Bankruptcy Questions Answered

How to Steer Clear of Car Loan Scams

As consumers continue to struggle under the weight of a lagging economy, many Americans are trying to refinance their car loans.

Unfortunately, scammers have taken notice and are increasingly trying to bilk people of their hard earned cash. According to Rosemary Shahan, the president of Consumers for Auto Reliability and Safety, car loan scams are a “problem just about everywhere.”

Shahan recognizes that many people are able to refinance their car loans, but warns that “the way to do it isn’t to go to these companies who are out there advertising, ‘We can miraculously get you out of this excruciatingly bad deal.”

A recent article from MarketWatch provides some tips aimed at helping you avoid car loan scams:

• Choose wisely: If you want to refinance your loan, don’t opt for a group that heavily advertises its miraculous refinancing abilities. Instead, choose a safer organization, like a credit union or nonprofits like the Consumer Federation of America, or the National Foundation for Credit Counseling.
• Speak with your lender: Since no lender wants to go unpaid, they are often willing to work with you to adjust your payment plan. According to the Better Business Bureau, lenders will often assist you by stretching your payments over a longer period of time.
• Get it on paper: If a loan reduction company offers you any promises, make sure to get them in writing. Other things to get in writing include the services they will provide, the costs of those services, and promised money-back guarantees.
• Do your homework: Your local Better Business Bureau likely offers reports that reveal how many complaints have been filed against a particular lender and whether that company has been the subject of any lawsuits.
• Shy away from up-front fees: If a company demands that you pay large fees before they provide any services, they may be violating state law. Many states have outlawed this kind of behavior. Even if up-front fees are legal in your state, the practice could still be a scam.

An Alternative to Refinancing

If you cannot make your car payments, but are reluctant to adjust the terms of your loan, there are alternative steps you can take to ease your financial pain.

One helpful alternative may be to simply sell your car. Sources indicate that use-car prices are pretty high right now since last year’s cash-for-clunkers program removed a lot of used cars from the market.

So, you may be able to sell your current car and purchase a cheaper one with more reasonable payment terms.

If, however, your car loan is the least of your financial problems, and you need someone to talk to about your struggles, consider calling a personal bankruptcy lawyer.

Posted in Bankruptcy and Predatory Lending, Car Loans, cars in bankruptcy, loan scams, predatory lending | Comments Off

Financial Reform Leaves Loopholes for Predatory Lenders

Despite sweeping financial reforms passed by Congress a few weeks ago, there remain loopholes in the new laws that spell continued danger for consumers. Specifically, the new laws still allow some predatory lenders to roam free.

While the reforms put lending restrictions on most major financial institutions, car dealers and community banks escaped the grasp of the new federal regulations. This oversight poses a serious threat to many consumers, as these two industries are annually involved in billions of dollars in loans to tens of millions of people.

Car Dealers

Most folks don’t pay for automobiles with cash. As a result, auto dealers are seasoned veterans of the loan industry. With high stakes in the financial reform package, sources indicate that the auto industry lobbied hard to escape the regulations. Some of their key gains include:

• We Didn’t Do it: One of the most criticized loopholes of the financial reform bill was the “carve out” won by auto dealers. Car dealers escaped further regulation because they convinced legislators that they were not responsible for the recent economic meltdown.
• Power in Numbers: How do car dealers have so much lobbying muscle? Mostly because there are more than 18,000 dealers nationwide. And the financial institutions who aid in most car loans were glad to assist their friends in the car industry, as well.
• More Escapees: In addition to the exemption for car dealers, companies who sell boats, motorcycles, and RVs are also not governed by the new legislation.

Finally, while 90 percent of car loans are financed through standard financial institutions, like banks, car dealers serve as brokers about 80 percent of the time. So, according to consumer groups, the car dealer’s role as a broker leaves room for them to push loans with unfairly high interest rates. According to some reports, car dealers are more likely to charge excessively high interest rates to minorities and lower-income borrowers.

Community Banks

In order to avoid further regulation, community banks successfully argued that they are much different entities than larger financial institutions. Typically, small community banks charge smaller fees than their larger counterparts and are more dependent on aid of small, local businesses.

As a result of lobbying efforts, community banks are now exempt from paying the same Federal Deposit Insurance premiums as large banks. In addition, all banks with assets under $10 billion are not required to follow new lending regulations.

