Wisconsin Paper Highlights List of Scams to Avoid

An editorial titled “Don’t fall prey to scammers” appeared in the Pierce County Herald and it does a great job of outlining different financial scams that consumers should avoid.  You can read the editorial here.

 

Phone Scam Alert

Be Careful of Scammers Such as those Reported in the St. Augustine Record in Florida:

“A man was the victim of an apparent “payday scam” last week, according to a St. Johns County Sheriff’s Office report.

The man said he lost nearly $1,000 over the course of a couple of phone calls.

The first call he received was from a woman who claimed to be from the legal department at Payday Loans, he said. She told him that he owed the company almost $1,000 and had 30 minutes to pay or a warrant for his arrest would be issued.

Scared of being arrested, the man got prepaid cards and put the money on the cards as he was told to do, he said. He spoke with the woman again and gave her the numbers.

After the cards had been depleted, she said he hadn’t moved fast enough so he owed her another $1,000 to prevent an arrest, he said.

He got another call that evening from someone who claimed to be from the Los Angeles Sheriff’s Department, he said. That person said a warrant for his arrest was being issued.

A St. Johns County deputy called the Los Angeles County Sheriff’s Department and found that no one called the victim, according to the report.

The victim said he had taken loans from Payday before, but he hadn’t missed any payments. The deputy he spoke with said that several similar cases have been documented.”

Letter to the Editor Tells of Need for Small Dollar Loans

A great letter to the editor in Missouri’s Springfield News-Leader today tells of the need for small dollar, short-term loans.

Some of the key points include:

“The U.N.’s definition of poverty includes lack of access to credit, and this “payday” initiative would discriminate against the poor by blocking access to the small loans they need — while conveniently leaving access to the big loans that only the rich can afford.”

“People with financial struggles — not just “the poor” — sometimes need to take out a loan to steady themselves during a rough patch. Protecting their access to safe credit is an issue of financial freedom.”

You can read the whole letter here

Without short-term credit, customers are left with “more costly and credit-damaging options”

A member of the clergy wrote to the Kansas City Star explaining the importance of short-term credit:

 

As a pastor of a mostly African American congregation, I don’t understand why Lewis Diuguid in a Feb. 20 column, “Payday lending too often hurts KC’s people of color,” would want to further restrict access to credit among minorities already “experiencing the biggest drops in access to mainstream credit.”

He suggests that payday lenders have targeted minority communities and exacerbated their financial struggles, but a recent study by the Federal Reserve Board of New York refutes Diuguid’s contention.

The report found no evidence that payday lenders target minorities and concluded that “blacks and Hispanics are not significantly more likely than whites to use payday credit.”

While the rate cap as proposed by the ballot initiative sounds great, in reality it would eliminate this credit option in Missouri.

We have seen it happen in other states. Consumers turn to more costly and credit damaging substitutes.

I agree with Mr. Diuguid that minority communities should have greater access to fair and reasonable credit options, and everyone should concentrate on that objective.

But eliminating this existing credit option will only hurt minorities, leaving them with more costly and credit-damaging options.

Bishop James D. Tindall Sr.

Metropolitan Spiritual

Church of Christ

Kansas City

Scam Alert: Beware of Fake Debt Collection Calls

The Federal Trade Commission has received permission from US Federal Court to shut down a debt collection scam that the FTC alleges “collected phantom payday loan “debts” that consumers did not owe. Consumers received millions of collection calls from India, and that since January 2010 the operation took in more than $5 million from victims, according to the FTC.”

The FTC has a webpage dedicated to helping consumers figure out if the calls they are receiving are in fact a scam.  Please go to the FTC’s website and become educated on this issue.

The Negative Impact of A 36% Cap

A letter published by Christopher Donegan in the Kansas City Star last week outlined what could happen to an area that caps short-term loans at 36%:

“Some would say that a 36 percent cap sounds fair. Right now, banks will not or cannot take on the risk associated with the alternative loan industry, even if they charged 36 percent.”

“If Missourians cannot qualify for a traditional loan and do not have the option of taking out a non-existent alternative loan, consider the consequences. Landlords, utility companies, assistance agencies and churches will all feel the economic effects.”

