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The Harsh Reality of Car Title Loans

Legislators and consumer advocates have taken stands in recent years against payday loans, largely considered one of the most nefarious financial traps available to low-income consumers. But more recently, some worried analysts have taken up the torch of another type of absurdly high-cost loan: car title loans.

According to a recent post at CreditSlips, this type of loan can wreak serious financial havoc on consumers who can least afford to lose money. Here’s a look at some of the troubling numbers.

How Title Loans Work

Car title loans work like this:

• A borrower enters the lender’s storefront in need of cash.
• The lender originates a secured loan with the borrower’s vehicle as collateral. (According to sources, lenders will typically offer dollar amounts of no more than 40 percent of a vehicle’s value.)
• Interest rates on car title loans can reportedly top 300 percent, meaning that most borrowers end up paying far more than their car’s value in interest payments over the repayment period.
• If a borrower cannot afford to make payments, the lender has the legal right to repossess the vehicle used to secure the loan.
• Some lenders, it seems, also sell used cars (no doubt those repossessed from customers unable to pay).

The Hidden Dangers of Car Title Loans

As most people can see, the risk of losing your car to a car title lender is pretty high, especially given the astronomical interest rates charged and the typically limited financial means of most title loan borrowers.

But, according to a recent study, the actual cost to title loan borrowers seems to be higher than expected. Sources note that:

• At some auto title lenders, the repossession rate stands at 13.1 percent of loans - that means 1 in 8 people who go in for a loan end up getting their vehicle repossessed by the lender.
• The typical auto title borrowers will take out between 3 and five loans from a given title lender. This means that most borrowers apparently return more than once to take on high-interest, high-risk loans.

Know Your Options

While car title loans may seem like the only way out of a tight financial spot, it’s important to understand the high risks associated with them. If you’re struggling with serious debt (or know someone who is), consider seeking the help of a bankruptcy lawyer or credit counselor for guidance.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, car title loans, consumer debt, payday loans | Comments Off

Lawsuit Alleges Mortgage Fraud by Deutsche Bank

News reports this week announce that the U.S. Department of Justice has initiated a lawsuit against Deutsche Bank, one of the world’s largest, claiming that the institution lied to federal regulators in order to secure taxpayer-funded insurance for less-than-secure mortgages.

Here’s a look at the details and some of the underlying issues.

The Charges against Deutsche Bank

According to the lawsuit, Deutsche Bank and its subsidiary MortgageIT:

• Initiated risky mortgage loans to homebuyers. Some of these loans may have been subprime, and since their initiation, sources indicate, about a third have defaulted.
• Lied to federal regulators. While the loans themselves may have been a bad move financially, what interests prosecutors is what happens next: that Deutsche Bank allegedly lied to officials with the Federal Housing Authority (FHA) in order to secure insurance for the shoddy loans.
• Got taxpayer-backed insurance for questionable loans. Because of its reportedly false claims that it was evaluating its mortgages for default risk, Deutsche Bank managed to secure FHA funding (which comes from tax dollars) for the questionable loans.
• Required money from the government when the loans defaulted. Now, as many as 12,500 of Deutsche Bank’s loans have apparently defaulted (meaning that the homes have gone into foreclosure), leaving the government responsible for covering the losses. The money goes to those investors who own the mortgage debt. Sources note that, to date, defaulted Deutsche Bank loans have cost the government more than $386 million.

Because of all these allegations, the Justice Department is reportedly suing the bank for $1 billion, an amount that represents the dollar amount lost plus individual penalties for each mortgage that went into default.

What Mortgage Lending Rules Were Broken?

The government’s lawsuit charges that Deutsche Bank and MortgageIT failed to follow the rules required of anyone interested in federal mortgage insurance. These rules require lenders to:

• Annually verify various records of mortgage borrowers, including credit reports, incomes and record of employment. This measure is to make sure borrowers are not at risk of defaulting.
• Examine any loan that goes into default shortly after being originated in an effort to prevent and eliminate careless lending techniques.
• Act in the government’s best interest, because any money needed to guarantee loans that defaulted would come directly from taxpayers’ pockets.

