Bankruptcy Questions Answered

A Better Alternative to Payday Loans?

The financial dangers of taking on a payday loan (a short-term, high-interest loan offered to people with weak financial histories) generally outweigh any benefits. For cash-strapped Americans who need to make rent or utility payments, though, payday loans are often the only viable source of cash.

But, according to a post on WiseBread.com, that might change soon: it seems that, in some parts of the country, a more consumer friendly alternative to payday loans is cropping up.

More Affordable Small Loans

Here’s a look at what might soon act as a better option for people looking to borrow a little money for a short amount of time.

• FDIC pilot program: Between February 2008 and February 2010, the Federal Deposit Insurance Corporation tested a program that allowed Americans to borrow up to $2,500 for a period greater than 90 days. Interest rates were capped at 36 percent (but were often less).
• Non-payment loan requirements: In addition to making regular payments on their loans, borrowers were often required to meet other criteria, such as opening and putting money into a savings account, taking a financial literacy class and more. These measures were instituted to reduce or eliminate a borrower’s need for small dollar amount loans in the future.

According to the FDIC’s web site, the experiment showed promising results in many of the volunteer test banks (28 across the country). Now, the question many consumer advocates are asking is when will such programs be more widely available.

Finding Affordable Loans Near You

If you’re in need of a loan but don’t have the credit score or history to qualify for a traditional bank loan, you may be able to find a small dollar amount lender near you that won’t charge punishing interest rates. Here’s what to look for:

• Check out your local banks: Sources note that national banks like Bank of America and Wells Fargo have not yet hopped on the small loan bandwagon, but various regional banks across the country do offer a variety of small loans. To find out what your options are, call some local banks and ask about their non-traditional lending programs.
• Visit a credit union: If no banks in your area offer smaller loans, check out some of the credit unions. Because they’re structured on a more community-centric model, credit unions may have more alternatives for local members without other options.

It’s uncertain right now whether these programs will catch on (and even whether they’ll get some sort of national support to help them grow), but it seems that the FDIC’s chair, Sheila Blair, hopes they do.

To learn more about small dollar amount loans and how they might help you, visit the FDIC’s web site (link above) or check out the full WiseBread.com article.

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

What New Debt Settlement Rules Mean for You

The Federal Trade Commission issued new rules governing how debt settlement firms can charge consumers for their services. The new rules prohibit debt settlement firms from charging upfront fees for their services, which in theory will prevent some of the predatory practices that cost consumers so much money in the past.

Here’s a summary of some of the potential side effects these new rules might have on the debt settlement process.

Fewer Ads, More Honest Claims

• A drop-off in ads claiming to settle debts for little money: A ban on hefty upfront fees will mean that simply bringing customers through the door will no longer guarantee income for debt settlement firms, which in turn will mean that dropping money on TV and radio commercials may no longer be worthwhile financially.
• More selective consumer selection: Now that debt settlement firms cannot charge every customer large fees, they’ll have to more carefully choose which customers they agree to help. This will likely be good news, regardless of your goals. If you’re a good candidate for debt settlement, visiting a debt settlement firm may have a greater chance of helping you than in the past. And if you’re not a good candidate, the debt settlers may be less likely to waste your time and money with their services.
• Claims made based on all customers: Before the FTC’s rules took effect, debt settlement firms commonly made claims based only on the settlement experiences of their most successful customers. Now, though, companies must advertise using figures that represent all their customers’ experiences, meaning that the figures should more honestly represent what the company may be able to do for you.
• Some closures of debt settlement firms: Some debt settlement firms may no longer have a workable business model without upfront fees from customers, which could mean closures in debt settlement firms.
• “Innovative” trickery: And, finally, as with any implementation of new rules, some debt settlers may try to find ways around the new requirements. As always, you are still responsible for making sure your money and financial health is in good hands.

Debt Settlement without a Firm

If you’re struggling with debt and are trying to figure out which debt-relief option might work best for you (bankruptcy, debt settlement, credit counseling, etc.), remember that you can contact your creditors without any help from a third party. By exploring all of these options, you may find the debt-relief option that works best for you.

Posted in Bankruptcy and Predatory Lending, Debt Settlement, Filing Bankruptcy, Financial Literacy, debt collection, predatory lending | Comments Off

Payday Lender Charged with Improper Disposal of Customer Data

A press release from Illinois’ attorney general’s web site notes that an Illinois payday lender, Payday Loan Store, has been accused of dumping consumer’s sensitive information in trash receptacles outside several locations. Lisa Madigan, the attorney general, is reportedly suing the company for “allegedly failing to safeguard consumer data.”

Here’s a look at the details and what you need to know to keep your information safe.

NOTE: If you’re really strapped for cash and feel like you’re at your wits’ end trying to make ends meet, now might be the time to consider filing for bankruptcy.

Sensitive Documents Found in Trash

Reports indicate that various documents, including highly sensitive consumer information, were discovered in trash bins outside some Payday Loan Store locations.

• Enough information to allow identity theft: Police reportedly found documents that included customers’ Social Security Numbers, bank account numbers, canceled check information, credit counseling history and more.
• Earlier promises to protect such information: According to sources, Payday Loan Store guaranteed customers that it would protect their sensitive information. The discovery in the trashcans suggests a breach of both that promise and federal law.
• Fine and penalties sought: The press release notes that Madigan will seek a civil penalty of $50,000 from Payday Loan Store for each incident of improper handling of consumer information. Further, Madigan apparently hopes to permanently bar Payday Loan Store from engaging in deceptive and unfair practices.

More Dangers to Payday Loans?

