The latest on credit card debt, the movie “Maxed Out,” alternatives to payday loans and more
The movement in Congress to rein in abusive practices by credit card issuers is gaining momentum.
Maybe this time it will lead somewhere.
The lobbying power of credit card issuers is nothing to dismiss. Last year, commercial banks gave all candidates for Congress a total of $19.5 million.
But the Democrats in charge of Congress have heard an earful from consumer advocates and consumers themselves about all of the things credit cards do that make it difficult, if not impossible, for families to get out of debt.
Loren Steffy, a columnist at the Houston Chronicle, was impressed with "Maxed Out," a documentary about consumer debt by filmmaker James Scurlock that will be released on DVD in early June.
The most startling part of the film, Steffy says, is the interview with two mothers who say their children committed suicide after running up credit card debt in college.
One describes taking her son to freshman orientation and seeing a line of tables encouraging kids to sign up for credit. The card companies paid the university -- the film didn't name names -- $13 million for the privilege of tapping into the student body.
Iowa has done what many other states should do -- make it easier for banks and credit unions to make small, short-term loans at reasonable rates. That will create new alternatives to high-cost payday loans or auto title loans.
A new law allows banks and credit unions to lend up to $3,000 for as long as 12 months. Fees for each loan may not exceed $30 and interest rate charges are capped at an annualized 21%.
The Iowa Credit Union League says borrowers taking out a 90-day loan for $300 would save $150 compared with the interest and fees they'd pay for a typical auto title loan.
A Business Week cover story on "companies' audacious drive to extract more profits from the nation's working poor" has created quite a buzz.
The Poverty Business singles out used car dealer J.D. Byrider, tax preparer Jackson Hewitt and computer seller BlueHippo as especially egregious examples
"I don't know whether I was more bothered by the ignorance of the customers or by the company taking advantage of the ignorance of the customers," Kehinde Powell, a former Jackson Hewitt employee, told the magazine.
Here's a little encouragement for all those homeowners struggling to keep up with their mortgage:
Five years ago, William and Pamela Allen fell behind on the $49,000 mortgage on their home in Rush, Ky.
The Charleston, W.V., Mail-Gazette says the Allens thought they caught up with a $7,300 payment in February 2002. By October 2003, however, they were behind again.
Lerner Sampson & Rothfuss, a law firm for lender National City Mortgage, told them they owed $13,000 to catch up. The lawyers said this included $3,450 in costs the lender spent starting foreclosure proceedings, and $3,142 in other service costs.
The Allens filed for bankruptcy. But when U.S. Bankruptcy Judge Ronald Pearson began to examine the situation, he didn't like what he found. Pearson wondered if National City or its lawyers were trying to cheat the Allens.
After several hearings and a new lawsuit against their lender, the Allens not only kept their house, but had their mortgage forgiven and were paid $26,000 plus their legal fees.
Lenders are constantly promising to help homeowners struggling to make their mortgage payments. But how helpful are they when borrowers call? We've seen conflicting accounts.
Bethany Sanchez, director of community and economic development for Metropolitan Milwaukee Fair Housing Council says consumers she works with are constantly complaining about hostile loan servicers.
"Servicers are being recalcitrant and not helping borrowers work through their issue," Sanchez tells the Milwaukee Journal Sentinel.
But when Ed Hauser lost his job, his lender temporarily cut his payments in half.
"They were absolutely fantastic with working with me," Hausauer told the Buffalo News. "They presented a plan and if I was unable to do it, they would come up with another."
After meeting with Sen. Christopher Dodd, chairman of the Senate Banking Committee, several major lenders agreed to help homeowners facing foreclosure because they can't afford their costly mortgages.
The Connecticut Democrat has pushed banks and mortgage companies to voluntarily step up and help struggling borrowers, arguing that they can be more effective than any government bailout.
The lenders -- Citigroup Inc., JPMorgan Chase & Co. HSBC Holdings Corp. and Bear Stearns & Co. -- agreed to contact distressed borrowers promptly to revise the terms of their loans, including lower interest rates.
But some companies that participated in the meeting, including Countrywide Financial Corp. and Wells Fargo & Co., did not endorse the plan.
Congress continues to talk about a plan to help homeowners facing foreclosure because they can't keep up with the rising payments on their adjustable rate mortgages.
Many are trapped in those bad loans because they owe more than their homes are worth so they can't sell or refinance.
"We've heard one heartbreaking story after another of borrowers with limited incomes being sold mortgages they could not afford," says Sen. Sherrod Brown, D-Ohio.
With 1.8 million ARMs resetting to higher rates this year and next, a 32-page report from the Joint Economic Committee says the problem won't go away on its own.
Sen. Christopher Dodd, D-Conn., says he will call for a summit on Capitol Hill soon "to try to work out a process for providing relief to homeowners."
Michael Pellegrino's death should be a wake-up call for anyone with a gambling problem.