The lawsuit claims that Deutsche Bank did none of these things and so is both on the hook for the money lost by the government and responsible for paying penalties for breaking the rules of engagement for obtaining federal insurance.

Some sources suggest that the Deutsche Bank lawsuit could be the first of many; after all, reckless lending techniques were fairly common during the housing boom that touched off the current recession.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Economy, Mortgage, Mortgage Foreclosure, predatory lending | Comments Off

Payday Lender Forks Over Cash to Settle with FTC

The Federal Trade Commission announced this month that it has settled charges with two men who allegedly bilked consumers out of hundreds of thousands of dollars by using an online payday loan “matching” scam. Here’s what the FTC says happened:

• The web site offered to match consumers with payday lenders in their areas.
• As part of the online application process, consumers were reportedly sent to a page that had an offer for a debit card. The “yes” box to order the debit card was pre-checked on this page.
• Consumers who clicked through to the “finish” page without realizing they’d agreed to the embedded debit card offer were automatically signed up for the debit card. Clicking through reportedly also meant consumers granted authorization for their bank accounts to be charged for the funds.
• Victims of the scam were apparently charged up to $54.95 extra for the debit card they did not intend to apply for.

Terms of the Settlement

The newest settlement, which reflects an amended charge filed in April 2010, means that the men charged with the offenses, Matthew Patterson and Mark Benning, will be prohibited from doing the following:

• Presenting false or misleading information about any product or service, including information about how customers will be charged or billed;
• Misrepresenting the cost or status of a product or service (e.g. incorrectly suggesting that something is free or a “bonus”) for any of its terms and conditions;
• Charging consumers without complete disclosure of how much will be charged to them, all terms and conditions of the transaction, what billing information will be used and to what account the payment will be charged; and
• Failing to keep track of affiliates to make sure that they comply with all the above terms (and those laid out in the court order).

In addition to these restrictions, the FTC settlement imposes a $5.2 million judgment on the two men, which will reportedly be suspended for Patterson once he pays $800,000 over a period of 10 years and for Benning when he provides the court with money raised from the sale of his house.

Protecting Your Finances from Predatory Lenders

While a number of consumer protection groups and government organizations exist to police the market and keep scammers from finding new victims, perhaps your best defense against predatory lenders is knowledge.

Take a look at this predatory lending glossary to get an idea of what kinds of loans and offers qualify as “predatory” and how you can keep your money from falling into the wrong hands (and keep yourself from falling into bankruptcy).

Posted in Bankruptcy and Predatory Lending, FTC, Legal Info, payday loans, predatory lending, scams | Comments Off

The Latest on Debt Collection Laws & Rules

As you may already know, consumers in the United States are protected by a number of consumer protection laws designed to make sure merchants and service providers do not take more than a reasonable amount of consumers’ money.

One consumer protection law, the Fair Debt Collection Practices Act, outlines how debt collectors are permitted to do their job and puts certain restrictions on them. Each year, the Federal Trade Commission issues a report on the state of various consumer protection laws and its recommendations for modifications and changes in rules and enforcement.

Here’s a look at what the FTC had to say about 2010.

Debt Collection Complaints in 2010

Last year, consumer debt collection complaints topped the list, at 140,036 individual filings (an increase from 119,609 in 2009). Specifically, people identified these debt collection issues:

• Repeated or continuous phone calls: Debt collectors are explicitly restricted from calling debtors repeatedly or with the intent to harass or annoy. Further, the FDCPA mandates that debt collectors can call only between the hours of 8 am and 9 pm local time.
• Misrepresentation of a debt: Consumer complaints cited debt collectors who misrepresented the character, amount or status of debts owed, and in some cases demanded payments in amounts greater than those permitted by law. All such actions are prohibited by the FDCPA: debt collectors cannot lie about any aspect of a debt or about their legal authority to collect it.
• Failure to provide adequate written documentation: The FDCPA requires that debt collectors send debtors written documents outlining the specifics of a debt and detailing the consumer’s rights regarding the debt and its collection. According to consumer complaints, though, many debt collectors are not adhering to these requirements.

