’ll need to contact your lender.

For example, if you’re single, make $30,000 a year and have a $25,000 student loan, your income-based payment would be $172 a month.

That’s a $116 savings over a standard 10-year repayment plan, which, with an interest rate of 6.8%, would give you monthly payments of $288.

If you have a family of four, make $50,000 a year and owe $20,000, your IBR payment would be $212 — compared to $230 on a 10-year repayment plan.

In the current economy, the program may be a huge help for recent grads who are earning less than they’d planned.

Another bonus: You can participate in the program for as long as you need to. In fact, if it takes you 25 years to repay your student loan debt under the income based plan, the government will cancel any remaining balance.

However, there is a catch. You’re essentially extending the repayment period of your loan — which means you’ll pay more interest over time.

If your monthly income-based payment doesn’t cover the interest that accrues each month, the government will pay it on Subsidized Stafford Loans for up to three consecutive years from when you start the program.

But after three years, the interest that accrues will be added to the principal, which is what your lender will use to calculate the amount of interest you’ll pay in the future if your income ever rises to the point that you’re no longer eligible for an income based repayment.

In addition, you have to submit income and family size documentation each year to reset your payment. If you don’t, it will automatically go back to the standard 10-year repayment amount.

Click here to find out more about the Income Based Repayment plan.

Fred took a different approach to paying off his credit cards. He deliberately missed a couple of payments, then called the credit card companies and asked them to slash his balances.

Bank of America, Discover and Citibank all said yes, offering settlements from 40 to 60 cents on the dollar. No arguing, no fighting, no asking to speak to a manager.

“They gave it up before I asked,” says Fred (who asked us not to use his real name so this wouldn’t become part of his Google legacy.)

This might sound preposterous given how the credit card industry has been treating its customers since the financial crisis struck — raising interest rates, slashing credit limits and even canceling the cards of customers in good standing.

But with 6.5% of all accounts at least 30 days late, it looks like banks are quietly trying to keep the recession from turning credit card defaults into the next mortgage mess.

Debt settlement is nothing new.

Reputable credit counselors routinely negotiate “debt management plans” with the credit card companies, which writes off about half of a creditor’s debt and establishes a realistic, 36- to 60-month repayment schedule to retire the balance.

But everything we’re seeing and hearing indicates there’s a sudden willingness on the part of credit card companies to strike such deals directly with their customers.

Customer service representatives have been empowered to settle debts and we’ve even heard that some cards are calling delinquent customers and offering to cut their debt in half if they’ll pay up.

These deals usually require cardholders to pay the remaining balance immediately. At most they’re given a couple of months to come up with the money.

The banks are being cagey on exactly who qualifies for such a settlement and how much debt they’re willing to forgive. But the American Bankers Association, their trade organization, confirms the general trend.

Mortgage brokers in at least some parts of the country tell us that lenders are starting to offer stated-income loans again.

These are the kind of mortgages that were for small business owners and self-employed professionals who can’t document their income with W-2 forms as most types of mortgages require.

Problems arose during the real estate boom when lenders started pushing no-doc loans with consumer-pleasing features such as no down payments, and big fees for mortgage brokers.

The number of applications for stated-income loans soared as brokers began signing clients up for no-doc loans even if they had regular jobs and could fully document their income with W-2 forms.

Why?

It allowed them to inflate their client’s income, and that was the only way those clients could qualify for a loan that was big enough to buy the house they wanted.

When hundreds of thousands of these “liar loans” began to default in 2007, lenders discontinued their stated-income mortgage programs.

Two years later some small to medium-sized banks are tiptoeing back into the market.

Not everywhere. Mortgage brokers tell us that stated-income loans are still virtually impossible to find in California, where much of the abuse occurred.

Some of the stated-income loans we’re hearing about are pretty awful.

One Michigan bank is offering a five-year balloon mortgage at interest rates from 8.95% to 14.95% depending on your credit score, with a 25% down payment (or 25% equity for a refinancing).

But brokers on the East Coast told us about stated-income loans with much better terms:

• Emigrant Savings Bank of New York is charging an initial rate of about 8% for a 3/1 adjustable-rate mortgage and 9% for a 30-year fixed rate loan. Borrowers must have credit scores of 700 or above and 30% down payments for a purchase and 35% equity for a refinancing.
• Investors Savings Bank based in Short Hills, N.J., is charging just a quarter-point above the interest rate for fully-documented loans for borrowers with a minimum credit score of 700, a 40% down payment, four months of cash reserves and proof of assets.
• Hudson City Savings Bank, based in Paramus, N.J., is charging three-quarters of a point above the full-doc loan rate for borrowers with a well-established credit history and a down payment (or equity) of at least 40%.

Credit cards are taking advantage of the recession to push “payment protection programs” that cancel or defer payments if you’re laid off, disabled or die.

