Loan Modification

Resist the Offer of a Debit Card That Draws on Your HELOC

By Däna Wilkinson, Attorney at Law

Lenders have come up with a lot of products that have turned out to be bad news for consumers-exploding ARMS, payment option loans, just to name a couple-but the one I heard about this weekend may have far greater negative potential for consumers than any of the others.  Bank of America is offering some of its mortgage customers (including former Countrywide customers) a debit card that draws down your home equity line of credit.

That’s right-you can carry around a card that increases the mortgage debt on your home every time you use it.

The problems for consumers that such a card could cause are numerous-stolen cards, overcharges and the like.  Remember, debit cards may not be entitled to the same protections against fraud and theft that credit card accounts enjoy.

But perhaps the worst of the problems is that the thoughtfulness with which we use our credit and debit cards is far different than our HELOCs.  I am reminded of research that shows that people will spend a small bill (or change) more quickly than a larger bill.  It seems to me that almost anyone (me included) would spend more, and spend on different things, if using a debit card rather than a more traditional draw against a HELOC.  Even people who have a checkbook that draws on your HELOC, you don’t usually carry it around with you.

My suggestion-if you get an offer for a debit card, be sure you understand how it works, and which account or accounts it draws against.  And if the offer is for a debit card that draws down your HELOC, shred it.

Full post as published by Mortgage Law Network on May 25, 2009 (boomark / email).