Changes to Enforcement and Consumer Protection

Thanks to the implementation of the Consumer Protection Act in 2010, a new consumer rights bureau (the Consumer Financial Protection Bureau) will have authority to create and enforce (with help from the FTC) rules governing how debt collectors must operate. In future years, reports about the status of the FDCPA will be developed and issued by the new consumer protection bureau.

How to Take Action against Dishonest Debt Collectors

So what can you do if you’re plagued by debt collectors who don’t play by the rules? Take the following steps.

• Learn your rights: Check out a summary of the rules debt collectors must follow so you know when your rights have been violated.
• File a complaint: Visit the FTC’s complaint page to file a complaint electronically.
• Get legal help: If a debt collector is harassing you during or after a bankruptcy filing (especially for a debt that was discharged in bankruptcy), you may want to enlist a lawyer to help.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, FTC, Legal Info, debt collection | Comments Off

New Consumer Protection at the Bank?

A recent press release from the National Consumer Law Center highlights a new federal rule that, if not modified in the next two months, will take effect May 1st and should better protect the bank accounts of people receiving government benefits. Here’s what you need to know.

When Creditors Can’t Garnish Your Money

If you’ve ever filed for bankruptcy or been in serious debt, you may be familiar with the practice of garnishment, which occurs when a creditor collects money directly from your wages or bank account to cover a debt you owe.

• Current law protects certain funds: As federal laws now stand, creditors are prohibited from garnishing certain payments from the accounts of debtors (that is, people who owe them money). These funds include Social Security payments, disability payments, veterans’ benefits and other benefits for low-income and disabled people.
• Current practice permits the garnishment: Despite the prohibition against garnishing such funds from bank accounts, it seems that many banks regularly freeze the accounts of customers whose creditors request a garnishment from the bank. While customers can have these funds unfrozen, doing so generally requires hiring a lawyer and can take time. During that time, these customers may not have access to the funds in their account that they need to make basic purchases.
• High monthly toll on the poor: Reports note that every month, as many as 100,000 Americans are victimized by this improper garnishment.
• Immediate action is essential: A recent New York Times Op-Ed piece notes that if customers do not act quickly enough to unfreeze their accounts, creditors may end up garnishing the funds regardless of the federal laws prohibiting such action.
• “Uncertainty of origins of funds”: Apparently, banks have justified their freezing of accounts legally protected from garnishment by claiming that they have no way of tracking the origins of funds in any given account, and that if they were to ignore orders of garnishment, they could face legal repercussions.

The New Rule: Electronic Tags for Special Funds

The new rule, then (if it is not modified or struck down before May 1), will allow the government to electronically mark the money it deposits into beneficiaries’ bank accounts. With such tags in place, banks should be able to easily identify which funds are eligible for garnishment and which funds are protected.

The National Consumer Law Center noted in a press release that the new rule is especially good news for retirees, veterans and Americans with disabilities, as their accounts tend to most often be the ones with the types of money in question.

Stay posted to the Total Bankruptcy blog to find out the latest updates and changes to this rule as the public comment period comes to a close.

Posted in Bankruptcy Laws, Bankruptcy and Predatory Lending, Consumer Protection, Legal Info, garnishment | Comments Off

Personal Finance Taking a Hit as Banks Close in Poorer Areas

A recent report from the New York Times highlights a troubling change in the banking industry: according to the Times, banks across the country have taken to closing branches in middle- and low-income neighborhoods even as they maintained or opened new branches in wealthier areas.

Personal finance experts of all stripes are understandably upset about the shift – fewer available banks could have disastrous consequences for the financial health of families in affected areas.