But the benefits these debt cancellation or suspension programs provide are surprisingly limited when you consider the cost. The fine print is also loaded with restrictions and exclusions that make it hard to qualify and collect.

The Center for Economic Justice estimates that cardholders paid an estimated $2.5 billion in fees for debt cancellation or suspension programs in 2003, the most recent year available for those numbers.

Yet the credit card companies paid out only $135 million worth of benefits. They kept 95% of the fees they collected.

These programs are a far worse deal than payment insurance credit cards used to offer. Those were real insurance policies offered by real insurance companies and monitored by state insurance regulators.

The debt cancellation or suspension programs now offered by most major card issuers — including Citicorp, Discover, Bank of America, Advanta and Chase — are not considered to be insurance and aren’t regulated by state insurance commissioners.

Unlike with insurance, you don’t have to sign anything to be enrolled.

A verbal approval is enough. So think twice before answering “yes” to a question from your credit card company about whether you’d like to “protect your credit score” if you become ill or get laid off.

As I said in my last post, it’s becoming quite clear why none of the government’s heavily-hyped foreclosure-prevention programs seem to work.

Most of the blame has to be laid at the feet of the banks and mortgage companies that made and service all of the deceptive, unaffordable loans that created the housing crisis.

The first reason is that lenders have refused to hire the number of people they need to rework the millions of bad loans they created.

The second reason is that a shocking number of the loans they made during the housing bubble were more reckless and irresponsible than anyone wants to admit.

Too many of the families seeking help aren’t in just a little bit of trouble.

They’re in a lot of trouble.

They don’t make nearly enough money to repay the huge sums they were allowed to borrow, and owe so much more than their homes are worth, that it’s is impossible for any program to save these deals.

Obama’s refinancing plan allows banks to loan up to 105% of the current market value of a property. In other words, a family can owe 5% more than their home is worth and still qualify for help.

Yet many of the families who want to take part aren’t just a little underwater on their mortgage. They owe 20%, 30% or even more than their homes are worth.

Obama’s mortgage modification plan encourages banks to reduce interest rates and extend payment terms to lower monthly payments to no more than 31% of the borrower’s gross income — a common measure of affordability.

Yet most families aren’t in trouble because they’re spending 35% or even 40% of their income on housing.

They’re in trouble because the payments on their adjustable-rate mortgage have increased so dramatically that it’s gobbling up half, or more than half, of their income.

It’s not uncommon for families making $50,000 or $60,000 a year to be carrying $300,000 or $400,000 in mortgage debt. That’s not a little more than they can reasonably afford. That’s two to three times what they can reasonably afford.

To make the payments low enough to save those homes, banks must not only be willing to slash the interest rate, but forgive some of the debt — an option they’ve repeatedly rejected.

So what happens?

Overworked loss mitigation departments push the hopeless applications aside to pursue more promising cases.

Angry homeowners don’t understand why their repeated phone calls aren’t returned and why the government program they heard so much about isn’t helping them save their home.

Or the bank offers a catch-up plan that just adds the missed payments back into the loan, increasing monthly mortgage payments the homeowner already can’t afford.

The lender then counts that loan as a “modified mortgage” even though the home is on its way to foreclosure just as surely as it was before.

Bottom line: Bush counted on far more cooperation from the industry than he ever got, and now Obama is headed down the same path. If the president can’t solve these two problems we’ll soon be adding his foreclosure-prevention program to Bush administration’s list of failures.

President Obama’s anti-foreclosure program is off to a better start than either of President Bush’s completely failed efforts.

But that’s not saying much. Only about 100,000 homeowners have been offered mortgage modifications through “Making Home Affordable” since the program began this spring.

At that rate, it will never reach its stated goal of saving 4 million homes from foreclosure.

It’s also becoming quite clear why none of these heavily-hyped government programs seem to work — and the blame can be squarely laid on the banks and mortgage servicing companies.

The first reason is that lenders have never increased their loss mitigation staffs to anywhere near the size needed to deal with the crisis they created with all of their reckless loans.

After seeing story after story about how hard it is to get anyone on the phone, how borrowers are passed from loan specialist to loan specialist and asked to submit the same paperwork time and time again, I think we get the picture.

“This process has been extremely frustrating, with a lack of returned calls from BofA, and me having to contact different loan officers,” Jose Rivera of Manchester, Conn., recently told CNNMoney.com. “As a taxpayer whose taxes have been used to assist these large financial institutions, it is extremely frustrating, disappointing and discouraging to receive such a lack of assistance and poor customer service from these banks.”

The banks and mortgage servicing companies were more than willing to hire the thousands of employees it took to sell the mortgages that created the housing bubble because they made money off of that.

But it costs money to hire the thousands of employees it will take to fix those mortgages and they aren’t going to do it.

