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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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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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