Still, the Independent Community Banks of America recognize the potential for loan scams, and they warn that consumers should always be wary of loans that sound too good to be true. If you are unsure of whether or not you’re the victim of a financial scam, don’t hesitate to contact a bankruptcy attorney.

Posted in Bankruptcy and Predatory Lending, auto loans, financial reform, predatory lending | Comments Off

New Overdraft Rules Give Consumers a Choice

In response to consumer complaints about ballooning overdraft fees, the Federal Reserve will soon pass new rules aimed at stopping banks’ misleading overdraft tactics. According to the Los Angeles Times, banks will no longer be allowed to automatically enroll customers in overdraft protection plans for their bank accounts.

At first glance, this seems silly—why wouldn’t consumers want overdraft protection? Well, such “protection” means that banks will allow you to make purchases with a debit card beyond your checking account’s limits, thus allowing your balance to go negative. The bank then charges an overdraft fee, which reportedly can reach as high as $39 per overdraft.

Since many consumers assume that using a debit card prevents them from going over their account limits, this often comes as a surprise. In addition, many consumers would prefer their purchases to be turned down for lack of funds, rather than face overdraft fees. However, automatic overdraft plans do not allow consumers this option.

In defense to such criticism, banks argue that overdraft protection saves consumers the embarrassment of having their cards turned down. Further, it allows consumers to make emergency purchases even if their balance is negative. While some consumers may appreciate these benefits, many account holders are upset with the current rules that automatically enroll consumers in overdraft protection plans.

New Rules

Starting August 1, banks will not be able to automatically enroll customers in overdraft plans. Instead, account holders will be asked to “opt-in” to overdraft protection if they want to avoid having purchases denied due to insufficient funds.

As Nessa Faddis, a spokeswoman for the American Bankers Association explains, “It’s a general opt-in. If you don’t do it, you could have a debit purchase denied.”

While it comes as no surprise that bankers enjoy the fees collected through their overdraft plans, some consumers may prefer to have their debit purchases denied, rather than be charged high fees. The new Federal Reserve rule intends to give consumers this choice.

Exceptions

As with many banking regulations, there are exceptions to the new overdraft rules:

• Banks can still allow “regular” payments and debits to be made, even if they push you past your account balance. Such payments might include automatic withdrawals for services like a gym membership. In addition, banks can still automatically charge fees for these “automatic” overdrafts.
• Banks can also continue their practice of “reordering” your purchases, so that the largest purchases are tallied first. By depleting your account with big purchases first, banks increase the odds that subsequent smaller purchases may trigger several overdraft fees. Remember, each purchase you make while in the red triggers a separate overdraft fee.

Additional Resources

To learn more about the new overdraft rules, visit the Federal Reserve's website.

Posted in Bankruptcy and Predatory Lending, Banks, Loans, fees, overdraft | Comments Off

The Student Debt Debate: Who’s to Blame?

Student loans provide people chances for their education, dreams and future career opportunities. But what happens when it’s time face the hefty debt waiting after graduation?

Who is to blame if the recent grad gets overwhelmed with debt and can't afford to pay their loans back?

A recent New York Times article profiled one indebted grad and tried to address all the parties involved.

For students like Courtney Munna, blame is no longer her concern. Now she regrets taking out $100,000 in student loans to attend N.Y.U. and wishes she made better financial decisions regarding the loans.

Since graduation in 2005, Munna has deferred her loans as a short term solution to scrape by and pay the rest of her bills.

But the question still remains, who’s to blame for students like Munna getting in over their heads.

The article said that both the students and their families have personal responsibilities to know their finances and take out loans they can afford to pay back.

The article also placed some responsibility on the universities since they have access to student’s finances after they fill out the financial aid forms, and are in a familiar situation helping students find aid. Students, on the other hand, are often overly trusting of universities to look out for their best interest.

The Times suggests that these schools should advise prospective students they cannot afford their school, an idea that Vice President of Enrollment at N.Y.U. Randall Deike said “would be completely inappropriate.” Besides discrimination issues, it’s not the schools decision to make whether or not a student can afford their school.

Their business is to enlist students, not turn them away. Deike agreed that prospective students should not take on too much debt, but he said that’s their decision.

There are other reasons universities do not want to tell students to search for a cheaper education. They said it might reflect poorly on their school and suggest that their education might not provide opportunities after graduation.