Charles Scharf, who runs J.P. Morgan’s consumer banking operation, acknowledged that customers are frustrated with all of the delays in an interview published in Wednesday’s Wall Street Journal.

“It is taking us longer than we want it to take,” Scharf said, “but we will do everything we can to build up our resources.”

Excuse me? This crisis didn’t start last week. It started two years ago. If you were serious about hiring the staff needed to deal with it, you would have done so by now.

The banks simply figure that if they drag their heels long enough, all of the homeowners that need help will default, fall into foreclosure and the problem will go away.

I’ll cover the second reason these programs are failing in my next post.

Ally Bank lowered its CD rates twice in the past two weeks after the government threatened to withdraw government support from its owner if it paid savers too much.

How much is too much?

A letter from Sandra Thompson, director of the FDIC’s Division of Supervision and Consumer Protection, infers that she doesn’t want to find Ally products among the top-paying CDs or savings accounts, or even paying much more than average.

If Ally follows the FDIC’s edict it will be yet another blow to savers struggling to earn even a modest return on their money.

All of the online banks certificates of deposits and savings accounts have consistently ranked among the two or three best-paying in the country.

Here’s what seems to be going on.

The Treasury Department allowed Ally’s troubled owner, auto financing giant GMAC, to become a bank holding company earlier this year so that it could qualify for a $20 billion federal bailout — $14.5 billion in capital and $4.5 billion to guarantee GMAC debt.

Washington couldn’t let GMAC fail because it desperately needed the Detroit-based lender to keep financing the purchase of new cars and trucks at General Motors and Chrysler dealerships across the country.

On May 21, the Federal Deposit Insurance Corp. finalized the agreement to guarantee GMAC’s debt so that it could continue to borrow some of the money it needed to make those loans.

According to a letter from Thompson dated on June 4, that agreement required GMAC to reduce Ally Bank’s “overall deposit costs.” Translation: Stop paying top dollar for CDs and savings accounts.

But GMAC was just launching a big advertising campaign to introduce Ally Bank — the new name for what had been called GMAC Bank. Touting Ally’s high interest rates was a big part of that campaign, which also accused other banks of abusing customers with sneaky fees and terms.

Those other banks were not amused.

After they’d taken billions in federal bailout money, they’d slashed the interest rates on their CDs and savings accounts to record lows.

The American Bankers Association wrote a letter to the FDIC on May 27 complaining that Ally was pursuing “risky financial strategies” by paying top-dollar for deposits.

On June 4, Thompson told GMAC that it would decide how much of its debt the federal government would guarantee based on how much it was paying to raise money through Ally Bank.

It wanted Ally to report the interest rates it was paying on every type of deposit, whether those rates ranked among the 10 best rates, and how much those rates exceeded the average rates in Bankrate’s weekly survey of major banks and thrifts.

(Full disclosure: Bankaholic is part of Bankrate and the average rates we quote are from that survey.)

While GMAC has lowered its rates twice since it got that letter, it’s still paying well above average rates, placing third on yesterday’s ranking of the best savings accounts.

How long that will last, we don’t know. But it seems that the government (and the big banks that dominate the ABA) is out to make savers pay a huge price for a financial crisis they did nothing to create.

Falling behind on your credit card payments, defaulting on an auto loan or losing your home to foreclosure could cause you to be turned down for a job.

A new study by the Society for Human Resource Management found 42% of companies that do background checks on job applicants are pulling credit histories to see if they’re paying their bills on time.

That’s’ up from 35% in 2003 and just 19% of employers in 1996.

Why do employers care?

Some think a bad credit history demonstrates a lack of judgment or character that can carry over to the work place.

Others worry that job applicants with lots of unpaid bills are more likely to steal from the company, especially if the work involves handling lots of cash.

That’s not necessarily true.

An Eastern Kentucky University study conducted in 2003 found no clear connection between job performance and an employee’s personal financial history.

Job applicants can also have a damaged credit history because of an illness or layoff that doesn’t reflect their ability to be a good employee.

Laws to limit employment-related credit checks are currently being considered in several states, including Hawaii and New York.

But for now, a credit check is perfectly legal as long as the applicant is informed it’s being done, and candidates can be turned away based on what that credit history reveals.

Jon Stewart created a hilarious introduction for Peter Schiff when the ardent defender of free market capitalism and possible Senate candidate appeared on the The Daily Show this week.

Stewart showed a collage of clips from as far back as 2006 in which Schiff warned the economy wasn’t sound and predicted the collapse of the housing market would cause a serious recession, to the guffaws of other experts and anchors on CNBC and Fox News.

“All the profits people have in real estate are going to vanish,” Schiff said, and “…It’s not just subprime, it’s the entire mortgage market.”

“Well you’re simply wrong about that,” celebrity economist Ben Stein told him.

Uh, sit down and shut up, Ben.

Of course Schiff spends much of his time criticizing the government’s meddling in the economy.

