We all know it often costs money to get your own money at an ATM machine; but now, you might have to pay up when you don't get money.  Let me introduce you to a fee you've probably never heard of -- the "ATM denial fee." Rejection, it turns out, can be costly. 

Some banks are sneaky; their ability to slip itsy-bitsy fees onto your monthly statement proves their creativity knows no end. The death-by-a-thousand-cuts draining of our bank accounts happens relentlessly -- $3.00 check enclosure charge; $2 out-of-network withdrawal fee; $10 for dipping below a minimum $1,000 balance for an afternoon; $13 for new checks.  One of those fancy free checking accounts can easily cost $50-$100 a year. 

But the denial fee is a new entrant into this game, or at least, it is new to me and many industry insiders. Bank of America, on the other hand, says it's old hat.  Either way, here's how $1.50 leaked out of my checking account for money I didn't get, and how it might be leaking out of your account too.

Quick: What's your daily ATM withdrawal limit?  If you said $400, you might be wrong. At Bank of America, for example, the limit is $300.  The price of making that mistake is $1.50.  That's what I found out last month when I tried to grab as much cash as I could before I hopped a plane to cover Hurricane Rita in Texas.  Given other reporters' experiences after Katrina, I decided to bring as much cash as possible.  The ATM nearest the plane gate wasn't Bank of America, but I decided to pay the $4 or so in fees for using another bank's machine.

My first attempt to get $400 was denied and my transaction canceled. That's all I knew. I took my card back.

Moments later, I tried to withdraw $300, and was warned I'd face fees both from the machine owner and my bank for using the wrong ATM. Duly censured, I accepted the fee. And that, I thought, was that.

It was, until I spied my bank statement a month later. I found that I was charged $2 for the cash I did get, and another $1.50 for the cash I didn't get. ATM Denial Fee, my statement read.

"What is this?" I asked Bank of America's customer service telephone representative.  I did not tell him I was a reporter. I was calling as a customer.

The rep calmly explained that it was, in fact, an ATM Denial Fee.  I must not have read the latest disclosure statement from the bank, he said. He then explained that Bank of America is charged fees by other banks when a withdrawal is attempted, whether it is successful or not. This bank-to-bank fee can be $5, $7, or even more, he said.  He then explained to me that the bank actually eats close to 90 percent of these fees and is just trying to recoup some of the costs.

To be fair, he agreed to wipe away the $1.50 fee when I told him the circumstances of the failed withdrawal.  Still, I hung up wondering just how many people have been unknowingly paying these denial fees. I set out to learn more about them.

'A new one on me'
I called Tony Hayes of Dove Consulting, an ATM expert. He'd never heard of ATM denial fees, and he was skeptical that Bank of America would have to pay the $5-$7 that its customer rep quoted me for a failed withdrawal.

Then I tried Greg McBride of BankRate.com, who studies ATM fees. His oft-cited reports are among the most comprehensive in the industry.

"That's a new one on me," he said.

But Betty Riess of Bank of America knew all about denial fees. In fact, she said, there's nothing new about them.  The bank had been charging them "for some time."  There was no updated notice earlier this year, she said. She also wouldn't discuss the intra-bank fees my customer service agent mentioned, but she did say she had no idea where he got his facts. 

Denial fees are spelled out on Bank of America's Web site.

"The denial fee applies to each request to withdraw funds at a non-Bank of America ATM that is denied because the request exceeds either your available balance or your daily cash limit," the site says.  I hadn't read it.

It's unclear how many other banks charge such a fee. Washington Mutual's Mary Kelley said her bank didn't charge denial fees; A spokesman for Citibank said the bank doesn't charge a denial fee.  An Internet search revealed some smaller banks do have denial fees published on their Web sites. Bank of America's $1.50 was the steepest I found, however.

'Wrong ATM' charges cost $4 billion a year
McBride, from BankRate, was surprised to learn of this denial fee, but he did say something that is probably obvious to all of us -- bank ATM fees are at the highest rate ever.  In fact, in a report he issued earlier this year, McBride said consumers pay $4 billion each year as a penalty for using the wrong bank's ATM. That's up 44 percent from 1999 levels, his report said.