The lenders themselves have continued to take the blame for loaning too much money with too lax of standards. In Munna’s case she was approved for $40,000 in loans by Citibank, even after she was already deep in debt.

As of now, Munna makes $22 an hour and barely makes the bills. She knows she’s responsible for taking out to much money in loans. But said she doesn’t “want to spend the rest of her life slaving away to pay for an education…[she] would happily give back.”

Student loans typically take decades to repay, even if the student is fortunate to find a well-paying job after graduating. Many students see a series of forbearance and deferrals while they wait to land the right job, as interest and fees pile onto their original loans.

And there is typically no way to eliminate student loans other than to pay them in full. Currently, student loans are one of the rare types of debt that cannot be discharged in bankruptcy.

Posted in Bankruptcy, Bankruptcy and Predatory Lending, Student Loans, predatory lending | Comments Off

Debt Settlement Fraud and How to Avoid It

The era of easy credit has left more Americans than ever struggling with overwhelming debt and few options for escaping.

Rather than filing for bankruptcy, many consumers seek credit counseling or visit a debt settlement firm.

But, according to the Washington Post, more and more people are finding that unscrupulous firms are cheating them out of their last dollars rather than helping them escape debt.

What Is Debt Settlement?

Debt settlement is a bankruptcy alternative that, in theory, works like this:

• You contact a settlement agency: You’ve determined that your debts are a bit beyond your control, so you seek the services of a debt settlement firm.
• You pay a fee: Because they’ll be doing you a service, most debt settlement firms require you to pay a fee upfront, before they’ve done anything.
• They work out a plan: Generally, these plans require you, the debtor, to pay a certain amount of money into an account or directly to the firm every month.
• They contact your creditors: When they do so, they bargain with them, offering to send them a certain amount of cash (generally the amount you’ve sent the company thus far) in exchange for canceling the rest of your debt.
• Your debt is considered paid: Because your creditors “settled” what you owed with the firm, you will no longer owe those debts.

In reality, though, complaints to the Federal Trade Commission and other consumer protection groups show that many debt settlement firms do not operate as they claim to, and rather than help consumers eliminate debt, they keep the money paid to them and do little or nothing to contact creditors.

The scariest thing, perhaps, is that even though such actions are illegal, debt settlement scams continue to abound and seriously damage the financial wellbeing of Americans.

What You Need to Know

The best protection against debt settlement scams is knowledge. Keep in mind:

• You can negotiate with creditors: There is no law preventing you from calling each of your creditors and attempting to negotiate for lower payments or for them to excuse part of a debt. While this may be difficult or uncomfortable, it requires no special training (and may be more than a scamming debt collection company will do for you).
• Be wary of fees charged upfront: Companies that ask for money right away should raise a red flag. There are plenty of free credit counseling services offered around the country – look for one in your area.
• Bankruptcy is still an option: Some Americans think that BAPCPA, the bankruptcy law that took effect in 2005, made it extremely difficult to seek bankruptcy protection, but many sources suggest that’s not true. If you truly need help from bankruptcy, it’s likely available to you.

Additional Resources

Growth of the Debt Settlement Industry (PDF)

Consumer Protection & the Debt Settlement Industry (PDF)

Posted in Bankruptcy Alternatives, Bankruptcy and Predatory Lending, Debt Settlement, Fraud | Comments Off

New Consumer Credit Card Rules Take Effect

Good news for credit card holders—the final set of provisions under the Credit Card Act of 2009 take effect today, offering some important consumer protections.

For those who use credit cards responsibly, the new laws will provide more time to pay bills and less likelihood for fees, penalties and interest rate changes. For those struggling with credit cards or facing bankruptcy, the laws may prevent fees from adding up and provide a little breathing room.

Here's a look at some of the key provisions that are now in effect:

• Expanded Statements: Your monthly card statement will have a few new features, including broken down fees and penalties and a chart showing how long it will take to pay off the charges making only the minimum payment (and how much it will cost). Your statement will also arrive at least 21 days before the due date, a full week earlier.
• 45 Day Notices: Your credit card issuer must give advance warning of any changes to your account, particularly interest rate changes. This will give you more time to consider the changes, negotiate with the credit card company, or, if necessary, pay off the balance and close the account.
• No Rate Increases for 1 Year: The new law prohibits "arbitrary" rate increases for the first year you hold an account. Lawmakers hope this will curb "universal defaults", in which one card issuer raises interest rates due to late payment on a card issued by a different bank. Some actions could still trigger a rate increase, such as being more than 60 days delinquent.
• Over-Limit Opt-in: You will only be charged over-limit fees if you agree to it. While this may seem like a blessing, it also means more transactions may be declined.