I’m not sure I buy Schiff’s argument that we’d have been better off not to bailout all of the banks that caused the financial crisis with their stupid lending.

Federal Reserve Chief Ben Bernanke says that would have caused a cataclysmic economic meltdown and Great Depression II. (The panic that followed Lehman Brothers’ collapse lends lots of credence to that fear.)

But you sure can’t argue with Schiff when he lays part of the blame for the financial crisis on Bernanke’s doorstep.

“The Federal Reserve has kept interest rates artificially low, and that has encouraged reckless consumption and reckless borrowing,” Schiff says. “If the Fed would get out of the way and let the market set interest rates, interest rates would have been a lot higher all along. And higher interest rates would have discouraged borrowing and rewarded savings.”

Amen.

It’s a topsy-turvy world when checking accounts are the most lucrative investment around.

Yet that’s the case this summer.

Hundreds of community banks across the country are paying 4% or 5% APY on high-yield checking accounts at a time when savings accounts, money market accounts and certificates of deposit are paying half that much.

Some banks limit these accounts to local customers. Others accept new accounts from anywhere in the country.

But the fact that the nearest branch might be hundreds of miles away is no big deal because of the other primo benefit these accounts offer — you can use any ATM for free.

Each month you’re reimbursed for the ATM fees you incur, usually up to a limit of $20 or $25. But that allows you to tap the most convenient ATMs for cash eight to 10 times a month.

The most generous of these accounts have no limit. Go every day if you want.

So, the best interest rate around and the ability to use any ATM you want for free — there must be a catch, right?

There is.

These accounts have more rules than regular checking accounts. The most common:

• You must make a minimum number of debit card purchases each month, usually 10 or 12. And they have to be the kind of transactions where you enter a personal identification number, not sign for purchases like a credit card.
• You have to receive all of your statements electronically. Some banks actually require you to log into your account once a month.
• You must make at least one direct deposit or regularly scheduled electronic withdrawal — to pay your gym membership, for example — each month.
• The interest rates are adjustable, and as for the rates on all types of deposits, the return on many of these accounts has been coming down. For example, many accounts that were paying 6% last summer are paying 5% now.
• There is a cap on how much money can earn the highest interest rate. The first $10,000 to $50,000 in the account usually qualifies. Balances over that earn a much lower interest rate, sometimes as little as 1.01% APY.

If you don’t follow the rules, banks can’t make enough money on these accounts to pay such high interest rates.

They hold down the cost of maintaining the account, and the mandatory debit card purchases generate extra revenue. Supermarkets, gas stations and other stores pay the bank a transaction fee every time you swipe your debit card and enter a PIN.

But there’s a limit to how much profit the banks can make with this clever scheme, which is why there’s a limit to how much money can earn the super-high rate.

It’s also why there are severe penalties if you fail to abide by any of these rules.

Mess up, and your interest rate for that month plunges to something like 0.30% and your ATM fees aren’t reimbursed.

So, is a rewards account right for you? It might be, if:

• You already use a debit card regularly. It’s not hard to use a debit card 10 times a month — breaking it out for groceries and gas will probably do it. But if you’re not in the habit, it does require a new way of thinking.
• You’re organized. You need to remember to meet all the bank’s requirements every month, so it helps if you’re good at keeping all your ducks in a row.
• You’re comfortable with Internet banking and have the patience to work with small banks that don’t always have the most up-to-date software.
• You have enough money to make the effort worthwhile.

Debt collection agencies have been working their public relations agencies overtime, trying to convince us that they’re sympathetic to people who have fallen onto hard times in this awful recession.

They’ve also promised that they’re following all the laws that regulate what they can and cannot do to get debtors to pay up.

Are pigs flying?

A recent report by New York Attorney General Andrew Cuomo says debt collectors threaten to throw people in jail, take away their homes, pose as lawyers serving lawsuits, tell neighbors and employers about unpaid bills, and call at all hours — all of which is illegal.

Take a look at a portion of “The Debt Trap,” an excellent Dateline NBC investigation by Chris Hansen, shows how workers at a collection agency in the Buffalo, N.Y. area, routinely coerce debtors by claiming to be police officers and threatening to have them “picked up.”

In late May, Cuomo obtained a court order shutting down two debt collection companies, Emanee Development, Inc. and Dial Tech LLC that had used fraudulent tactics like that to get people to pay debts they didn’t even owe.

In early June, Cuomo announced that three companies based in western New York, but that try to collect debts across the country, had agreed to pay $245,000 in fines for breaking state and federal debt collection laws.

Creditors Interchange Receivable Management, LLC, Capital Management Services, LP and Tri-Financial, LLC, also agreed to make it easier for consumers to file complaints against individual employees by placing a direct link on their Web sites to consumer complaint forms.

Cuomo said his office is investigating possible violations at more that 30 other collection agencies.