That's a lot of $1.50 charges. Revenue by 1,000 cuts.

But we're just trying to run a business, banks protest.  In the past, I have heard the following arguments from banks: Consumers have more access to their money than ever before, and should pay a little for that.  ATM machines are actually expensive to operate, and most banks lose money on them (see "Are there too many ATMs). And banks face fees from each other, so consumers should expect to cover some of that cost when they use the "wrong ATM."

It all makes some sense, except that last point, which is hard to swallow. Banks may well be charging each other indiscriminate fees, but does that mean they should pass those fees on to us?

'Gotcha' capitalism
This is not a fair market.  Consumers paying the fees often don't have a choice.  Often, they are forced to pay the fees when facing some crisis or time crunch, like when I was leaving for the hurricane.  That's no time to change banks.

This is the first example of a phenomenon we'll discuss a lot in Red Tape Chronicles,  something I call "gotcha" capitalism.  You're in a hurry to catch a plane, you don't have time to refill that rental car tank – "Gotcha!" Suddenly, a gallon of gas costs $6.  Oh, and that ATM transaction will cost you $5.50 -- $2 to the machine, $2 to your bank, and another $1.50 for a typo that made you ask for $400 withdrawal instead of $300.

That's not to say ATM fees are entirely unfair.  Consumers shouldn't expect to receive something for nothing.  The convenience of getting cash from any bank's machines is worth something.  But when banks are charging something for nothing, then we know something is wrong. 

Sharks smell blood, vultures sense death, and scam artists know when consumers are drowning in debt.  As we discussed last week, the credit counseling business is awash in shady offers and less-than-honest firms that actually make matters worse for debtors. And now, thanks to America's new bankruptcy law, more people than ever will be in the market for credit counseling.

Here's how to avoid the sharks.

First thing to know: There is a big difference between the 90-minute compulsory credit counseling sessions that bankruptcy candidates must now attend, thanks to federal law, and a full-fledged debt management plan offered by credit counselors and credit repair firms, says Liz Pulliam Weston, author of Your Credit Score and Deal With Your Debt. 

The new congressionally mandated, bankruptcy-related classes are much more like "traffic school -- you are in and you are out," Weston said. The classes can even be taken over the Internet.   Don't expect a whole lot of wisdom in these sessions. Hopefully, they won't last long enough to do much harm. 

It's also important to know that most sessions with most credit counseling and credit repair firms you see advertising their services won't satisfy the bankruptcy requirement.  The only agencies that will are listed at the U.S. Trustee Program Web site (click here).  These agencies have been vetted by the Justice Department, and hopefully will be scam-free. 

There's scams, and then there's bad advice
That's not to say these firms will do an equally good job of dispensing advice to those who are laden with medical bills and credit card debt. That's why it's important to ask the same questions whether you are filing for bankruptcy or just looking for help getting your monthly bills under control.

Ask how the company makes its money; ask how often clients end up eventually filing for bankruptcy; ask for a list of fees in writing. Ask employees about their backgrounds. If any of those questions make them squirm, run away.  Many credit counseling mills hire just about anyone off the street. The counselor is probably no better at budgeting than you. 

Other firms are compensated heavily by the credit industry, so they will be more interested in getting your money than in giving you good advice. 

However silly this sounds, you'll have to make sure your bills will actually be paid.  The dirtiest counseling firms take consumers' money under confusing terms, and keep most of it. Little, if any, goes to pay lenders. Later, consumers are shocked to find their debts have only increased. Get in writing a list of bills that will be  paid, and don't assume they have been.  Call your creditor on your own and make sure the money's gotten there.

Other signs you are not dealing with a reputable firm: Aggressive promises indicating you can get out of your debt without filing bankruptcy. Many creditors will lower interest rates as part of a negotiation, but it's rare they will forgive debt unless a judge tells them to.

Don't trust agencies that suggest you simply stop paying your lenders.  The repairman is probably suggesting you attempt to create a brand-new credit file at the nation's credit agencies by obtaining a new Social Security Number or Employee Identification Number from the IRS. That's a bad idea that might land you in jail.

