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Wednesday, July 7th, 2010

New Student Loan Laws Take Effect

For the millions of parents trying desperately to help their child pay for college (even though they may be facing bankruptcy, themselves)—an institution that is becoming increasingly difficult to afford—some hope may be insight. A new law that went into effect last week relegating private lenders to a smaller role in educational loans may make affordable federal loans easier to get, according to a recent article in the Wall Street Journal.

The new student loan legislation, which was signed this spring as an amendment to the health-care overhaul bill, cuts out the private-sector middlemen from offering federal loans as of July 1st, while increasing the federal grant programs.

As a result, borrowers should have a clearer distinction between federal and private loans, especially because many banks previously offered both.

The short term result of this change is more competition among private lenders, which could lead to better terms for borrowers. Wells Fargo demonstrated this when it recently dropped rates on two of its private student loans, including a new loan for parents launched in May.

One long term result may be a much needed break for students. The average debt among college students in 2008 is up to $23,200, nearly $5000 more than students graduating in 2004.

Some key tips to keep in mind if you or your children are planning on applying for students loans in the fall.

Maximize the federal loans first. Federal loans have fixed rates that won’t rise with interest. The fixed rates vary from 4.5% for students with a demonstrated academic need, to 6.8% for those who aren’t need based.

Also, federal loans offer a very flexible repayment plan, which can be important if you or your recent graduate are struggling to find a job that can pay the bills.

There are other kinds of federal student loans that can help save money, when compared with private loans, that you can look into to see if you qualify for.

The other key point to think about is finding the deals on private loans.

Credit unions are increasing their business in the field, with around 150 credit unions joining the Credit Union Student Choice program, a group that helps credit unions offer non-federal student loans with an average rate on existing loans of 6.25% with zero origination fees.

There are also more regulations on the radar for Congress. There is a financial-regulation bill in Congress that calls for the formation of a Consumer Financial Protection Bureau that would have oversight over private student loans and other financial products to give borrowers more protection.

Hopefully these trends continue and allow all the emerging college students to have some freedom and flexibility to merge into careers that they want to, instead of selling their soul to the first job that will pay off their debt and get them out of the house—assuming there are any jobs when they graduate.

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Posted in Bankruptcy News and Events | 1 Comment »

Saturday, June 19th, 2010

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.

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Posted in Predatory Lending | No Comments »

Wednesday, July 29th, 2009

How to Not Get Bamboozled by Banks

Even though lenders are no longer throwing themselves at consumers and credit is a bit tighter than it was a couple years ago, I think it’s worthwhile to refresh everyone’s memory on warning signs of predatory lending.

Here's what to look out for when you're heading to purchase big-ticket items like cars, appliances and houses:

Warning #1: Excessive Fees

Excessive fees can be disguised in a variety of ways, depending on what type of loan you’re seeking:

  • Credit cards: Account activation fees, membership fees, service charges, limit-extending fees, yearly fees – if your bill or credit card agreement is littered with similar costs, beware. This is a classic sign of predatory lending. In some cases, the fees charged greatly outstrip the cost of a given service.
  • Home loans: While some points and fees are standard procedure for home loans, exceeding the norm in such charges is considered predatory. To determine whether your lender is charging excessive fees, research typical fees in your area and take a look at your credit report or score (www.annualcreditreport.com).

Warning #2: Prepayment Penalties

These are most common with mortgages, particularly subprime mortgages .

Generally, if you’re charged a penalty of some kind for repaying part of your loan before its due date, the loan is usually considered to be predatory.

Such penalties prevent you (the borrower) from saving money by minimizing the amount of interest you pay over the life of your loan.

Warning #3: Out-of-Control Interest Rates

In general, your credit score will determine the kind of interest rates you can expect to pay – higher scores yield lower interest rates. But even for those with weak credit, some interest rates are unacceptably high.

  • Credit cards: Rates for cards vary widely, but many fall within the 15 – 22 percent range. If you’re paying much more than this, especially because of universal default or unannounced changes to your terms, you may need to contact your creditor.
  • Payday loans: These short-term, high-interest loans are infamous for having excessive interest rates. Yearly costs can be as much as 400%, which is why many states have introduced or passed legislation restricting them.
  • Credit card cash advances: These typically have wild interest rates – and are often mailed with your bill to look like personal checks. Avoid them if at all possible.

Warning #4: Large Print and Very Small Print

Be wary of exciting “bargains” advertised in big print.

They’re usually followed by disclaimers, exceptions, costs, fees and more.

This may not be the most aggressive predatory lending technique, but it can trick those who aren’t paying careful enough attention.

Luckily, part of the Credit Cardholders’ Bill of Rights includes regulations for font size in credit card agreements.

--Have you already been "bamboozled by banks"? Learn about filing bankruptcy

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Posted in Predatory Lending | No Comments »

Tuesday, July 21st, 2009

Faces of Foreclosure: First Person Accounts

Los Angeles may be home to movie stars, but it's also one of the areas hit hardest by the economic downturn.

With home foreclosures in Los Angeles still on the rise this year, the Los Angeles Times provides five first-hand accounts from people facing foreclosure.

It's a simple, captivating and heartbreaking read. Each of the five people profiled offers a distinctively different tale, but they've all faced the same stress: How do we stay in our home?

In reading their stories, I think there are several lessons that we can take away, particularly if you're facing foreclosure or other financial struggles.

  1. You can't take action soon enough. Many of the people in the article waited until it was too late to take action. Time is not on your side if you are facing foreclosure. Don't wait until you receive an eviction notice. If you are getting behind on your payments, then take steps today to improve your situation. The sooner you start, the more options you may have. If you lose your job and notify your bank right away, they may be more willing to work with you. Then again ...
  2. The banks are not on your side. Several of the people in the story mentioned how unwilling their banks were to work with them. Often the banks wouldn't even respond to requests for help. One bank wouldn't lower a man's $500,000 mortgage, but sold his house for a fraction of that! Also, several couples went to the bank seeking help only to have more loans pushed on them with higher interest rates and higher monthly payments.
  3. Know your rights. Some of the people turned to bankruptcy for help, only to report having banks turn up on their doorsteps with foreclosure notices. If you file bankruptcy, all foreclosure efforts must stop until your case is resolved. If you file, and a bank shows up on your doorstep, report this to your lawyer immediately. The bank is in violation of the law in these cases.
  4. Even the prepared can struggle. The people profiled had money in savings and retirement accounts. They owned their business and were often responsible. But still, they faced hardship. Even the best prepared can struggle. Don't let your pride keep you from seeking assistance.
  5. You need long-term help. When hard times hit - like a job loss or injury - it's difficult to say how long the trouble will last. Will you find work soon? Will things recover quickly? You never know. But many people get in trouble by trying short-term fixes that only complicate their problems. If you find yourself slipping into serious debt, you should look into real, lasting solutions right away.
  6. Help is available. Most of all, don't give up hope. You have options. The people in this story turned to free legal aid organizations for help. For many people, filing bankruptcy allows them to stay in their home. Other people need short-term assistance to help with food and child care. The support is there, if you take advantage of it.

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Posted in Home Foreclosure | No Comments »