Archive for May, 2009

A lot of things about Texas are big. In terms of landmass, it’s the largest state in the contiguous U.S., second only to Alaska overall. It’s also the second-largest state in terms of population, after California. The Texas economy is also out-sized, with leading oil, biomedical research, aerospace and information technology companies headquartered there.

Texas is also “big” in terms of tuition rate hikes at its state colleges and universities. Those schools have increased their tuition costs by 89% during the past six years, according to ConsumerAffairs.com.

Texas legislators recently said enough’s enough. State senators approved a bill that would limit tuition and fee hikes to 5%. But they would only mandate the 5% limit at those schools where tuition and fees were above the state median.

State lawmakers had established tuition rates at state universities in the past, but as their ability to provide monetary support to the schools dwindled in recent years, they decided to let state schools set their own rates so they could make up for the lack of support from the state.

Many would argue that, when left to its own devices, the state university system in Texas, as elsewhere, went overboard.

Are rate increases at state-funded universities in your state within reason, or rising by leaps and bounds?

A truly great bargain offers an unforgettable experience. I still bask in the glow of getting a designer dress originally priced at over $400 for a mere $52 — and that was over four years ago. But ask anyone — male or female — to recall their all-time best bargain, and within seconds they’ll proudly describe the details of their steal. (In a quick, unscientific survey, four out of five men were able to tell me all about their “deal of a lifetime.” I’m willing to bet the fifth’s girlfriend must do all of the shopping.)

Surprisingly, or perhaps not so surprisingly in this economic climate, one man’s first response was “my house,” and another said “my car.” We’ve been hearing for a while that now is the time to act on a new home purchase if you can afford it. There’s a lot of inventory out there, and many sellers are willing to make a deal — not to mention foreclosure and short-sale bargains. Now it appears that car dealers are backed into the same “must-sell” corner and willing to do what it takes to move overstocked inventory, including selling cars for less than what they paid the factory.

According to MarketWatch, dealers “were selling about 25% of all 2009 model cars below cost” by March 2009.

While I have to appreciate the amazing deals that means for consumers, I also find it somewhat bittersweet. It’s certainly a huge advantage for car-shoppers to score a new car at such a discount, but it’s also another indication of the sad state of the economy. Dealers willing to lose money just to get cars off their lots present staggering economic implications.

When gasoline was priced over $4 per gallon last summer, Toyota dealers couldn’t keep their prized gasoline-electric hybrid Prius models in stock. Consumers were calling dibs before the cars even arrived on the lots and paid thousands over sticker price just to get behind the wheel of these fuel-saving machines. Fast-forward almost a year: Gas prices have dropped by 40 percent, the economy is ailing (to say the least), and those formerly coveted hybrids are sitting on lots with no where to go, even with the energy efficiency tax credits available.

I’d like to think it’s the economy — not apathy towards the environment following lowered gas prices — that’s stalled hybrid sales. But regardless of why, the facts remain the same: The cars simply aren’t selling.

And here’s an interesting illustration of supply and demand: Last July, eager car-buyers were paying up to $4,000 above sticker price to own a 2009 Prius. Today, you can get that same 2009 Prius for $4,000 BELOW dealer cost in some cases.

So if you’re able to cash in on incredible savings, it seems now is the time to do so. Be sure to head to the dealership educated and ready to negotiate, and you too could drive off with the deal of a lifetime.

Debt collectors, never known for their soft touch, have apparently ratcheted up their offensive tactics (pun intended) once again. An agency in Phoenix, Arizona, called Auto Financing Network (AFN), bullied one delinquent borrower by creating a website using her name as the URL and pronouncing that she hadn’t paid the loan for her Chevy Cavalier.

When the owner missed a payment, the company repossessed the car, informing the owner they were able to do so quickly because they’d hidden a GPS tracking device on the vehicle.

According to the TPMMuckraker’s account of the story, the borrower was apparently able to regain possession of the car after making a payment. But a few months later, when she fell behind on payments again, the company created a website using the borrower’s name with the title, “Jennifer Dicks isn’t paying for her Cavalier!”

AFN President Michael Fischer then began a series of dozens of defamatory and harassing text messages saying things like “I wish you died when you fell off the roof” and calling the borrower a “loser” and “f****** retarded,” said the TPMMuckraker story.

According to AFN’s website, the company’s top three priorities for 2008 are “#1 Treat customer right; #2 Treat customer right. #3 Treat customer right.”

Ms. Dicks has retaliated with a lawsuit.

Have you had an experience — good or bad — with debt collectors?