While these changes went into effect, many cardholders have seen changes to their account over the past year, since the law was introduced. Credit card companies have been preparing for the law to go into effect, and in many cases have not been acting in consumers' best interest.

Many credit card companies have been raising interest rates and introducing new annual fess (which are permitted in the new law) in order to prepare for the revenue losses that could come under the Credit CARD Act.

For more information, visit the Federal Reserve's credit card site.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Credit Card, Credit Cards, Credit and Bankruptcy, Interest Rates | Comments Off

FDIC: One Quarter of Americans Unbanked or Underbanked

At the beginning of 2009, the Federal Deposit Insurance Corporation (FDIC) initiated an examination of the unbanked and underbanked people of the U.S. as part of Census data collection.

The report was released this week, and shows some worrying trends about financial institution usage, particularly among minority populations.

• Unbanked: This term refers to people who have neither checking nor savings accounts, and who rely primarily on non-bank financial institutions (like check cashing services, payday lenders, refund anticipation loans, etc.) for their financial needs.
• Underbanked: This refers to people who have either a checking or savings account, but rely on alternative financial sources at least once or twice a year.

The Banking Study

According to the executive summary of the report, its goal was to address a gap in reliable data on the number of unbanked and underbanked households in the U.S.

The issue matters because those without bank accounts lose out on access to lower-cost financial management. Bank use can also permit people to build credit histories and establish financial stability – in other words, it’s in the best interest of the U.S. as a whole to improve access to banks for everyone.

Here’s a look at the hard numbers:

• 25.6 percent of American households (about 60 million adults) are unbanked or underbanked.
• A breakdown by race shows that 43.3 percent of Hispanic households, 44.5 percent of American Indian/Alaskan households and nearly 54 percent of black households are unbanked or underbanked.
• At least 71 percent of un- and underbanked households have incomes of $30,000 per year or less.
• The most common reason people offered for not having a bank account was feeling that they did not have enough money to justify one.
• About two thirds of unbanked households use one or more of these financial tools: non-bank money orders & check cashing, payday loans, pawn shops, rent-to-own agreements and refund anticipation loans.
• About one quarter of unbanked households use none of the aforementioned services, which suggests that cash is their go-to commerce tool.

Opening and maintaining bank accounts is an important step toward financial stability for individuals and households. On a larger level, the high numbers of unbanked Americans can be seen as one symptom of our country’s varied economic woes.

Additional Resources

Full FDIC Report (PDF)

Posted in Banking, Bankruptcy and Predatory Lending, money habits, saving money | Comments Off

Federal Reserve Sets Limits for Debit Card Fees

Debit card users will have to opt-in to overdraft fees for ATM withdrawals and one-time purchases, according to a new set of ruled unveiled by the Federal Reserve Board.

The measures, which will take effect July 1, 2010, are part of a series of decision issued by the nation's central bank to limit abusive practices by banks announced over the past year.

Authorizing Fees

Under the new rules, all debit card holders must be given notice of the bank's policies, including those on overdraft fees, in plain language. Cardholders can sign up to be charged fees or not, and banks cannot change the terms of service afterward.

Banks will still be allowed to charge overdraft fees for recurring debt card purchases, such as recurring utility bills that are automatically charged, as well as on bounced checks.

The measure is mainly aimed at one-time debit card purchases or ATM withdrawals that can often result in fees greater than the purchase amount.

Protecting Consumers

"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke in a press release. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Declining Transactions?

Of course, those who overdraw their bank accounts won't be given free money by their banks.

Overdraft protection allows banking customers to make payments even when their funds are limited, and are charged a fee for the convenience.

Those who opt-out of overdraft protection may instead see their transactions declined if they attempt debit card purchases when their accounts are low. However, any overdraft transactions approved by the bank cannot result in fees.

Posted in Bankruptcy and Predatory Lending, Federal Reserve, Financial Literacy, bank fees, debit cards | Comments Off