Will end up on your credit report
Another tricky tactic used by less-than-savory credit counselors: They'll dispute every item on your credit report, a process known as "reinvestigation" in the credit business. The hope is that some lendors will miss the paperwork, and you'll sneak out from under a few bills. It rarely works, and it can be illegal. 

There are genuinely helpful credit counseling agencies out there. The industry's association group, the National Foundation for Credit Counseling, is hard at work trying to repair the industry's image.

But consumers should know that even the most-well intentioned repayment plans instituted by the most honest credit counseling firm will have consequences.  A note is entered on the consumer's credit report indicating they are in credit counseling, according to Weston.  While some credit scoring formulas ignore that note, others do not, and penalize the consumer.  Some lenders that pull the full credit report will treat the notation as if the consumer is in Chapter 13 bankruptcy. 

One expert's advice: Don't go
That's why the decision to undertake credit counseling should be made very thoughtfully. And in fact, Elizabeth Warren, author of The Two-Income Trap, thinks the decision shouldn't be made at all. 

Her advice is simple: "Don't go."

"He who pays the piper calls the tune. When the credit card companies are paying for your credit counseling, they are the ones who will be helped," she said.  Counselors will often give bad advice, such as suggesting a second mortgage, telling consumers to sell property that would be exempt, or to borrow from your family members, she said.

No matter how bad things are, do-it-yourself is the best policy, she said.  Her book All Your Worth includes a chapter called "Financial CPR" in which she advises consumers to assess their situations, come up with their own repayment plans, and negotiate with creditors on their own. 

"No one has the incentive to get it right the way you do," she said. "There is no advice you can give someone (to avoid bad counseling). The bad guys don't wear black hats." 

If you have to go to credit counseling in order to file bankruptcy, attend the class but be sure to take legal advice only from your lawyer, who will have your interests in mind, she said. 

Later this week: Surprise!  Banks have figured out yet another way to sneak money out of your checking account. We all know it often costs money to get your own money at an ATM machine; but would you believe now it can cost you when you don't get money?

Look under the hood of the new bankruptcy law that took effect this week, and you'll see an accident waiting to happen.  Not only is the fox charged with guarding the hen house; an army of foxes has been put in charge of caring for sick hens.

There's plenty of ways to debate the merits of the bankruptcy changes, but here's two incontrovertible facts: Bankruptcy candidates must now pay for private credit counseling before they are allowed to file; and the credit counseling industry has a deeply checkered past. By passing the new bankruptcy law, Congress has thrown debtors to the wolves, and has offered a blanket of legitimacy to an industry that has earned itself deep skepticism.  Debtors, beware.

Hang out in bus stops around America's great cities, or watch late-night television, and you are bound to see aggressive pitches full of false hope aimed at Americans who are living close to the financial edge. The country is teeming with "credit repair" firms which lie about their ability to clear up bad credit. Some take money from consumers that's supposed to pay bills and keep it for themselves. Others try illegal tactics to trick credit reporting agencies into dropping unpaid bills from credit reports.  The Federal Trade Commission has brought 70 cases against such companies in recent years, according to the FTC's Steve Baker.

Credit counseling agencies, the cousins of credit repair firms, come in all flavors -- from decent to disreputable. Some offer real, helpful advice; others steer consumers toward unrealistic repayment plans when they should be filing for bankruptcy. Why would they do that? Because credit counseling firms are paid a bounty by the credit industry for every consumer they bring back from the brink of bankruptcy.

The conflict of interest is undeniable. So is this fact: These counselors have little incentive to act in the interest of consumers on the verge of bankruptcy.  And now, Congress is sending every American who wants to file for bankruptcy right into the heart of this thicket.

'Just how non-profit are they?'
Most credit counseling firms are designated non-profits, but many are so tied into for-profit companies that it's hard to tell the difference. In fact, Nathalie Martin, resident scholar at the American Bankruptcy Institute, suggested consumers should ask this crazy question about a prospective credit counseling firm: "Just how non-profit are they?"  Her tongue was barely in her cheeck.