WSJ: Payday lenders charge reasonable rates compared to credit-card fee, bounced check fee

The Wall Street Journal published an editorial today that showed how government punishing the payday loan industry over politics is only going to hurt the consumer.

From the editorial:

“Payday lenders charge around $15 for a two-week $100 loan to their typically high-risk borrowers, which equates to a 390% annual interest rate. Consumer groups like the liberal Center for Responsible Lending call this “predatory,” but the terms are reasonable compared to an average credit-card fee, which can exceed 900%, or a bounced check fee, which can top 1,500%.”

It also brought up the dangerous side-effects to the marketplace once payday lenders are legislated out of business:

“A clutch of Internet lenders base their businesses offshore or on Indian reservations to evade state regulators, and that’s where many abuses occur. By contrast, large, publicly traded companies belong to industry associations and don’t want to court bad publicity with bad practices. Advance America, one of the largest lenders, had about 100 complaints filed with state regulators in 2011—out of more than 10 million transactions.”

Director of Consumer Based, Non Profit: Short-term loans offer needed help

A terrific Op-Ed printed in our neighbor state Missouri was written by Gerri Guzman who is Executive Director of the Consumer Rights Coalition, a non-profit, consumer based organization. In the Op-Ed, published by the Columbia Daily Tribune, Guzman writes of how a 36% cap would “would eliminate access to many forms of consumer credit at a time when it is becoming increasingly difficult to get a traditional bank loan.”

It continues: “Left without access to credit in today’s weak economy, what options will be left for Columbia consumers if they are unable to make ends meet between paychecks? They can bounce a check, overdraw their bank account, not pay bills on time or, worse, turn to an illegal loan shark or unregulated offshore lender — all more costly and credit-damaging options.”

Guzman urges citizens to consider the consumer side of the story. She cites the stories of: “Kathleen from Carl Junction, a mother of six who recently went through some tough financial times, says: “A short-term loan is what kept my utilities on.” LaWesha, a single mother of three from St. Louis who uses payday loans to keep her household bills and rent paid on time without paying late fees, says: “Without the payday loan option, my rent and bills would fall behind, and it would cause a hardship in my household.”

Guzman also makes a point about how short term, small dollar loans can be superior to other credit options: “Consumers choose short-term loans because they usually are the most cost-effective and least credit-damaging option available. Research shows the vast majority of short-term loan borrowers use the loans moderately and wisely as a short-term solution that enables them to avoid the more costly and punitive options of bouncing checks and incurring penalties for late bill payments. In fact, most borrowers repay the loans on time with no additional charges or fees.”

She also brings up important data about states that have capped payday loans at 36%: “We only need to look at other states with short-term credit bans, such as Georgia and North Carolina, to predict what will happen in Missouri. There, lending bans led to increases in bounced checks, personal bankruptcy filings and complaints about creditors and debt collectors. In states where consumers don’t have access to short-term loans, households pay an average of $200 more in overdraft protection and bounced-check fees than in states where short-term loans are available.”

It’s a great read and again, the whole Op-Ed can be found here.

Beware of This Over the Phone Payday Loan Scam

This is from a report filed by WIFR-TV in Rockford, IL:

“Someone keeps calling her, threatening to take legal action if she doesn’t immediately chip away at her payday loan. Schermerhorn knew it was a scam, since she never took out a payday loan. The Better Business Bureau Director Dennis Horton says it’s just one of many types of scams going on right now.

“There’s an uptick in the number and again it has a lot to do with the economy and the fact that their are a number of people out there that are behind on their bills and maybe sent to collection, and they are preying on their fears that they will be jailed for that… which is not going to happen,” Horton said.

The BBB says if we have not taken out a pay day loans and we get a phone call, the easiest thing to do is just hang up.”

CFPB Pursuit of Non-Banks

Since President Obama’s appointment of Richard Cordray to head up the CFPB earlier this week, there has been a lot of discussion on what he and the bureau will do now that their authority has been augumented as a result of the appointment.

Time Magazine’s article on Cordray’s plan to confront non-banks had an interesting line in it:

“Instead of relying on “after-the-fact” investigations of potential wrongdoing, the CFPB will be empowered to conduct examinations of businesses as it sees fit.”

This makes one wonder what happened to innocent until proven guilty. The whole time article can be read here.