If debt collectors are calling you, here’s what the federal Fair Debt Collection Practices Act does not allow them to do:

• Call before 8 a.m. or after 9 p.m.
• Talk to anyone else about your debt, including family and employers.
• Bluff legal action.
• Bluff garnishing wages or taking your home.
• Tell you you’ve committed a crime.
• Threaten that you’ll be arrested.
• Threaten you with violence or harm.
• Curse or use racially charged language.
• Pretend to be law enforcement officer or lawyer.
• Call your place of work if you have told them they are not allowed to call there.

Federal Reserve chairmen do not do interviews.

But Ben Bernanke broke with tradition and did a long interview with CBS reporter Scott Pelley for “60 Minutes” last night. (Click here to watch the first part of the interview)

His message: If the federal government hadn’t bailed out the nation’s banks, and insurance giant AIG, we’d have fallen into a second Great Depression.

“I thought we were pretty close to a global financial meltdown” last fall, Bernanke says.

“How much danger was there?” Pelley asks. “How close a call?”

“It was very close. It was very close,” Bernanke replies “The Congress passed the bill that gave Treasury the right to put capital into the banks the first week in October. And it was in the second week in October that the crisis reached its peak. If we’d not had those powers we could have had a much, much worse outcome. So it was a very dangerous situation.”

For an understated academic like Bernanke, that’s the equivalent of setting his hair on fire.

He says the Fed made two big mistakes that helped to turn the recession of 1929 into the depression of the 1930s, and one of those mistakes was standing by and allowing bank after bank to fail.

The world wide panic that followed Lehman Brothers failure in September “proved that you cannot let a large internationally active firm fail in the middle of a financial crisis.”

While he doesn’t think the financial system is back to normal, Bernanke says it’s recovering, that the recession will end sometime this year and a recovery will begin in 2010.

Medical bills, not credit card debt, are the major reason most Americans are file for bankruptcy.

And the problem just keeps getting worse.

A couple of years ago about half of all bankruptcies were caused by doctor and hospital expenses that families just couldn’t pay.

Now a new study by the Harvard Law School, Harvard Medical School and Ohio University says they caused 62% of all personal bankruptcies filed in 2007.

The most shocking finding is that most of those families weren’t uninsured. They were underinsured.

More than 75% of the families who filed for bankruptcy because of medical bills had health care coverage of some kind. Their insurance simply didn’t pay significant parts of their bills.

Out-of-pocket medical costs averaged $17,943 for medically bankrupt families, with hospital bills usually the single largest expense.

This was not always the case.

As recently as 1981, only 8% of families filing for bankruptcy did so because they couldn’t pay their medical bills.

Today, it seems millions of families are just one illness or accident away from financial ruin.

When credit card companies were fighting a new federal law to curb some of their worst abuses, they threatened to raise other fees and interest rates if it passed.

Well it passed, and now we’re watching to see if the credit card companies will start squeezing money from their customers in other ways.

Or, as Capital One CFO Gary Perlin called it at an investor conference this week, there will be a “reinvention” of pricing and fees.

The new law goes into effect in February, and primarily protects credit card holders who have been hit with big fees and higher interest rates because they were late with a payment.

It forbids credit cards from imposing a penalty rate until customers are more than 60 days late with a payment, and requires the credit card to restore the previous, non-penalty rate once a customer has made six, on-time payments.

To recoup that lost revenue, the credit card companies have suggested a long list of ways they can impose more costly terms on all cardholders.

They’ve threatened to raise interest rates, impose annual fees on cards that don’t have them, boost balance transfer and cash advance fees, scale back reward programs and eliminate grace periods so that interest accrues from the moment a purchase is made.

Of course, the credit card companies were busy raising interest rates and fees before the new law passed.

But we’d like to hear from anyone who gets a letter that imposes significantly different terms on their cards as the effective date for the new law draws closer.

I can tell you right now that I’m going to close the first account that starts charging an annual fee, or eliminates the grace period, and start looking for a better deal.

What’s your strategy going to be?

There’s a lot of hand-wringing over how much Washington will interfere in the day-to-day affairs of General Motors now that it’s in bankruptcy and the government is supplying all the money.

President Obama has responded by promising that his administration will be a hands-off investor and sell its 60% stake in the automaker as quickly as possible.

But what exactly are we worried about?

Obama and his team of auto industry advisors led by financier Ron Bloom can’t be more incompetent than all those GM executives who wrecked the company — and remain in charge.

Indeed, that seems to be the weak link in the president’s entire plan.

Obama is using the automaker’s bankruptcy to make all the changes GM’s management resisted for years — focus on fewer brands, prune the overgrown dealer network, lower the company’s debt and deal with its uncompetitive labor costs.

Sure, Chairman and CEO Rick Wagoner and Vice Chairman Bob Lutz are gone. But I haven’t heard any plan to get rid of all the other top managers who are just as responsible for GM’s lousy cars and trucks.