If you’ve ever missed a car payment — or two — you may have been flirting with car repossession.

For car owners, vehicle repossession can be a stressful, confrontational and even violent experience. Recent accounts have reported on one 67-year-old retiree being shot and killed after confronting a repo man and two helpers who sought to reclaim his vehicle in the wee hours of the morning.

Now, a New Jersey auto finance company is using technology that makes car repossession unnecessary. By inserting a small device inside the vehicle, South Jersey Auto Finance of Glassboro simply transmits a cellular signal to the device remotely to disable the starter. The signal is activated after three days of nonpayment.

In an interview with National Public Radio, General Manager Mark Barr explained that while the newest devices transmit no advance warning of an imminent shutdown, customers are made aware of the device at the time they purchase the car. All of the company’s customers are considered high-risk borrowers, so all vehicles are outfitted with the device.

“Contractually, we have 10 days before charging a late fee, but we’re not looking for a late fee, we just want timely payments,” Barr said. Out of a little more than thousand accounts, Barr said, about 10 or 15 vehicle ignitions are disabled every week due to nonpayment of loans.

Is the recession wearing thin on you? Are you tired of scraping by on unemployment benefits, worrying about your 401(k) balance, feeling stuck because you can’t sell your house or wondering how in the world you’ll finance your next car purchase? Or worse?

Amidst your many immediate worries, hearken back to how this all started — a red-hot real estate market where big banks made big money through their willingness to disregard standard lending practices and substitute poor judgment for credit checks. These Wild West business deals led to high mortgage default rates and subsequent foreclosures that exposed widespread weaknesses in financial industry regulations and ultimately train-wrecked the global financial system.

If you’re looking for someone to throw a dart at, why not put your money where your mouth is and stop doing business with those most responsible for the mess we’re in? There are plenty of healthy regional banks or credit unions that largely steered clear of subprime lending, mortgage-backed securities and other questionable practices, and they’d dearly love your business.

The Center for Public Integrity recently released The Subprime 25, a black list of the top 25 subprime lenders and their Wall Street backers who were responsible for nearly $1 trillion in subprime loans — that’s 7.2 million high-interest loans — made from 2005 through 2007.

“Together, the companies account for about 72% of high-priced loans reported to the government at the peak of the subprime market. Securities created from subprime loans have been blamed for the economic collapse from which the world’s economies have yet to recover,” the report says.

While 20 of the top 25 companies have been sold, closed or stopped lending (I still remain uneasy about employees of these companies simply migrating elsewhere), five of The Subprime 25 remain in business.

#8-ranked Wells Fargo Financial:

Total high-interest loans, 2005-2007: At least $51.8 billion

CEO John G. Stumpf’s 2008 salary: $878,920; $13,782,433 in total compensation

Federal bailout money received: $25 billion

#12-ranked Chase Home Finance (the consumer lending unit of JPMorgan Chase):

Total high-interest loans 2005-2007: At least $30 billion

CEO James Dimon’s 2008 salary: $1,000,000; $19,651,556 in total compensation

Federal bailout money received: $25 billion. JPMorgan also benefitted when the Federal Reserve Bank of New York guaranteed against losses $29 billion in shaky Bear Stearns assets, clearing the way for the company’s sale.

#15-ranked CitiFinancial (part of Citigroup)

Total high-interest loans, 2005-2007: At least $26.3 billion

CEO Vikram Pandit’s 2008 salary: $958,333; $10,815,263 in total compensation

Federal bailout money received: $45 billion in direct investment and federal guarantees on $306 billion in assets

Settlements over lending practices:

2002: Citigroup agreed to pay $215 million to settle Federal Trade Commission charges that Associates First Capital Corp., before it was acquired by Citigroup in 2000, had practiced systematic, widespread, deceptive and abusive lending.

2004: CitiFinancial was hit by a $70 million civil penalty by the Federal Reserve for subprime lending abuses.

#18-ranked American General Finance (part of AIG)

Total high-interest loans, 2005-2007: At least $21.8 billion

Former CEO Martin Sullivan’s 2007 salary: $1,000,000; $14,330,736 in total compensation

Federal bailout money received: $187 billion in federal loans, guarantees and direct investments

Settlements over lending practices:

2007: AIG subsidiaries agreed to pay $128 million after the Office of Thrift Supervision found they ignored borrowers’ credit when making loans and charged excessive broker and lender fees. AIG also agreed to contribute $15 million to financial literacy and credit counseling.