The High Cost of Being “Unbanked”

Here’s a look at some of the potential ramifications closing banks in poorer areas.

• Increased reliance on payday lenders and check cashers: Without nearby bank branches, families in effected communities will be pushed to rely for their financial needs on so-called “predatory” lenders such as payday loan stores, cash advance outfits and check cashers. Such organizations can contribute to a cycle of poverty by charging high interest rates and fees for their services without offering clients a vehicle for saving their money.
• Diminished saving incentives and opportunities: Without ready access to savings accounts, people living in communities without brick-and-mortar banks have a slimmer chance at reaping the benefits of opening a savings account (including earning interest on their money). In the long term, this can make financial emergencies particularly devastating, and can lead to bankruptcy filings.
• Damaged credit and decreased ability to get loans: One thing that a savings account does is to bolster a person’s credit rating – when lenders run a credit check, they can view the status of a potential borrower’s bank accounts. Those with accounts in good standing who have a cash cushion available to them are considered better credit risks than those without any cash reserves. This can affect interest rates a borrower pays and thus determine how expensive or inexpensive a loan is.

A Look at the Numbers

So how dramatic was the shift toward closing banks in lower-income areas in the last two years? Here’s a look at the numbers, as reported in the Times:

• More closings than openings: 2010 reportedly marked the first year in a decade and a half that more banks closed their doors in the U.S. than opened them.
• Number of closings: In 2009, the country boasted 99,550 bank branches; last year, that number had fallen to 98,517 branches, nearly a 1,000-branch drop.
• Number of unbanked Americans: It seems that as many as 30 million Americans rely primarily or in part on “non-traditional” financial institutions like check cashers and payday lenders – that’s about 10 percent of the country.
• Big banks participating: While some smaller banks reportedly closed branches as part of consolidation moves to survive serious debt, it seems that Bank of America also closed 25 branches in communities with moderate income levels and opened 14 in richer places.

So why is this happening? On proposed reason is that the Community Reinvestment Act, meant to improve financial opportunities in poorer areas, is being insufficiently enforced.

Posted in Bankruptcy and Predatory Lending, Bankruptcy and the Economy, Consumer Credit, payday loans, predatory lending, recession | Comments Off

Avoid Refund Anticipation Loans this Tax Season!

If you’re counting on a tax refund this year, you may have heard of refund anticipation loans (or RALs), which some tax-preparation services offer to people as part of tax preparation services. But these loans, as most consumer advocates will agree, are not a good deal for you the consumer.

Here’s a look at why tax refund anticipation loans (sometimes called a refund anticipation check) may not be all that they're promised, and what the federal government is doing to help you avoid them.

Why RALs Are a Bad Financial Move

So what is a refund anticipation loan? Basically:

• It’s a cash advance loan that charges you a high interest rate to get some of your tax return dollars earlier than you would have otherwise gotten them.
• Some tax preparation services offer them to customers who are expecting a tax return that year. Generally, a customer can receive the money for a “fee” of some kind – just like a payday loan. In fact, RALs are very much akin to payday loans: their “fees” are just high interest rates disguised to look harmless.
• RALs eat into whatever tax return you can expect to get. After all, you have to pay for the privilege of receiving your money early, and that money comes out of whatever you would have received from the federal government.
• RALs can also set you up for debt. What happens if there’s a mistake in your tax forms or if you end up getting a smaller return than you expected? If you take out a refund anticipation loan for the full amount of your return and then receive a smaller actual return from the government, you’ll still be responsible fore repaying the loan amount in full. Yikes.
• RALs may present a tempting prospect to unbanked Americans – after all, if you don’t have a bank account, waiting for a refund check from the government and then paying to have it cashed can seem like a waste of time and money. But paying for the RAL itself will almost always cost more.

So What Are the Feds Doing about the RAL Problem?

