predatory lending and debt traps
TRANSCRIPT
Predatory Lending and Debt Traps
Consumer Affairs BranchFairfax County Department ofCable and Consumer Services
fairfaxcounty.gov/consumer
◦Fastest growing crime in America.
◦Identity theft is a crime under the Virginia Identity Theft Protection Act (Code of Virginia, § 18.2-186.3).
◦There were 6,349 identity theft victims in Virginia from January 1-December 31, 2008. This is an increase of 1,030 from 2007.
Identity Theft is a Crime
When a theft misuses personal information to get goods, services, benefits, or documents using someone else’s identity to:
◦ Get a Social Security card◦ Get a driver’s license◦ Open bank or credit card accounts◦ Secure loans on cars and housing◦ Obtain employment◦ Commit a crime using your identity
How Does it Happen?
Fake or Real?
Do not give out personal or financial information unless you initiated the contact.
Do not call a telephone number provided in a phone call or an e-mail regarding any credit card or bank account.
Shred all financial solicitations or mail that has your personal information.
Report lost or stolen checks, wallets, or purses immediately.
Fight Identity Theft
Opt-out of marketing lists at 888-5OPT-OUT.
Check all your bills for accuracy and immediately investigate any questionable items.
Choose a PIN that is hard to guess. Avoid the last 4 digits of your SSN, your mother’s maiden name, birth dates, names of pets, or anything easy to guess about you.
Fight Identity Theft
Mix numbers, letters, and symbols that are hard to guess.
◦ 4$smaSP!
◦ rEdSkins#1
◦ pT-r360XZ
◦ Z9z9z9z9z
◦ ZC$53031
◦ $tramSyenoM
Fight Identity Theft
Log-out completely to terminate access to any Web site that has your financial information. If you don’t log out, other users might be able to re-enter the site and have access to your information.
Be prudent when using wireless connections in public areas like airports, hotels, internet cafes, or restaurants because your information may be intercepted.
Fight Identity Theft
Obtain a copy of your credit report at least once each year from each of the major credit reporting agencies.
Protect your computer with spam filters, anti-virus, and anti-spyware software, and a firewall. Update them regularly.
Fight Identity Theft
Who is a target?
◦ People with credit problems
◦ Low-income individuals
◦ Military members
◦ 50+
◦ Limited English skills
◦ Anyone who is not informed!
Predatory Lending
Aggressive sales tactics and deceptive marketing.
◦ Borrowers are targeted for high interest rates based on race or national origin instead of credit history.
◦ Loans made without consideration of borrower’s ability to pay.
◦ Charging excessive fees or unnecessary products.
◦ High interest rates.
Predatory Lending
Encouraged to put false information on the loan or credit application.
Asked to signature lines or other line items blank.
Predatory Lending
Refuse to give you time to thoroughly read the contract.
Refuse to put promises in writing.
Demand that you sign now or the “offer” will be lost.
Predatory Lending
Check cashing
Rent-to-own stores
Payday loans
Car title loans
Forms of Predatory Lending
Tax refund anticipate loans
Overdraft protection loans
Subprime mortgage lending
Pawn shops
Forms of Predatory Lending
Make money by cashing checks, including money orders, cashier’s checks, business checks, student loan checks, refund checks, payroll checks, insurance check.
Charge a percentage of the money that is cashed or a flat fee.
May also sell money orders, stamps, and phone cards.
Check Cashing Businesses
Check Cashing Fees
Open or use a basic checking or savings account at a bank, savings and loan, or credit union.
Open an Electronic Transfer Account (ETA) to receive federal government payments electronically through direct deposit.
Low-Cost Check Cashing
Cash the check at the bank that issued the check.
Go to a check cashing service that charges a set, reasonable fee.
Low-Cost Check Cashing
No long-term obligation.
Terminate the agreement at any time for any reason.
Credit checks never required.
Rent-to-Own Businesses
Flexible payment options.
Access to brand new, name-brand household merchandise.
Delivery, set-up, and pick-up included in the rent-to-own payment.
Rent-to-Own Businesses
100% service on the product while making rent-to-own payments.
You pay a monthly or weekly fee to use a product.
If you no longer want to pay the fee, you return the product.
Rent-to-Own Businesses
After you have paid an agreed-upon amount, you own the product.
You can end up paying three to five times more for a product than if you bought it at a regular retail store.
Rent-to-own is a very expensive way to purchase merchandise.
Rent-to-Own Businesses
Layaway – allows you to make payments on a product.◦ You don’t get the product until you finish paying
for it◦ No interest charges
Look for affordable financing plans a electronic, appliance, and home furnishing stores.
Save until you can afford to buy what you need or want.