The funeral home director shot himself at a Niagara Falls blackjack table on April 5. A casino at the Seneca Niagra Casino told the Buffalo News that computers listed Pellegrino's losses at about $250,000 at the time of his death.
"Most of my clients have thought about or tried suicide," Katye Conroy, a certified gambling treatment counselor in Williamsville, N.Y., told the News "Right now, a lot of them are scared for themselves because they see someone who lost control."
Bankruptcy is another serious, if somewhat less tragic outcome.
"Gambling is an important factor in a significant number of the cases we see," says Carl Bucki, one of two U.S. Bankruptcy Court judges in Western New York.
Most problem gamblers don't acknowledge their addiction because of shame and embarrassment. Bankruptcy filers are required to fill out a "Statement of Financial Affairs" that asks if gambling is one of the reasons they're in debt.
More often than not, he says, the gambler lists his debt as credit card abuse. What he won't tell you is that his paycheck went to the casino and that's when he ran up his credit cards.
A non-profit mortgage broker and advocacy group has launched a $1 billion campaign to help the victims of predatory loans refinance their mortgages and save their homes.
The Neighborhood Assistance Corp. of America will use money from Citigroup and Bank of America Corp., to bailout subprime borrowers who were given loans they can't afford and can't get out of because they owe more than their homes are worth.
NACA will offer financial counseling and process the applications for 30-year loans at a fixed, below-market rate of 5.5% a year. There are no fees and the banks pay all the closing costs.
Click here to apply for an NACA loan to refinance your home.
Two consumer groups say the nation's bankruptcy laws must be changed to prevent hundreds of thousands of American families struggling with subprime mortgages from being evicted.
The Consumer Federation of America and Center for Responsible Lending warn that low-income borrowers often face insurmountable hurdles to hold onto their homes because bankruptcy law "favors home mortgage lenders over virtually all other secured and unsecured creditors.
"The amendment disfavoring protection of the debtor's principal residence was added at a time -- 1978 -- when home mortgages were nearly all fixed-interest rate instruments with low loan-to-value ratios and were rarely themselves the source of a family's financial distress."
That, of course, has changed because so many subprime loans were made to families who couldn't afford the payments after below-market "teaser rates" expired.
Jackson Hewitt Tax Service Inc., the second-largest U.S. tax preparer, will stop offering one of the worst kinds of tax refund anticipation loans.
So-called "pre-season" or "holiday" loans were heavily promoted in December as a way for cash-strapped shoppers to obtain the money they needed for Christmas gifts. All applicants were required to provide was a pay stub that allowed Jackson Hewitt to calculate how big a tax refund they might be owed.
Customers who were willing to sign over their income tax refund to Hewitt Jackson received a fraction of that amount as an advance on that payment.
But consumer advocates charged the loans imposed exorbitant fees on low-income families least able to afford them. And if Jackson Hewitt overestimated the refund, customers had to repay the balance.
In January, it agreed to pay $5 million to settle charges it used deceptive marketing to promote its loans in California.
Unscrupulous businesses that promise to help homeowners in financial trouble are proliferating at an alarming rate.
"Instead of throwing them a life jacket, they are throwing them an anchor," Mal Maynard, executive director of the Financial Protection Law Center in Wilmington, N.C. told the Raleigh News & Observer.
Here are the most common scams to avoid:
- The bailout. A scammer offers to buy your home for much less than its value, with the understanding that you can rent it and eventually repurchase it if certain terms are met. However the sales price or monthly payments are typically inflated, making it impossible for you to buy the home back. Eventually, the property is forfeited and the new owner sells the home at market value and pockets the equity.
- The fake home sale. In this scheme, a scammer says he will buy your home to get control of the deed or title to the home. In some cases, homeowners believe their lenders has been paid -- but don't get proof before handing over deeds. But the homeowners are still liable for the mortgage, because you have merely signed over the deed, not sold the home. The scammer rents the home to a tenant with an option to buy -- pocketing any down payment and rent -- but never making a mortgage payment. Eventually the lender notifies you that it is foreclosing on the property. The deed holder walks away with no liability.
- Bogus help. The scammer promises to save your credit or get you low monthly payments. Instead, you pay thousands of dollars in fees, and they do nothing. In the end, you still might be forced into foreclosure or bankruptcy.
If you need help paying off your bills, don't seek it from Debt Set Inc. or Resolve Credit Counseling.
The Federal Trade Commission has accused the owners of disguising fees and misrepresenting their services to financially struggling consumers, resulting in a long list of complaints from New York to California since 2004.
The FTC says customers who responded to ads promising repayment plans and no upfront fees actually saw their debt grow and were charged hundreds of dollars in fees.
Although Debt Set and Resolve Credit Counseling have been barred from misrepresenting what it charges clients or accomplishes for them, the Associated Press says they're still operating out of two basement offices in Boulder, Colo.