This year, the Treasury is launching a new program that offers an alternative to refund anticipation loans, particularly aimed at people without bank accounts who might be susceptible to the RAL’s siren song. Here are the gist:

• Debit card distribution: The Treasury will be sending debit cards pre-loaded with people’s refunds to 600,000 Americans selected at random to participate.
• Experiment to see what works: If the program proves popular, the pre-loaded debit card system could become standard practice in future years.
• Varied terms on cards: In order to test various features, the debit cards will come with a variety of features. Some will require no fees to make purchases or withdraw money from ATMs, while others will charge small fees to be activated, check balances or use at certain retailers.

The goal of this program, it seems, is to offer a lower-cost alternative to RALs and RACs to the people most likely to be tempted to choose them.

Posted in Bankruptcy and Predatory Lending, Economy, Financial Literacy, predatory lending, saving money | Comments Off

Better Consumer Protections for Mortgage Borrowers on the Horizon?

A recent report from CreditBloggers indicates that the Consumer Financial Protection Bureau (CFPB), the new government body created by the Obama administration to improve consumer protections in the United States, plans to create an easy-to-understand tool that will allow potential homeowners to compare the terms of various mortgage loans with greater ease.

Here’s a look at some of the details.

Easier-to-Understand Mortgage Documents and More

• More transparency in lending: According to a press release from the CFPB, the organization plans to join forces with state enforcers and banks to improve transparency in lending tools such as mortgage documents, student loans and payday loans. The goal of this partnership is to better equip consumers with the tools needed to understand loans before they take on such burdens.
• Clarification of mortgage options: One of the CFPB’s specific goals is to provide consumers with an easy-to-understand comparison sheet for mortgage loans. The current forms, apparently, include too much legal and technical jargon and provide little illumination for the average consumer.

So what might this mean for consumers, once the CFPB produces documents to facilitate various borrowing experiences?

Improved Understanding of Consumer Risk

The goal, it seems, is to put consumers in a position of power when they’re making decisions about their finances. Ultimately, services from the CFPB might include:

• Better disclosures on student lending forms: Most student loans are not dischargeable in bankruptcy, but students continue to regularly take on tens and even hundreds of thousands of dollars in debt in order to get a bachelor’s degree. Improved disclosures, explanations and estimates post-graduation earnings could help young students make more reasonable borrowing decisions.
• Tighter restrictions (or clearer terms) at payday loan stores: While some state laws have banned or greatly restricted the practice of payday lending, in much of the country payday lenders still thrive. The CFPB has announced that it plans to play a role in changing the face of payday lending so that it is less alluring and expensive for already struggling consumers.
• Clearer comparisons of mortgage offers: As stated above, more direct methods of explaining and comparing mortgages could potentially save consumers from taking on toxic debt.

Because the financial turmoil we’ve been dealing with for the last few years has had unarguably negative effects on the lives and livelihoods of millions of citizens, it’s refreshing to see the potential for some good (in the form of increased consumer protections) to come out of the bad.

The CFPB is still a fairly new organization; as it matures and extends its reach, it should be making important changes for consumers across the country.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Financial Literacy, Mortgages, Student Loans, payday loans | Comments Off

What’s the Latest on Payday Loans?

In the last few years, lawmakers in many states have taken on payday loans as a pet cause, passing legislation that outlaws or severely limits what these predatory lending institutions can charge and how they can operate.

But a recent post at CreditBloggers points out that many payday lending operations are still thriving, for a number of reasons. Here’s a look at the latest payday lending landscape and a reminder of just how expensive these seemingly innocuous loans actually are.

Restrictions on Payday Lending

In recent years, state lawmakers have put a variety of limits on how payday loan stores can operate:

• Ohio: State legislators limited payday lending interest rates to 28 percent (a significant decrease from the 400+ percent some lenders charge annually). The legislation affected the payday lenders, naturally, but apparently did not result in their flight from the state.
• Montana: In November’s election, 72 percent of voters reportedly voted to make payday lending illegal in the state, and a new measure that went into effect on the first day of 2011 limits interest rates to 36 percent. The result, it seems, is that most payday loan stores have packed up and headed out, unable to make sufficient profit under those terms.
• Arizona: When a law permitting high-interest lending was not renewed, sources note that some lenders remained in the state but one national chain (Advance America Cash Advance Centers) quit the state entirely.
• Other states: Elsewhere in the country, legislation has been introduced and/or passed to limit the amount of interest payday lenders can charge and how they can operate their businesses.