The news of this improper data handling adds a new element of danger to the already risky short-term, high-interest loans offered at outlets like Payday Loan Store. If you’re contemplating taking out a payday loan, consider this:

• State laws have banned or limited them: In recent years, payday lenders have been outright banned or severely restricted in many states.
• They come with sky-high interest rates: In those states where payday lenders still operate freely, associated fees on cash loans are equivalent to interest rates up to 390 percent.
• They’re excellent debt-cycle promoters: While most people who take out payday loans fully intend to repay them in full at their next payday, the majority of payday lending customers end up in multi-cycle debt traps, paying far too much for the short-term loans they’re getting.

As if all that weren’t reason enough to avoid payday lenders at all costs, Attorney General Madigan’s new suit suggests that the dangers of borrowing from a payday loan store could include identity theft. Yikes.

So what should you do if you’re in need of quick cash and can’t get a loan from a traditional source? Many financial insiders recommend pretty much anything besides a payday lender: asking for a loan from friends and family, asking for a paycheck advance, selling unwanted household items, selling blood or plasma, applying for a new credit card, etc.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Identity Theft, payday lending | Comments Off

FTC Halts Tax Relief Fraudsters

The Federal Trade Commission filed a complaint last week with a federal judge to halt what was reportedly an organization devoted to tricking people out of money by promising to help with tax debts.

Tax Debt, Debt Relief Scams and You

Like so many other debt relief scams, this one is particularly difficult to stomach because it preyed on consumers who could least afford to lose the money they allegedly paid to the fraudsters. According to the FTC, here's how the scam worked:

• False promises of debt help: In TV, radio and Internet ads, the company (called American Tax Relief LLC) reportedly claimed that it could settle consumers' back tax debt for only a portion of the total amount. The company also apparently referred to part of the IRS's tax code that allows, in very limited circumstances, an "offer in compromise" for citizens truly unable to pay the taxes they owe.
• Fake "tax consultants": When victims called the company's toll-free line, they were reportedly connected with fraudsters posing as tax analysts and told, in almost every case, that they could qualify for one of the IRS's "special programs."
• Hefty upfront fees: Before offering customers the help they promised, sources note that the company charged large upfront fees (ranging from $3,200 to $25,000).
• No real help: Because the company was offering a service it could not realistically provide to so many people, it never actually gave customers any significant benefit for their payments.

Tax Debt Is Non-Dischargeable in Bankruptcy

Like child support, federally funded student loans and criminal fines, tax debts are typically non-dischargeable in bankruptcy court and are otherwise very difficult to eliminate in any way besides paying them. If you're struggling to make payments on back taxes, you may have some options:

• Installment payment plans: These plans, which individual taxpayers can arrange with the IRS, work much like any installment loan. They let those who are struggling financially catch up on their tax debt by making smaller payments over a period of time. While this may translate to paying more in total (because of interest rates and penalty charges), it's often a workable alternative for those who cannot afford a single lump payment.
• Offer in compromise: These agreements are much rarer because they involve the IRS settling a debt with a taxpayer for less than the total amount the taxpayer owes. Generally speaking, only those in extreme financial circumstances will qualify for offers in compromise.

Lavish Living: Insult to Injury

Perhaps the most galling part of the fraud case halted at the FTC's request is that the alleged fraudsters were reportedly living lavish lifestyles: driving expensive cars, residing in pricey homes, and paying for it all with ill-gotten funds from people struggling to stay afloat financially.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Financial Literacy, debt relief scam, tax and bankruptcy | Comments Off

FTC Deals with Payday Lending Scammers

The Federal Trade Commission has announced that it has reached a settlement deal with a payday loan company that was illegally garnishing the wages of some of its borrowers. Here are the basic facts of the case and some pointers to keep you from getting burned:

• The company offered payday loans. The companies known as GeteCash and LoanPointe reportedly offered consumers payday loans, a type of short-term, high-interest loan considered by many financial analysts to be “predatory.”
• Consumers agreed to online terms and conditions. In order to apply for a loan online, consumers apparently had to check an agreement of terms box. One of these terms, it seems, indicated that the company could garnish a borrower’s wages (that is, take money from their paycheck) if she failed to make loan payments.
• The garnishment was illegal. According to the FTC’s charges, the payday lending company overreached its legal debt-collection abilities. While laws permit federal agencies to garnish the wages of someone who owes the government money, non-government groups aren’t afforded the same privilege.

The FTC apparently took action because the payday lenders not only indicated that they had the same collection rights as the government, but also claimed that their customers knew that they had agreed to the garnishment clause.

Because of the FTC’s actions, those behind the garnishment scam are barred from certain lending practices and responsible for a $38,133 judgment that has been suspended because of their current financial situation.

Don’t Get Burned by Payday Lenders

In recent years, legislators have taken action against the payday lending industry, which can lead struggling consumers into a perilous cycle of debt. Many financial insiders recommend avoiding payday lenders at all costs because of their high cost. Here are some options you might consider before turning to a payday lender if you’re in need of cash:

• Friends and family: Asking to borrow money from a loved one may be hard, so consider this twist: offer to do chores or run errands in exchange for some money. Or, if you’re already swamped, volunteer to write up a formal payment agreement outlining the terms of repayment.
• Your boss: If you have a decent relationship with your boss, consider asking for extra work and/or an advance on pay. This may not work more than once, but if you’re in a serious pinch, an advance on wages will likely hurt your finances less than a payday loan.
• Your credit card: If you aren’t maxed out on your plastic, using it to pay is generally less expensive than taking out a payday loan. Credit cards generally have lower interest rates than payday lenders and offer you more options for paying them back.

If you’ve already turned to payday lenders to keep up with financial obligations, you may want to consider the financial relief that filing for bankruptcy could offer you.

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

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