Archive for the ‘Credit Problems’ Category

If the water company turns the spigot off, does the need for water go away?

As the recession lumbers on, credit card companies have tightened up credit limits and made it much more difficult for borderline applicants to access credit, even if they had no problem making purchases on credit in the past.

Now that consumers can no longer assume easy access to credit, does that mean they’ll simply stop spending? No.

The Houston Chronicle reports that some rent-to-own stores are enjoying a big spike in business, as families who now lack a credit card are resorting to other means to buy everything from bedroom furniture to flat-screen TVs.

“Aaron’s Inc., the nation’s second-largest rental retailer, had a record-breaking first quarter, with a 12 percent increase in same-store sales and nearly 60 percent earnings increase,” the newspaper reported. Aaron’s operates 1,600 stores across the country. Its most popular item is big-screen TVs.

Rent-to-own customers pay “rent” on a weekly or monthly basis, typically for a fixed period of between seven and 30 months, the Chronicle said. At the end of that period, the customer owns the merchandise, but if they miss payments, the store repossesses the item.

However, according to a survey by Policy Matters of Ohio, rent-to-own customers typically end up paying as much as 4.5 times the retail price of brand-new merchandise; even worse, they’re frequently paying for used merchandise.

It makes me wonder what happened to the old-fashioned way of making purchases: saving up your money until you can afford to buy items outright. Perhaps basic necessities can’t wait, but big-screen TVs and some furniture can. Given the high cost of renting to own, would you consider rent-to-own if you lost all your credit cards?

We’ve all heard the ads from companies that claim they can help you settle your outstanding debts for far less than what you really owe. But as with most things that seem too good to be true, it turns out that these claims are too.

Many consumers who find themselves trapped by debt are lured by these advertised promises to reduce your debt burden, sometimes by up to 75 percent. In return, the companies require an upfront fee. However, these fees can turn out to be rather large, depending on the size of the debt, and with payments required in advance, there’s little incentive for the companies to follow through on their promises.

Now, New York Attorney General Andrew Cuomo is calling many of these debt-settlement companies out on their empty promises and shady practices.  He’s subpoenaed fee-structure records from 14 debt-settlement companies and one law firm.

“Today, millions of hardworking Americans are finding themselves imprisoned by debt. In response, a rouge industry has stepped in, offering consumers false hope, charging tremendous fees, and leaving them in a worse financial situation,” Cuomo said in a statement to the press.

But consumers need to take responsibility to protect themselves before getting involved with disreputable companies in the first place. The best way to protect yourself: Read the fine print! Know what you’re getting into before you agree to anything or pay one penny.

Attorney Gail Hillebrand told MarketWatch that consumers should steer clear of any company that requires payment upfront. She also warns consumers to avoid doing business with companies that tell customers to stop paying off their debts while the company is in the negotiation process. If you stop paying, she says, you’re only setting yourself up for harassing phone calls from collection agencies and the very real possibility of lawsuits — not to mention significant damage to your credit score.

Instead, Hillebrand says you should contact creditors directly to see if you can work out a payment plan before you’re in too deep. Credit counseling is another avenue to explore before jumping on board with one of these for-hire companies, because it has the least impact on your credit rating.

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.

One might have thought that the green energy industry was poised for success with such a strong supporter in the White House, but banks unwilling to do what they’re supposed to have caused yet another industry crisis.

Without support from the economic stimulus package still being molded by the House and Senate, wind and solar power installation will continue a freefall from an industry expansion that’s been going on for the past few years, the New York Times reported.

The number of banks subsidizing the industry’s expansion has dropped from 18 to four, sucking the lifeblood from wind and solar development.

The factories building parts for solar and wind energy installations are laying off workers, and industry experts see a 30-50% decline in installations during 2009 if the government doesn’t do something. (The cost of solar panels for consumers, which has already fallen 25% in the past six months, is expected to drop another 10% by midsummer.)