There are some strategies designed to protect consumers from the worst of the lot. Starting this week, consumers who head to a lawyer to file for bankruptcy will be given a list of approved credit counseling firms. Approved by whom? A little-known division of the Department of Justice called the U.S. Trustee Program, which administers bankruptcies. So far, the U.S. Trustee Program has approved only about 50 counseling firms. If the expected 1 to 2 million people file for bankruptcy this year, those services will be deluged and likely unable to handle the workload. 

Jane Limprecht, of the U.S. Trustee office, says more agencies are being approved every day by the two dozen or so government workers reviewing applications, and she feels confident there won't be a bottleneck -- particularly given the fact that counseling will be permitted over the Internet or the telephone.

But who will these counseling firms answer to? While the U.S. Trustee screening will hopefully keep out downright scam artists, that says nothing about the quality of advice counselors will get, says Travis Plunkett of the Consumer Federation of America.  The real concern is that counselors will push people to repay bills they simply can't, at the behest of the credit industry.  Who will evaluate the agencies for fairness as time goes by? That's the job of the U.S. Trustee Program -- which is already swamped just keeping up with applications. The agency is still developing its auditing procedures, Limprecht says.

Con artists love red tape
Meanwhile, unsavory credit repair and counseling firms will no doubt find a way to take advantage of the law.  Already, regulators in Louisiana report seeing ads from credit repair firms telling consumers that a visit to their offices satisfies the new bankruptcy filing requirements. It's a lie; but scam artists know well how to take advantage of confusion over new red tape created by the federal government. We've already seen a number of alleged scams which take their oomph from Congress' confusing senior prescription drug discount program (read about PharmacyCard.com, Discount Card scams, and more recently MyFreeMedicine.com)

There have been abuses of bankruptcy filing; there are consumers who've used bankruptcy as a personal financial planning tool, to wipe away debts they perhaps could have paid. Those are the people the law is designed to trap. 

But trapped with it will be hundreds of thousands of people suffering from one of these three things: overwhelming medical bills, divorce or downsizing. Most bankruptcies are the result of one of those three life events, according to the Consumer Federation of America. In fact, Harvard professor Elizabeth Warren in "The Two-Income Trap" argues that about half the time, a massive health care bill is the real cause of a bankruptcy filing.  If you ask for debt relief because your wife just died after a long fight with cancer, does it make sense to force you to find a legitimate credit counseling firm?

In fact, the U.S. Trustee Program has already answered that question. It recently ruled that Hurricane Katrina victims who file are exempt from the counseling requirement.  After all, being washed away by a hurricane doesn't mean you need to take a class in bill paying. If that's true, what about victims of a health care hurricane?

The mandatory counseling has all the flavor of driving classes that are forced on DWI convicts, or anger management classes mandated after domestic abuse.  That is, they sound like punishment. 
And actually, the new law says bankruptcy filers must enroll in two different education programs; credit counseling at the beginning of the process, and then "debtor education" at the end, before debts are discharged. 

I'm all for personal finance education, something I believe our nation's schools sorely lack. But if the credit industry really wanted to help, it would force consumers to take these debtor education classes before they receive their first credit cards, not as punishment for mishandling them.

Next week, I'll talk about ways to avoid bad credit counseling and credit repair firms.

Ariane Muse was 8 months pregnant when Hurricane Katrina hit New Orleans, where she had been renting a tiny basement apartment. The 20-year-old single-mom-to-be had been doing everything she could to save money. She even shared the phone line with her landlord, an old family friend. 

Katrina chased Muse from New Orleans, all the way to  Hampton, Ga., where she found a temporary bed with another family friend. There was no time to register for federal government emergency aid; Mother Nature had other plans for her. 

Within a few days, bad news turned good, and she gave birth to a baby boy named Lilpon. Her next step: a call to Federal Emergency Management Agency to apply for the $2,000 that was being given to New Orleans evacuees. And that's when one more bout of bad news came. FEMA turned her down.