Why should we have any confidence in their ability to create the new models it needs to stop losing market share, regain consumer confidence and truly compete with the likes of Toyota and Honda. Or even Hyundai.

Turning a spiffy new GM over to these guys is like turning the keys to a Corvette over to a teenager. It’s going to be wrapped around a tree in no time.

Until new leadership is found, I wouldn’t invest a dime in the new GM no matter how badly the president wants to get the government out of the car business.

George4title has won a following on the Internet with his YouTube videos on the dire consequences of the housing crisis and recession, and how to prepare for an impending, economic catastrophe.

He’s bought into the Ron Paul, Peter Schiff, Glenn Beck line of thinking that the huge deficits Washington’s running up to bailout the banks and boost the economy will lead to the collapse of the dollar — and civilization as we know it.

Recently, for example, George4title has posted videos on how to live out of your car and why we can no longer afford to buy food at grocery stores.

His videos usually have “inflation.us” superimposed on the action, which is the Web site of the National Inflation Association.

It’s “preparing Americans for hyperflation” by urging us to buy shares in mining companies that “will capitalize significantly on the upcoming gold and silver boom” since the dollar will soon be worthless.

But George4title’s shocking new video says he’s no longer preparing for economic collapse.

Seems his wife put her foot down and threatened to take the kids and leave if he didn’t stop preparing for the apocalypse and resume a more normal life. He’s torn, but acquiescing to save his family.

A mistake? Brings us back to the question of whether or not inflation is a serious threat.

It’s hard to know exactly how much money kids need for college because so much depends on where they plan to go.

But a new type of calculator is providing much better estimates of how much parents will be expected to pay, and what kind of financial aid a student might qualify for, based on family income and the school’s tuition and housing costs.

A higher education law Congress passed last year requires all colleges to have net price calculators on their Web sites by 2011, and they’re already available at schools including the Massachusetts Institute of Technology, Yale University, Princeton University, Amherst College and Williams College.

The calculators ask for much of the same financial information — such as family income and assets — as the government’s Federal Student Aid program seeks on its Free Application for Federal Student Aid (FAFSA).

It uses that to determine how much each student will be expected to pay. (In college speak, that’s the “Family Contribution.”)

The calculator then shows how much it costs to go there and the financial aid package the school might propose to make up the difference between the family’s out-of-pocket contribution and the total bill.

In an example we ran using Amherst College’s calculator (see above), the school proposes a generous scholarship and modest campus job.

The Massachusetts school was one of the first colleges to stop requiring student loans as part of its financial aid packages. That’s why “Student Loan” shows up as “0″ on the calculator’s final form.

But for most colleges and universities, student loans are a big part of financial aid packages.

Remember when the overheated housing market made it almost impossible for anyone to buy their first home?

Well, those days are definitely over.

During the first three months of 2009, nearly 73% of all homes sold were considered affordable for families earning the $64,000 national median income, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

That’s the highest percentage in the 18 years the index has been published.

The primary reason is that home prices are falling across the country. (It certainly isn’t because family incomes are rising.)

Home values fell an average of 20% from their 2006 peak through the end of 2008 and are expected to drop another 15% to 20% this year. Indeed, the latest report from the National Association of Realtors says the median sales price for homes sold in April was 15% lower than in April 2008.

As a result, the number of homes that the median income family can afford has steadily risen from 53.8% in the first three months of 2008, to 62.4% in the final three months of 2008, to the record high of early 2009.

That’s why first-time homebuyers were able to buy more than half of all the homes sold in March, and more than 40% of all those bought in April.

Indianapolis remains the most affordable major housing market for the 15th consecutive quarter. Almost 95% of all homes sold were deemed affordable to households earning the area’s median family income of $68,100.

The New York-White Plains-Wayne, N.Y.-N.J. region — where only about 21% of homes sold in the first quarter were affordable to those earning the median income of $64,800 — was deemed the least affordable area.

If you’d ask us a week ago, we’d have said ShoreBank in Chicago and Heartland Bank Direct in St. Louis had the top-paying savings accounts.

At the time, ShoreBank was paying 2.45% APY and Heartland 2.30% APY.

We aren’t sure any savings account paying less than 3% should be considered a high-yield savings account, but that’s what ShoreBank calls theirs. (Heartland uses “Performance Savings.”)

And we couldn’t argue with the fact that they had the best rates on savings accounts that are available nationwide.

Then, over the past couple of days, ShoreBank reduced its interest rate to 2.05% APY and Heartland Bank to 2.10% APY.

Now Tennessee Commerce Bank in Franklin, Tenn., and Ally Bank, which used to be GMAC Bank before last week’s name change, have the best high-yield savings accounts — 2.30% APY and 2.25% APY.

How long will it be before those banks lower their rates?