Even Texas billionaire T. Boone Pickens, a big proponent of wind power, has reined in his wind farm plans.

Passage of the stimulus package won’t guarantee a quick fix. It will take time, experts say, for the industry to recover.

Why won’t banks lend? Have the risks of default grown so much that no individual, company or industry is worth the risk? How long will this waiting game last? Lenders say it’s too risky to lend money in a recession, but the recession won’t end until banks unfreeze credit. Surely by now they’ve learned how to gauge risk. Let’s make lending a legally binding requirement for recipients of government funds.

The grief of losing a child is unbearable enough, but as one New York couple found, keeping their dead son’s creditor’s at bay is ever more burdensome. According to this report on FoxNews.com, Roco and Laurie Crimeni are forced to relive the same pain they felt burying their 27-year-old son Vincent — who collapsed and died of a heart attack while playing softball almost a year ago — nearly every time the phone rings.

Why? Because creditors are demanding payment for the debts he left behind. Legally, though, these creditors have no right to do so. If there aren’t any assets left behind, and debts are in the deceased’s name only, family members are not required to pay. Yet this couple is being straight-up harassed over their dead son’s outstanding bills!

My heart goes out to them. They’re just trying to pick up the pieces of their lives, but they aren’t being given the opportunity to move on. Roco had this to say to MYFOXNY.com:

“I’m afraid to pick up the phone in my own home,” he said. “That’s the hard part, to tell them my son is dead. How many times do I have to repeat it?”

Only Macy’s agreed to forgive the debt, and even then, only after reporters got involved. I understand it’s a harsh economy and everyone is trying to stay afloat, but the law is the law, and there’s no excuse for the creditors to continue to upset this couple. Even if New York were a community property state, which it’s not, the burden wouldn’t fall to his parents anyway; it would be left for a spouse to handle — if he was married.

I only hope the rest of these harassing creditors lay off. The family is not obligated to pay. The creditors need to move on to the next name on the list. Maybe they’ll have better luck there, and this family will finally find some peace.

Have you ever been bullied by collection agency to pay off a deceased family member’s debt? How did you handle it?

Call me naïve, but, given the rise in credit card defaults, you might think that credit card companies would try to make it easier for their customers, particularly those who are in trouble, to pay off their credit card debt. These companies should be working with their customers to lower the interest rates and restructure the debt — if for no other reason than to avoid getting stuck with the bad debt when consumers are unable to pay.

However, that is not what’s happening. Credit card companies are instead raising the interest rates on their credit cards. Take Citigroup, for example, which plans to raise interest rates on their credit card products for some of their consumers in an effort to help lessen the blow of the $1.59 billion in losses that they’ve seen in the third quarter of 2008 alone. Their strategy isn’t to make it easier for their cardholders to pay off their debts in these tough economic times; instead, they plan on leveraging their credit card business to make up for losses elsewhere in the company due to the tight credit markets, delinquencies and defaults.

On average, Citigroup is raising its interest rates three percentage points, and most consumers don’t realize that, by law, credit card issuers can make these changes at any time, provided they give the customer advance notice. A spokeswoman for Citigroup, Jeanette Volpi, said that the customers affected are those who haven’t seen an increase in at least two years and that they can opt out if they’d like and continue using their card under the existing terms until it expires.

This new policy directly conflicts with the commitment that Citigroup executives made to Congress in 2007, when they were testifying in opposition to legislation that would have imposed greater regulations on the credit card industry. During a hearing on Capitol Hill, they pledged not to raise any cardholder’s rates until after his or her account expired. (The legislation didn’t pass.)

Even still, Citigroup is hardly the only company moving forward with this policy. Companies such as JP Morgan Chase, American Express and others are moving forward with very similar interest-rate policies in an effort to manage their losses and ward off the problems that they see coming from the looming financial crisis.

Have your credit card interest rates gone up this year?