"I thought it was unbelievable," she said. "How could they do something like that?"

Here's how: By the time Muse applied for a FEMA grant, her landlord had already received FEMA funds.  Muse was caught in a database trap. As part of its fraud screening procedures, the FEMA system wouldn't allow two applications with the same phone number. 

For the past three weeks, her application has been "on hold," she says. She checks FEMA's Web site every day looking for good news, and hoping that FEMA will change its mind. But she's losing hope.

"It's been so long, and now we are hearing that FEMA is not giving any more money," she said.

That's not true; FEMA is still making millions of dollars in grants each day.  But rumors have dogged FEMA's hurricane assistance program from the start, as victims speculate wildly on what criteria the agency is using to dole out funds.  The speculation is fueled in part by stories of people like Muse, who have fallen through the cracks of the recovery effort.

FEMA's massive no-strings-attached $2,000 grant program -- called expedited assistance -- is in the cross-hairs.

Flood of complaints
A month after hurricane Katrina hit, FEMA cut off its "expedited assistance" program, saying it had done its job. Hundreds of people who have sent emails to MSNBC.com disagree. The emails, complaining about the FEMA program, were sent in response to a news story about "expedited assistance" published on this web site last week. About half of the emails were from people who said they had been unfairly denied FEMA aid. 

FEMA officials concede the enormous grant process – which so far has given about $2 billion to 1 million victims – has been hit with glitches.  But the agency is slowly working through the problems and pledges to help as many victims as possible.

"The sheer magnitude of this event requires a little bit of patience," said Nicole Andrews, a FEMA spokeswoman. 

Expedited assistance was designed to be a no-strings-attached $2,000 payment to all hurricane victims to help them deal with immediate evacuation and aftermath expenses.  But hundreds of hurricane victims said they were denied aid for arbitrary reasons.  One typical maddening scenario: Computer glitches on FEMA's Web site caused many victims to apply multiple times, which in turn caused their applications to be tagged for suspected fraud.

Because displacement was one criteria used to determine eligibility, quirks hit others who happened to apply for aid while still in their hometown. In one case, a resident who initially contacted FEMA during an inspection of his destroyed home was denied benefits -- the operator ruled that since he was at his home, he didn't need aid.  Others who stayed behind to work in emergency services and camped near their damaged homes were given the same explanation.

But most snafus often had the flavor of an unforgiving database.

"Due to computer problems with the online application, we inadvertently had duplicate applications," wrote Sean Nolan of New Orleans.  "Because of this we have received nothing and even though we have repeatedly spoken to the FEMA helpline, there is no answer as to when it will get resolved."

Criteria was unclear
"I'm sure that's completely frustrating," Andrews said.  FEMAs systems did kick out applications that had redundant information, such as similar addresses, to prevent fraud. But she said people in Muse's case are entitled to expedited assistance grants – and they should appeal.

Complaining of jammed phone lines and other hurdles, many of those who emailed MSNBC.com wrote that the appeals process seemed futile, while others were not aware that they could appeal.

Harried phone operators may have been part of the problem, said Andrews. FEMA now has 12,000 operators answering the phones – many are on loan from the Internal Revenue Service, she said.

"Maybe you have a FEMA operator who is well versed in FEMA programs, maybe you don't," she said.

Katrina victims say they were denied assistance because they had homeowners' insurance, for example – which wasn't the criteria for expedited assistance,  Andrews said.  FEMA issued a press release Oct. 8 in an attempt to reign in some of the rumors and misinformation.

Andrews said qualification terms were simple. Those who were in mandatory evacuation areas and couldn't return to their homes after the storms were entitled to $2,000 instant grants.  But there are gray areas.  Eligibility is unclear for residents in some parts of Southeast Texas who didn't evacuate initially, but left later when it became clear that power would not be restored for weeks.

Small business loans instead
In all, 2.3 million people have applied to FEMA for aid since Katrina hit.  Of those, a little more than 1 million qualified for expedited assistance. 

