Finance

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TJX Settlement: You’ll Probably Get Nothing

Late last Friday, TJX Companies, the parent of Marshall’s and TJ Maxx, announced it had reached a tentative settlement of a class action suit arising out of a massive data security breach at the company. About 45 million credit and debit cards were said to have been compromised.

To hear the story of the settlement told on TV or radio, you might have believed if you had shopped there over the past few years, you would be entitled to three years of credit monitoring service and id theft insurance free:

Associated Press – September 21, 2007 7:04 PM ET

FRAMINGHAM, Mass. (AP) – The TJX Companies has agreed to a settlement of class action lawsuits filed after a massive security breach involving customer data.

A statement on the company Web site says the proposed settlement includes three years of credit monitoring along with identity theft insurance for those affected by the breach.

It still requires court approval.

In January, Framingham-based TJX disclosed that computer hackers broke into its systems.

At least 45 million TJX cards were hacked.

That is not the case. A closer reading of the fine print of the proposed agreement severely limits which shoppers will get three years of free services.

*MOUSE PRINT:

 2.1 (a) TJX shall make available free of charge (i) to Unreceipted Return Customer Claimants (other than those set forth in subparagraph 2.1(a)(ii)), three years of Credit Monitoring and Identity Theft Insurance from the date of subscription,

So, it is primarily shoppers who returned goods without a receipt during the relevant period who qualify for that part of the settlement. That amounts to some 455,000 people, a mere 1% of the total number possibly affected. These people have already received a direct notification of the breach from TJX, and will also be entitled to other compensation if they experienced actual losses.

For everybody else who made a purchase at a TJX store by check, credit or debit card between certain dates, and who suffered more than a $5 loss as a result of the breach, you will be entitled to $30 to $60 in merchandise credit depending on the level of proof you have. Despite the large number of card numbers stolen, it appears that very few people actually became victims of id theft. That may best explain why most of the 45 million cardholders will not be entitled to compensation.

Lastly, TJX stores will have a 15% off everything sale sometime in 2008 for three days, available to everyone.

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Quicken Loans: Cut Your Mortgage Payment by 50%*

quicken loansHave you seen the commercials on TV for mortgage loans where you can get a $150,000 loan for only $450 a month (rather than the usual $1000)? [Watch commercial]

The ad is for Quicken Loans’ “Secure Advantage” loan. Among the other claims being made are, “Choose a low payment month after month,” and “Cut your payment by over 50%.”

Who wouldn’t want to pay $450 a month for a loan that others charge $1000 a month for?  That is some bargain, right? And the offer is coming from the namesake of the popular and respected financial software product, Quicken. How can you go wrong?

*MOUSE PRINT:  

Like the credit card companies, Quicken Loans is quoting only the minimum payment you can make on this loan each month. What is the downside of making only the minimum payment?

“When you choose to pay the minimum payment, you’re paying less than the full interest that is due for that month. By deferring your interest, the unpaid interest is added each month to your outstanding principal loan balance.

If you defer payment of interest, your outstanding loan amount could exceed the value of your home. This may affect your ability to refinance your loan or sell your home since you will owe more than what your home is worth. A higher loan amount may also result in larger payments down the road.”  [Quicken Loans website]

In dollars and cents, the website’s example says that a $150,000 loan would only cost $438 a month because it uses an artificially low 3.5% interest rate during the first five years of the adjustable rate loan. If you only paid the minimum, by month 53 of the loan, your payment would jump to $934, then to $1078 after five years, and finally to $1389 after 10 years when you finally start to pay off some of the principal (the amount of which at this point is not stated, but higher than the original $150,000).

Negative amortization loans (where the loan principal increases rather than decreases) is a dangerous type of loan to enter into for the financially unsophisticated. It is shortsighted financial thinking to make financial decisions  based only on affordable monthly payments, whether it be for a mortgage, car purchase, or credit card payment.

For more information about adjustable rate mortgages, here is a consumer handbook from the Federal Reserve Bank. [.pdf format]

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Capital One No Hassle Rewards: Only $48,000 Roundtrip

Capital One card Everyone has seen the Capital One TV commercials that convey the impression that cashing in points you have earned for a free trip with other banks’ credit cards is nearly impossible. Whatever date you want, “the answer is always ‘no’.” [Watch commercial.]

The fix, they say, is to get a Capital One “no hassle” card with no blackout dates on any airline. Sounds great, right?

What they don’t tell you in the ad is that they charge you an arm and a leg in points for some “free” domestic roundtrips — far more than many of their competitors. So, in keeping with the spirit of their press release a few weeks ago, urging consumers to be more informed when making financial decisions, herewith are their terms and conditions: 

*MOUSE PRINT:

§ The number of miles required by the Cardholder for travel redemption will depend on the cost of the itinerary chosen by the Cardholder at the time of redemption. The mileage requirement is as follows: 15,000 miles are required for tickets up to $150.00; 35,000 miles are required for tickets from $150.01 up to $350.00; 60,000 miles are required for tickets from $350.01 up to $600.00. For tickets over $600.00 in value, the required number of miles will be determined by multiplying the cost of the ticket by 100 (ex. $768 ticket requires 76,800 miles). [see website]

Translation: A $400 airline ticket will require 60,000 points. To earn 60,000 points under Capital One’s revised system where every dollar spent earns 1.25 points on their regular card [up from 1 point], you would have to purchase $48,000 worth of goods and services.(Some purchases and other of their cards may earn 2 points per dollar spent.) 

It has been a rule of thumb in the travel industry to charge 25,000 points or miles for a free domestic roundtrip. Bank of America, for example, lets you redeem 25,000 points for a ticket worth up to $400. Earning points at the rate of 1 point per dollar spent, your free trip would require $25,000 in expenditures on the card, about half what Capital One requires.

Providian’s “Real Rewards” card earns a point per dollar spent, and one can get a $500 ticket for only 20,000 points. [Card no longer available to new applicants.]

Both Chase and Citibank, the two leading credit card issuers, make it almost impossible to determine in advance of applying for their cards how many points are required for particular rewards. And some of them are now imposing up to a $59 redemption fee.

The power of repeated advertising for Capital One’s “no hassle” card no doubt has brought it many customers who didn’t bother to check the fine print before applying.