I came across an article the other that I found very disturbing. It’s a piece, written by Nick Turse for TomDispatch.com, about some particularly extreme reactions to foreclosures by homeowners across the country. He searched through a variety of local news websites nationwide and found a whole lot of stories about people committing suicide in response to being foreclosed (and/or threatening others when the authorities came to evict them). Some of these folks just didn’t want to leave their homes, others were angry about being evicted, and still others were trying to help their survivors pay the bills by allowing them to cash in their life insurance policies.

I don’t know the rule, but I’m pretty sure insurance companies can and will void a life insurance policy if the insured commits suicide, although policies, regulations, and laws may vary from state to state. (Heath Ledger’s estate is apparently suing his life insurance company for not paying his daughter $10 million because the company claims that his death from a drug overdose this past January may have been a suicide.)

In any event, I’m certainly not advocating suicide as a means to solving a financial problem (just so we’re clear). I do recommend keeping an eye on loved ones or friends who may be in danger of losing their homes, though. If suicidal tendencies were easy to spot, there’d be fewer suicide attempts (or so I like to think), so be sure to listen with a keen ear when you talk with someone close to you who’s in a difficult position with their mortgage or some other financial situation. If you hear any comments that sound a little suicidal or self-destructive in any way, don’t just dismiss them as a joke or a throw-away line.

While we’re on the subject: How would you recommend coping with foreclosure? What would you do if you found yourself in danger of being evicted?

Over one-third of American’s who purchased homes in the last five years are discovering that their home’s value is less than the mortgage. Real estate used to be considered a no-brainer investment. You’d purchase a house, and it would continue to increase in value over time — but right now, for many homeowners it just isn’t the case. People are finding themselves with homes that have decreased in value or a mortgage higher than what the home is worth. In other words, even if you could find a buyer for your home, you’re not going to get what you owe for it.

What can you do if you’ve got an underwater mortgage? If you’re able to keep up with your payments, you should probably do nothing at all except sit tight and make your payments! Looking to sell your home when you not only cannot turn a profit, but can’t even get what you owe, is not the best move.

On the other hand, if you’re struggling to keep up with your mortgage payments and other financial obligations, what are your options to avoid foreclosure? Selling the home for less than you owe results in more financial distress, but there are a few options you may not be aware of.

Contact your lender

Most people who fall into financial problems avoid mail and phone calls from their mortgage lenders. This is probably the worst thing you can do. If the lender believes you can make the payment and you’re just not paying it, they have no choice but to send you a foreclosure notice after a few months of skipping the payment. On the other hand, if you talk to them about the situation they may be able to offer you alternative options that allow you to keep your home.

In fact, lenders would prefer to help borrowers keep their homes rather than foreclose on them. An estimated $60,000 or more is spent by banks on every home that enters foreclosure, not to mention over a year and a half of time to resolve the situation. Talk to your lender — 90% of homeowners in financial distress who work out a new payment arrangement with their mortgage lenders are able to turn their situation around within 18 months and keep their home.

Avoiding foreclosure

The options your lender may offer you when your home’s value is less than the mortgage and you’re having trouble keeping up with your mortgage payments include:

• Partial reinstatement. The back balance owed is divided over a period of 12 months or so, then added into your regular payment until it’s caught up.

• Short-term forbearance. You may go without having to make a payment for about three months, which should give you a chance to get caught up financially. In some cases, the lender might reduce your payment for six months, with the difference in what was owed then added into monthly payments for a year following the short-term forbearance to get caught up.

• Long-term forbearance. In some situations, you might qualify to skip payments for four to 12 months, with a new payment arrangement created at the end of the specified period of time.

• Loan modification/refinance. Sometimes the lender will create a permanent change in one or more of your loan’s original terms. You may receive a lower interest rate or longer repayment terms in order to make your monthly payment more affordable for your new financial situation.

Remember: It pays to discuss your mortgage problems with your lender. After all, the home you save may be your own.