Many of those who didn't qualify were sent packets suggesting they apply for Small Business Administration loans. That's what happened to 79-year-old Grace Bush of Pascagoula, Miss., who wrote that she lost everything to flood damage, and after asking for help, was sent an SBA loan packet.

"Living on a fixed income, how could I repay a loan?" she said. "Do you have the answer to this or a solution for me beside the graveyard?"

Other reasons for denials cited by those who emailed MSNBC.com include:

• Calling from a damaged home: Marty Marion, of Orange, Texas – near Beaumont -- was told he didn't need relocation assistance because he happened to get through on FEMA's phone line on the one evening he was inspecting his home.  "They asked me where (I was) calling from and I told them I was on a cell phone at my house. They said since I was at my house I did not qualify for assistance. I have been trying to explain to them that I have not been able to stay at my house but they will not listen"
• Web site foibles – Duplicate applications raised fraud suspicions. Robert Ingram of New Orleans applied at the library and ended up feeling accused of fraud. "When I submitted my application the system went blank and I didn't know if it went through. I then resubmitted it a minute later. Weeks went by and I received nothing. Finally this past Sunday I reached FEMA by phone at 5 a.m.. …I  … spoke with a supervisor who told me since I applied twice that my case was "under investigation."   
• Phone and Web site jammed until the clock ran out – Several writers said they simply couldn't get through FEMA's jammed phone and fax lines.  Then, there were practical problems of simply not being able to get to a working computer.  "It's tough to apply 'on-line' or through telephone when you are charging up your cell phone with a generator powered by gas you spent half the day finding. Sylvia Weir of Beaumont, Texas. 
• Lost in the mail - Taisha Adams of New Orleans was actually approved for her $2,000 weeks ago, but her check has been chasing her around the Gulf Coast. "FEMA stated to me that 3 weeks ago a check for $2,000 was sent to my New Orleans's address, then returned to Baton Rouge, then ended up at the convention center in Houston. I went to the convention center and they are stating that the check is still not there."

Andrews said victims have a right to be frustrated, but said such snafus are inevitable in an aid program that sprouts this fast. 

"It does concern me. I want everyone who is eligible for assistance to receive it," she said. 

'Please try your call again later'
Evacuees who were chased from their homes by Katrina or Rita should continue to call FEMA and appeal – and their funds will come, Andrews said.  But calling to appeal is easier said then done. When MSNBC.com called the FEMA help line on Monday, FEMA told us to call back.         

"Please try your call again later, or stay on the line for information that may be of interest to you."

Kathleen Maston, a 47-year-old New Orleans resident now staying with family in Fort Walton Beach, Fla., said she was denied FEMA assistance because of a roommate situation – her former roommate applied before she did.  Now, she said she goes every day to the local FEMA office looking for news. She needs money to buy clothes for job interviews, and for transportation.

"People in the FEMA office know me by name. I drink their coffee and eat their sandwiches all day," she said. "There are thousands of us out here in suspended animation."

A second storm surge may soon start slamming into Gulf coast residents hit by hurricanes Katrina and Rita. Mounting unpaid bills will lead to a surge of black marks on victims' credit reports, say consumer advocates, sinking their credit scores. And now, they say, efforts to convince the nation's credit bureaus to develop new systems to account for victims' temporary bill-paying troubles have hit a major snag.

Consumers who can't make their house payments any more – even if that house has been completely swept away by the storm – may face the ultimate penalty in America's credit-driven society: A credit score so low they won't qualify for the loans they need to start rebuilding.

Consumer groups, anticipating the coming surge of late payments and account defaults, have asked credit bureaus to help. The consumer groups proposed that the bureaus take a pre-Katrina credit score snapshot of all residents in the affected areas.  Later, when victims apply for loans, the pre-Katrina score could be used to identify whether victims were good credit risks before the storm.

"A person who was a good lending choice on Aug. 25 is probably going be a good lending choice now," said Gail Hillebrand, senior attorney for Consumers Union.

The proposal has the support of Fair Issac, the firm that generates the formula used to compute credit scores, called FICO scores. 