So why, with so many restrictions in place and so much public energy devoted to eliminating payday lending abuses, are some payday lenders still thriving?

The Credit Crunch and Payday Lending

Unfortunately, one effect the recession has had on the lending landscape is that many lenders have tightened their lending standards. In fact, while the number of banks in the nation reportedly increased between 2007 and 2009, the dollar amount of loans they issued dropped by a staggering 51 percent.

What does that mean for ordinary consumers (and especially those whose credit is less than pristine)?

• Fewer borrowing options: With banks holding onto their money more tightly, fewer consumers have a chance at getting loans from these mainstream, trustworthy sources.
• Prime ground for alternative lenders: When people need money, though, they have to get it from somewhere. And, because of the way their business model works, payday lenders are often the go-to place for folks who can’t get loans elsewhere.
• Serious danger for serious debt: Unfortunately, just because payday loans may seem like your only option does not mean that they’re any safer than they used to be. Payday loans can lead to a debilitating cycle of debt and can come with interest rates of more than 400 percent over the course of a year! Remember that many financial advisors recommend almost every other source of financing over payday loans.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Consumer Protection, predatory lending | Comments Off

FTC Halts Robocall Credit Card Scam

The Federal Trade Commission announced this week that it has shut down operations of a company charged with a scam that involved illegally making robocalls and taking consumers’ money by falsely promising them lowered credit card interest rates.

The scam, according to the FTC, worked like this:

• Automated phone calls: The company, JPM Accelerated Services, reportedly set up robocalls to thousands of homes (some of which were on the National Do Not Call Registry). The calls indicated that the company was a “card services” provider and little else.
• False promises: Telephone respondents who pressed one were apparently transferred to live telemarketers who offered to lower their credit card interest rates and thus save them thousands of dollars. The price of the service, sources note, ranged from $495 to $995, and the company apparently guaranteed a full refund to anyone not satisfied with the results.
• Failure to follow through: Of course, because this was a scam, the company did not follow through, and thousands of consumers in need of financial relief ended up losing even more money they couldn’t afford.
• Serious settlement fine announced: As part of the settlement, judgments of $5.9 million against JPM Accelerated Services and $3.2 million against related scammers have been imposed; however, the defendants at this time are unable to pay the fines, according to sources. The judgments represent the amount of money consumers were bilked out of as a result of the scams.

The Truth about Lowering Your Credit Card Interest Rates

Scams like the one recently halted by the FTC are all too common, perhaps because unscrupulous scammers know that financially strapped consumers are often willing to take even big chances to get out of debt.

But if you’re interested in lowering your credit card interest rates, the truth is that you can negotiate with your creditors yourself. Here’s how:

• Figure out where you stand financially: Look at your monthly budget and figure out what you can afford to pay toward your credit card debt each month.
• Stop charging: When you commit to paying off credit card debt, it’s important to stop putting new charges on your accounts.
• Look at your bills: Lay out your most recent bills and figure out what you owe, what your current interest rates are, and what your current monthly payments are.
• Call your credit card issuers: When you’re armed with all this information, contact your credit card companies directly, explain your situation and ask for some sort of lowered payment. It’s usually a good idea to ask for something specific, like lowered interest rates, lowered monthly payments, or a reduction of the total principal you owe.
• Reassess your situation: If your credit card issuer denies you, you may want to explore other debt-relief options, like filing for personal bankruptcy.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Consumer Protection, Credit Card, Credit and Bankruptcy, predatory lending | Comments Off