#20-ranked GMAC Financial Services

Total high-interest loans, 2005-2007: At least $17.2 billion

CEO Alvaro G. de Molina’s salary: Not available

Federal bailout money received: In 2008, the Federal Reserve approved GMAC’s request to become a bank holding company so it could obtain a $5 billion investment from the Treasury Department.

Settlements over lending practices:

2004: GMAC-Residential Funding Corp. and other companies agreed to cough up $41 million to settle a federal class-action lawsuit over predatory lending claims.

2005: Homecomings Financial Network Inc. (a GMAC subsidiary) and Fairbanks Capital agreed to forgive $11 million in debt and pay $773,000 in restitution, account credits and refunds to West Virginia homeowners.

Since the beginning of the economic downturn, the tumbling stock market, a contracting job market and massive home foreclosures have occupied the nation’s attention. But there’s another effect of the ailing economy that’s just beginning to reveal itself: increasing car repossessions and the violent altercations occurring between repossesser and repossessee.

The economic slide and rising job-loss numbers increase the probability that consumers will default on their car loans, since most consumers will likely put a mortgage or rent payment before a car payment. Some analysts expect the number of repossessions to climb by five percent this year — on top of a nine-percent jump in 2007.¹ Others, however, predict a decrease in car repossessions because the number of financed cars has dwindled 32 percent since the recession began.²

But just because the pool of cars scheduled for repossession is shrinking doesn’t mean violent encounters over those cars will evaporate too. In fact, it’s quite the opposite. Car owners today — very aware that a sickly credit industry will make it much harder for them to replace a repossessed car with a new one — are desperate to hold on to the cars they already have.

While confrontation seems a natural aspect of the repossession process, the escalating resistance by some car owners is quickly turning the parties involved into casualties of the recession.

In a nearly unregulated profession, Joe Taylor, a repossession company insurer, warns the Associated Press, “If a guy is just put right on the street without training, the potential for violence is very, very high.”¹

When the dust settled on a dirt road following one such scuffle between 67-year-old retiree Jimmy Tanks and the men sent to repossess his Chrysler Sebring, one man was left dead and another charged with his murder.¹

According to reports, Tanks heard a noise outside his Alabama home late one night in June 2008, grabbed a gun and ran outside to confront the intruders. Who fired first and what happened next is less clear. What is clear is that a gunshot wound to the chest killed Tanks that night. Now, repo man Kenneth Alvin Smith awaits trial on murder charges for the 2:30 a.m. incident.¹

Since Tanks’ death in June 2008, two repo men also employed by Smith’s company have been involved in separate shooting incidents — leaving one wounded and the other dead.

With no end to the recession in sight, we’re only left to wonder if this violent trend will continue, and for how long.

Footnotes
¹ “Violence between repo men, car owners on the rise,” FoxNews.com, Feb. 27, 2009

² “The Recession’s Gotten So Bad, Even the Repo Man’s Singing the Blues,” Phillips, Michael M. Wall Street Journal, March 10, 2009

When it comes to finding ways to save money in a tight economy like this one, nothing — I repeat, nothing — is safe from scrutiny by cost-cutting zealots.

With the overall cost of college tuition, room and board easily exceeding six figures at many private four-year schools, school administrators at some universities have taken the axe to one familiar school item that will, in one fell swoop, save millions of dollars, do the environment a favor and make students feel more at home.

The ubiquitous cafeteria tray is disappearing from schools like Skidmore College, Williams College, Rochester Institute of Technology (RIT) and Cornell, the New York Times reports. In trayless cafeterias nationwide, students simply carry their plates heaped with food, and guess what? No one’s grumbling about it.

Don’t snicker. Aside from potentially helping students avoid putting on the abhorrent “freshman 15″ pounds, Williams College estimates it’s saved 14,000 gallons of water annually since eliminating the trays. Administrators at RIT attribute a food bill that’s 10% lower (despite generally rising food costs) to reduced food waste brought about by going trayless.

School administrators elsewhere claim that students waste less food because they choose more carefully when they can’t load up as easily. Others add that it makes the dining hall ambience less “institutional.”

Someday, years from now, many of us folks over the age of 40 may fondly remember college cafeteria trays (along with those conveyor belts) in the same way we muse about other dining trends that have since lost favor. You know, like the Automat, those cafeterias with the chrome-and-glass-operated machines that dispensed meals in lieu of waitresses.

Reminiscence aside, you’d probably be loony to think that creative cost-savings like this would actually cause school admissions offices to lower tuition bills. But, hey, you never know — maybe one day they’ll rein in some over-the-top new construction projects and pass the savings on to students.