"Having knowledge of the old credit score could be used to help (lenders) make a more informed decision," said Tom Quinn VP of global scoring. "Was this person really late because they were late or because their mailbox was under water for three weeks?"

But on Thursday, consumer groups revealed that the nation's three bureaus – Experian, Trans Union, and Equifax – have declined to participate in the plan.

Bureaus spike second score idea
Don Girard, a spokesman for Experian, said regulatory issues would make creating and storing a so-called "second score" impractical.

"We looked at the proposal and came up with serious concerns," he said. "It is not as simple as (consumer advocates) make it sound."

A second score likely wouldn't comply with parts of the Fair and Accurate Credit Transaction Act, the firm indicated in a letter sent to Consumers Union.

Equifax's David Rubinger said the presence of a second score could create confusion both for lenders and consumers. Also, credit bureaus and lenders sometimes use alternate scoring systems, he said, so a snapshot FICO score would be of little use to those lenders.

As an alternative, bureau representatives said they've instructed lenders, who supply the bureaus with payment history data, to be lenient with consumers. They've also asked lenders to include a special code on Katrina-related overdue payment and default entries – called a "disaster recovery code," according to Rubinger. A late payment entry will appear with the designation "AW" on consumers' credit reports.

Lenders who look at credit reports will take into account Katrina-related defaults, he said.

Disaster code won't protect score
But use of the "AW" code won't necessarily protect victims' credit scores, Fair Issac's Quinn said. He said bureaus have rarely used the code in the past – and often, they don't even send it to Fair Issac for calculation – so it is not considered by the formula his firm uses to generate credit scores. In other words, a Katrina-related late credit card bill payment will weigh just as heavily on a FICO credit score as any other late payment.

A poor credit score is no afterthought to families hit hard by the hurricanes. Katrina and Rita victims returning from temporary housing will be applying for credit en masse to rebuild their homes.  Low credit scores usually mean higher interest rates. A quick drop in a credit score can cost consumers $150 extra a month on a $150,000 loan, according to estimates from Fair Issac. A very low score could make some consumers completely ineligible for credit.

While some lenders still view entire credit reports before granting mortgages, and could pick out hurricane-related black marks and take them into account, lenders increasingly rely solely on credit scores to make lending decisions. That could spell serious trouble for Katrina victims, Hillebrand said.

"We have automated ourselves away from common sense," she said.

Credit scores are also used outside the lending industry –- by auto insurers, apartment owners, and even by prospective employers. It's not fair for late payments brought on by hurricane forces to impact those areas, said Lisa Donner, director of public policy at ACORN Housing, a credit counseling agency helping Louisiana evacuees in Houston and Dallas who are trying to fend off creditors.

"The fact that they can't pay bills right now … is not an indication of future credit worthiness or that they ought to be charged more for car insurance," she said.

So far, most lenders have been understanding, Hillebrand said, extending 30- to 90-day grace periods to consumers in the storm zone. But those grace periods will end soon, and with so many storm-related layoffs, it's hard to imagine most victims will be able to sustain their loan payments when they come due.  While she's unaware of any consumer who has yet been hurt by hurricane-related credit score drops, the time to discuss the issue is now, she said.

"By the time credit files are polluted and scores are artificially depressed it will be too late," she said.  "The hole will just be deeper for these people."

An extra free credit report
For now, the bureaus say they are trying to help consumers in other ways.  Residents in hurricane-afflicted areas can get a free copy of their credit report from AnnualCreditReport.com, the Congressionally-mandated free credit report site -– even if they've already gotten a copy recently, said Rubinger. A positive pre-Katrina report could be an important asset during a difficult conversation with a lender, he said.

Hillebrand said consumers could also consider paying for a credit score now, before any late payments show up.  But the scores cost around $10 each, and there's no guarantee a lender will look at a score purchased by a consumer during the loan evaluation process.

Quinn, however, hasn't given up hope for a pre-Katrina score supported by the credit industry.

"This is an unprecedented event. It's uncharted waters," he said.  "Hopefully, collectively as an industry we can make some provisions for it." 

Is everyone getting their fair share of FEMA hurricane recovery funds?