Options to Rent-to-Own
Don’t pay to play
◦ If you have to pay to receive a prize or collect your winnings, you haven’t won anything.
◦ Legitimate sweepstakes don’t require you to pay “insurance,” “taxes,” or “shipping and handling charges” to collect your prized.]
◦ If you send money, you may never get it back.
Sweepstakes and Lotteries
Borrow money against the estimated value of your house minus the amount you owe.
Your home is the collateral that guarantees you will repay the loan.
If you are unable to make the home equity loan payments, you can lose your house.
Home Equity Loans
A short term loan with high interest and fees.
Usually for two weeks or less.
You sign a contract and give the lender a personal check as collateral for a cash advance.
The lender agrees not to deposit the check for a specified period of time.
Payday Loans
Example of a $500 payday loan
You pay a 15% lender’s fee. (15% of $500 = $75).
You write a check for $575.
You get $500 cash in return.
The $75 interest you paid for the loan calculates to an Annual Percentage Rate (APR) of 391%.
Payday Loans
Cost of a Two-Week Loan Renewed 7 Times Original loan = $500
Why payday loans hurt
◦ Designed to trap borrowers.
◦ You must pay the entire loan with interest on the next payday or the lender can take the money out of your checking account.
◦ If you pay the loan, you might have to get a new loan to pay other bills.
◦ You pay high interest rates.
◦ May end up paying more than you borrowed.
Payday Loans
Illegal in Virginia
◦ Report to the: Virginia Bureau of Financial Institutions
800-552-7945www.scc.virginia.gov/bfi
Internet Payday Loans
A short term loan.
Usually not longer than 30 days.
Your car title is used to secure the loan.
Car Title Loans
What does the lender do?◦ Put a lien on your title◦ Keep an extra set of your keys◦ Charge 30% interest per month or 360% APR◦ Charge fees in addition to the interest
If the loan is not paid° The lender may take the car and sell it to get the
loan money back° High interest rates build up° You lose the money you paid
Car Title Loans
Example of a Car Title Loan◦ You borrow $2000 at 20% for 30 days (20% of
$2000 = $400)◦ At the end of thirty days you pay the lender
$2400◦ If you can’t pay, another 20% is added. You now
owe $2800◦ Each month you don’t pay $400 or 20% is added.◦ At the end of six months, you owe $4400.◦ This is more than twice what you borrowed◦ If you can’t pay the loan in full, you car is taken◦ You are now deeper in debt with no car
Car Title Loans
Why Car Title Loans Hurt
◦ Borrowers risk losing a vehicle they own free and clear in exchange for a small cash loan.
◦ The loan is usually only for a fraction of the car’s value.
◦ After several months, you will owe more than you borrowed.
Car Title Loans
If you receive a free check in the mail, don’t cash it.
If you take it to the bank, ask that it be verified.
Do not withdraw you own funds until the check has cleared.
This process can take days to weeks.
Free Money
Don’t accept a check for an amount greater then the price of the merchandise or product.
Never wire money to an unknown agent or person.
When the check bounces, your money is gone and you may not be able to get it back.
Free Money
Borrow from a trusted source such as a friend, family member, employer, church, or nonprofit organization.
For long-term financial needs, work with a consumer credit counselor to help you work out a spending plan and arrange a repayment plan with your creditors.
How Do You Get Out Of The Trap?
Never pay a fee upfront in exchange for a promise.
Don’t pay fees by a cashier’s check, money order, or wire transfer.
Resist pressure to sign papers you haven’t had a chance to read thoroughly or understand.
Avoid Debt Traps
Pay your bills on time all of the time.
If you have a past-due bill, get current, and stay current.
Contact your creditors as soon as you have a problem.
Rebuild Credit
Look for ways to curt your expenses or increase your income.
Never borrow more than you can pay back.
Negotiate a payment plan.
Pay off your credit cards every month. If this is difficult to do, put the credit car away until you pay it off.
Rebuild Credit
Avoid simple solutions, because they usually end up costing you a lot of money.
Never let emotions interfere with your business affairs.
Do not give in to high pressure sales tactics that urge you to “act now” or you will pay later!
Rebuild Credit
Pay loans off before spending on things like the movies, happy hour, or going out to dinner.
Have a spending plan and stick with it.
Payment plan with creditors.
Work out payment terms with utility companies.
Rebuild Credit
Advances from employers.
Consumer Credit Counseling.
Emergency assistance programs.
Help from friends and family.
Credit union loans.
Rebuild Credit
12000 Government Center Parkway, Suite 433Fairfax, Virginia 22035703-222-8435 TTY 711
www.fairfaxcounty.gov/[email protected]
Contact Consumer Affairs