We had hoped rates would bottom out this spring.

But the average interest rate for virtually every type of savings we track with our weekly surveys fell another tenth of a point over the past month.

That’s about how much those rates fell the previous month. And the month before that.

If this is the bottom, we can’t see it yet.

This report from CNN’s “Lou Dobbs Tonight” says the “pay gap between pubic and private workers is exploding.”

It cites a study that says the difference in average compensation — that’s wages and benefits — between federal and private workers grew from 68% in 2000 to 102% in 2007.

The average compensation for federal workers reached $110,450 a year vs. $57,615 for the average private worker.

Why?

The biggest reason, according to CNN, is that federal workers continued to receive pensions and retiree health care benefits that were being reduced or eliminated by private employers.

There’s no reason to expect the trend will change anytime soon since federal workers just got a 3.9% pay raise at a time most private employers are dealing with wage freezes or pay cuts.

“The American taxpayer is paying for exorbitant benefits and compensation and pay scales that are double their own average salaries,” Dobbs says. “That’s the stuff of revolutions.”

Yeah, but shouldn’t some of that outrage be saved for the private employers who keep cutting the pay and benefits of their workers?

And anytime someone talks about fixing the economy you can bet they want to eliminate good paying jobs and make middle-class families work for less.

Is this really the road back to prosperity?

AmTrust Direct has won lots of attention from Bankaholic over the years.

It continues to have one of the top-paying money market accounts in the country, and back in 2006 we praised the awesome 5.51% it was offering on 6-month CDs.

But the online division of AmTrust Bank in Cleveland is overhyping its current CD rates when it says: “Apply online today for some of the best Certificate of Deposit (CD) rates in the nation!”

Amtrust Direct is offering one decent deal: a 6-month CD for 2.00% APY. Although that’s well above the national average for 6-month CDs, it’s not high enough to make our latest ranking of the best rates for 6-month CDs.

Every other CD — from 9-months to 60-months — only earns:

• 0.75% for deposits of $10,000 or less.
• 0.85% for deposits of $10,000 to $25,000.
• And 1.00% for deposits over $25,000.

All of those rates are well below the national average for those CDs.

The bank also urges its customers to “fund a new CD account with ease by simply moving money from your existing AmTrust Direct e-Money Market or e-Savings account.”

That would be a mistake with it’s MMA paying 2.25% — or more than twice as much as any of its CDs.

We think AmTrust Direct needs to raise its CD rates or rewrite its promotional copy.

We know the big bank cards are cutting credit lines and raising rates.

But store cards — the kind you can only use at one retailer — are not a good place to go for more credit.

Don’t be tempted by cashiers that ask “Would you like to save 10% on your purchase today?” every time you check out.

The interest rate on these cards routinely start at 20% or more. Carry a balance for a couple of months and that discount your received will be quickly eaten up by finance charges.

Be especially wary of store cards from furniture and electronic stores that come with offers of “0% interest for 12 months” or “0% interest for 24 months.”

You won’t pay any interest on that sofa or flat-screen television right away.

Customers who don’t repay the entire balance before the time is up are charged interest on the full price dating back to the date of purchase — and at retail store interest rates.

That’s the case even if they have a balance of just $1, or are late with their final payment by just one day.

The cost of homeowner’s insurance was 2.6% higher in February and March than a year ago, according to recent Bureau of Labor statistics.

The Insurance Information Institute projects that the average premium will rise from $820 in 2008 to $841 this year.

I’m sure the insurance industry thinks we should be grateful since it’s foisted much bigger price hikes on us the past couple of years.

Many homeowners along the Gulf of Mexico and Atlantic coasts are already paying twice as much as they did before Hurricane Katrina struck in 2005.

But I didn’t feel all that appreciative when I saw these stats and my renewal notice, which pushed the annual premium over $600 for the first time.

I also know premiums would be going up even more if insurers weren’t making subtle changes in policies that limit their costs if you have a claim.

You’ve also got to watch out for the 4 ways insurers cut homeowner’s coverage.

If you’re facing a big increase in the cost of your policy, you can try to save money by:

• Reviewing your coverage. Meet with an agent or broker to see whether any of the insurance you have for your home is no longer needed.
• Looking for discounts. You may be able to get a discount for insuring your home and car with the same provider.
• Raising your deductible.

Increasing your policy’s deductible will lower the amount you pay for insurance.

It’s great to have money stashed away to pay for all of those holiday gifts without running up big credit card bills.

That’s the advantage of joining a Christmas Club at your bank or credit union.

You make a deposit every month or sign up for a payroll deduction from every paycheck. You can start shopping, and making withdrawals, in October.

What’s not to like?

The lousy interest rates. Christmas Club accounts never pay very much, but they’re particularly Scrooge-like this year.

The University of Illinois Credit Union, for example, is offering a paltry 0.60% APY — and that’s the best deal we know of.