Already, FEMA has given away a staggering amount of money to victims of hurricanes Katrina and Rita -- nearly $2 billion to 850,000 people, according to figures provided by Federal Emergency Management Agency's Eugene Kinerney.  And much more aid is probably on the way.  Victims are eligible to receive up to $26,200 based on a means test, enough for 18 months of living expenses according to government calculations, FEMA says.

With that much money being doled out, there's bound to be criticism.

There were those $2,000 pre-loaded debit cards provided in the week after Hurricane Katrina hit in September. Distribution of the cards led to long lines and much frustration.  The debit cards were discontinued after about 10,000 were issued, and they were replaced by direct-deposit electronic transfers.  But quietly last week, FEMA cut off all of its no-strings attached instant grants to Katrina victims. The news had some people wondering: Were some victims left out?

"These monies are used for food, diapers, medicines, and other essential items. For FEMA to cut off these funds now is unacceptable," said Congressman William Jefferson, D-LA. "FEMA should reinstate the ... program immediately until all qualified individuals receive the money to which they are entitled."

No strings attached
Immediately after Katrina made landfall, FEMA began giving out the no-strings-attached $2,000 cash payments in a program called "expedited assistance."  The money could be spent on anything the victims chose. But those Katrina victims who haven't gotten their cash payments yet are out of luck. Expedited assistance was cut off on Sept. 26, FEMA said. 

Bennie Thompson, the ranking Democrat in the House Committee on Homeland Security, issued a scathing press release.

"The execution of FEMA's Expedited Assistance program after Hurricane Katrina has been marred by error since it was announced," Thompson wrote. "Soon after the program began, it was abruptly cancelled, only to be reactivated.  Evacuees were forced to wait in daylong lines, only to be turned away when funds in certain locations ran out...Cutting off emergency survival funds for those in need is a sign of the incompetent and bureaucratic Department of Homeland Security at work."

An aid at Thompson's office said it wasn't fair that the assistance was cut off without announcement, creating a confusing situation where some victims got their $2,000 and others didn't -- with no list of rules explaining why.

"There is no hard and fast policy on when this starts and when this ends," she said.  "A lot of these people have been told to apply online, when they have no electricity and no telephone." And others, who had telephone service, repeatedly got busy signals when calling, she said.  "There will be a continued distrust of the project."

One grant program ends, another begins
FEMA confirms the emergency cash program ended for Katrina victims on Sept. 26, but Rita victims were still eligible on Monday. There was no announcement of the cutoff: No one at FEMA's offices could point to an official stop and start policy about expedited assistance. FEMA's Kinerney said simply, "(The program) had done its job."

But those who did not receive a $2,000 payout may still get a fair shake, insisted  Kinerney. He said all hurricane victims are entitled to that maximum total assistance of $26,200. Victims who didn't take anything in the first slice can get more later on, he said.  In the end, everyone is entitled to the same assistance, based on their ability to pay -- a means test that includes current income, insurance payments, and other factors.

Expedited assistance may be gone, but the agency has moved into a second phase of aid specifically targeting housing. The program is called THAP, or Transitional Housing Assistance Program.  Victims get $2,358 to pay three months of rent or hotel charges, Kinerney said. The amount is calculated from average living expenses for three months around the country.

Victims can continue to get housing grants for 18 months, he said, as long as they provide receipts proving the money was spent on housing.

"We are pushing to get people out of shelters and into more interim housing," Kinerney said.

Were some left out? A good question
In Louisiana alone, about 580,000 residents who registered for FEMA's instant grants have received $1.2 billion.  But, in the midst of a chaotic situation, where communication services like telephone and Internet access are still spotty, Rep. Thompson is asking a critical question: How many people haven't yet seen a FEMA agent or the FEMA Web site?

"Thirty days is fine if you can actually reach FEMA during those thirty days.  Many folks couldn't get to a FEMA recovery center to stand in line and only got busy signals when they tried to call," Thompson said. "Once again the FEMA devotion to bureaucracy has trumped common sense.  When are they going to throw away their old playbook and figure out how to actually help people?"