Most Christmas Club members will earn 0.10% to 0.25% APY.

We like almost any program that promotes savings through payroll deductions.

But for banks and credit unions to be promoting Christmas Club accounts with interest rates like these is just shameful.

The fast-food chain is teaming up with America’s favorite serial-dieting talk show host to promote its new Kentucky Grilled Chicken.

The result is the hottest coupon to hit the Web in months: “The Oprah Winfrey Show” free chicken dinner.

Download this KFC coupon and you can get a free dinner — 2 pieces of the grilled chicken and two sides.

The new grilled fowl has just 70 to 180 calories and four to nine grams of fat per piece, which is a lot less than the 130 to 360 calories and eight to 24 grams of fat you’ll find in KFC’s original recipe.

We can only hope this is more successful than KFC’s last foray into healthier eating, the Rotisserie Gold chicken that was tried back in the early ’90s and was supposedly from a “lost” Col. Sanders recipe.

You can print up to four coupons, and it’s good through May 19 with the exception of Mother’s Day (which is May 10.)

But hurry, the coupon can only be downloaded through 9:59 P.M. CDT on Wednesday, May 6.

We don’t think anything paying a pathetic 0.10% should be promoted as a “high-yield” savings, checking or money market account.

Yet lots of banks and credit unions are doing that as they cut rates to virtually nothing on accounts that haven’t lived up to their name for months — if they ever did.

We’re talking about you, Franklin National Bank in Minneapolis, and your “Franklin High Yield Savings Account” that pays 0.10% on deposits up to $50,000 before soaring to 0.13% for balances from $50,000 to $200,000.

And you, First National Bank Texas, and your “High Yield Checking Account” (0.10% on balances up to $10,000).

And you, Members First Credit Union in Manchester, N.H., and your “Cash Multiplier High Yield Savings” (0.10% on balances of $1000 to $5,000. Below $1,000, you earn a big fat 0%.)

And you, Wainwright Bank & Trust in Boston, and your “High Yield MMDA” (0.10% on balances up to $25,000.)

We aren’t fooled.

A new deal between the nation’s best credit counselors and the biggest credit card companies could help more borrowers repay their debts.

The credit card companies have agreed to accept smaller payments, over a longer period of time, when members of the National Foundation for Credit Counseling negotiate repayment plans on behalf of struggling cardholders.

When borrowers who’ve fallen behind on their credit card payments seek help, credit counselors often work out what’s called a debt management plan.

The card companies usually agree to forgive about half of the debt if the customer will repay the rest in monthly payments that cover about 3% of the new balance.

But last year the NFCC found it couldn’t help 400,000 clients because they owed so much it was impossible to negotiate a debt management plan they could afford.

You just know that the next stop for many of those borrowers was bankruptcy court.

To fix that, the NFCC worked out two new debt repayment plans designed to help maxed-out consumers reach a deal with the 10 largest credit card issuers — American Express, Bank of America, Capital One, JPMorgan Chase, Citigroup, Discover Financial Services, GE Money, HSBC, U.S. Bank and Wells Fargo.

They will allow cardholders to stretch the payments out longer, so they can repay only 2% or 1.75% of the initial debt each month.

Now a consumer who agrees to repay $24,000 through a debt management plan could qualify for monthly payments as low as $420, rather than $720.

Of course the credit card companies have the right to review a customer’s finances and determine how quickly they can afford to repay their balance and who will be allowed to take advantage of the new, lower payments.

But if they’ll be reasonable, this could not only help consumers, but cut the credit card companies losses.

(Here’s how to find an NFCC member agency near you.)

We’re awfully taken with the 2010 Kia Soul, which just went on sale this spring.

We admit that part of the appeal are the hilarious ads with the tune-loving, claw-tapping, commuting rodents.

But Bankaholic’s Auto Critic (yeah, we’re full of surprises) has spent some time behind the wheel and thinks the Soul is a good buy. Here’s what he has to say:

“The Kia is about the edgiest thing going, with a wedgy rollerskate shape that’s much more stylish than the slightly odd box-mobiles that have targeted young drivers in the past.

“Scion xB and Honda Element. We’re talking about you.

“But I’m not recommending the Soul strictly for its styling chops.

“Like many Korean models, it’s stuffed with the latest electronic features and safety equipment, yet still carries an aggressively low price. Standard for every Soul (there are four trim levels) are must-haves such as electronic stability control, antilock brakes and six airbags.

“The best buy is the Soul+. Included in its $14,950 base price are air-conditioning, power windows and locks and remote keyless entry, a USB port and Bluetooth connectivity.

“Add the $950 automatic transmission to back its unassuming 142-horsepower, 2-liter engine, and the $400 audio upgrade, and the Soul+ is a mega-cool and frugal compact that goes out the door for $16,995 (that even includes the $695 destination charge).”