Love the New Car? Wait! Don’t Drive it off the Lot Yet

When I was a kid in the Bronx, yo-yo “season” would come around each spring and every kid in the neighborhood would be walking around with his Duncan or Cheerio. Nowadays, yo-yo season can be an all-year thing … for unscrupulous car dealers. According to the Center for Responsible Lending, if you are dealing with an unscrupulous car dealership, when you make the down payment on your new car (it could be in the form of a trade-in), the finance guy has you sign a great financing agreement and leads you to believe the deal is final.Be careful before you sign for that loan

So you drive off the lot whistling a happy tune (the epitome of which would be “Whistle a Happy Tune”). Hours or days later, you receive a call from the dealer in which you are informed that the deal fell through. The caller asks you to come in and the salesperson tries to convince you to take a higher-interest loan, by about 5 percent. If you say, “No deal,” the dealer tells you that you have driven the car and informs you of the costs, which may include keeping your down payment (or trade-in) or charging you for wear and tear.

Solution: Never drive a new car off the lot without having a fully authorized financing agreement in your clutches.

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The Consumer Gal and I are about to have our book, Enough of Us – which deals with other subject matter – published. In preparation for the big event we need to concentrate on that project. So for the next eight weeks or so, I will be suspending my semi-monthly Consumer Guy full-length blog posts and, instead, providing  a short consumer tip each week (I hope).

If you would like to learn more about our book that deals with issues of ethics and procreation, please visit our other website, www.enoughof.us. Many thanks for your interest.

So-called “Convenience Checks” are Convenient . . . for the Banks

You know those “convenience checks” that come with your monthly credit card statement?

Convenience checks

Convenience check promotion with an low introductory rate

They’re for suckers. Here’s why. When you use them you’re usually charged the daily cash advance interest rate of 12, 15, or even 20 percent. Often they come with a 3-4 percent fee. When you make purchases with them you don’t usually accrue the benefits—like airline miles, cash back, and the extended warranty benefit —that come with credit card purchases.The low introductory interest rate may quickly disappear and if using one of these checks causes you to exceed your credit card limit, it could cause the check to bounce and to hurt your credit score.Shred any checks that you receive. Better yet, resist temptation, as I have done, by calling your card issuer and telling it to stop sending the checks.

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The Consumer Gal and I just had our book, Enough of Us – which deals with another realm – published. In order to concentrate on that project I will be suspending my semi-monthly Consumer Guy full-length blog posts and, instead, providing  a short consumer tip each week (I hope).

If you would like to learn more about our book that deals with issues of ethics and procreation, please visit our other website, www.enoughof.us. Many thanks for your interest.

 

Student Loans are Just That . . . Loans. Defaulting is a Risky Proposition – Part II

In part one of this column I described how borrowers of student loans get into trouble and how collection agencies, on behalf of the federal government often make their lives miserable. But just how do the debt collectors go about it?

According to an excellent article by Andrew Martin (“Debt Collectors Cashing in on Student Loan Roundup”) in the September 9, 2012 New York Times, they often start with trolling the Internet for databases that contain information on respective debtors. When they find a suspect, they contact their prey. If a debtor refuses to cooperate, is employed, the agency will try to garnishee their wages. And the government is tenacious. It usually gives a collection agency just six months before transferring the case to another agency.

The article tells the story of Arthur Chaskin of Michigan, who borrowed $3,500 in the 1970s. By last January the debt, along with interest and penalties, had grown to 19 grand. When a government-contracted lawyer tracked him down, he garnisheed Chaskin’s brokerage account. A judge reduced the debt to $8,200, 25 percent of which went to the lawyer. The object lesson here is that student loan defaulters never know who is looking for them, when the hunters will strike, and how deep in doo-doo the debtors may find themselves. And, as a reminder, repayment may even come in the form of deductions from Social Security payments – not a pleasant prospect for those on fixed incomes.

Martin reports, “Government officials estimate that they still collect 76-82 cents on every dollar of loans made in fiscal 2013 that end up in default. That does not include collection costs that are billed to the borrowers and paid to the collection agencies.” A 2007 MIT study, however, estimates that Uncle Sam collects something closer to 50 percent of debt. The bad news for student debtors – but good news for taxpayers – is that the government, year to year, is growing ever more efficient at getting its money back – an 18 percent one-year improvement last fiscal year, totaling $12 billion.

Student debt demonstration, Washington, DC, April 4, 2012 – Photo – campusprogress.org

Many defaulters are in dire straits. They received schooling and then got caught in the quagmire known as the Great Recession, unable to find work. Some are ill. Some are in over their heads with all types of accumulated debt. But with little chance of shedding their government debt through bankruptcy, they find themselves between a rock and hard place.

And even in cases where a person is broke and either ill, disabled, or unemployed, it’s not easy to incentivize collection agencies to help those debtors get into a program that either allows gradual payment – say through gradual income-based repayment – or to forebear on collecting until the debtors are back on their feet. That’s because the collectors make more money by collecting than by merely preventing default.

The creditors and debt collectors frequently don’t tell the borrowers about programs to ease the repayment burden, or the requirements for qualifying are so daunting that they give up in frustration.

Even President Obama acknowledged, “Too few borrowers are aware of the options available to them to help manage their student loan debt,” in a June memo.

Good news for borrowers may be on the horizon. Congress and the Department of Education are considering regulations that would require debt collectors to offer student loan delinquents an affordable income repayment plan. And the department has promised to do a better job of publicizing such plans, starting with those who are still in school. As part of the proposals, monthly payments would be limited to 10 percent of discretionary income.

But, according to Andrew Martin, “Efforts to change the incentive [reimbursement] structure for guarantee agencies have stalled. And the Obama administration’s efforts to impose new regulations on profit-making colleges were initially watered down and then significantly weakened by a federal judge.”

So while some folks are so deeply in debt that foreclosure and/or bankruptcy are the only ways out from under crushing debt, it will be almost impossible for them to shake off their student loan obligations.

Unless Congress (you know, the government branch with a 9 percent voter approval rating), gets head out of it’s a_ _ _ _ _ e, many of those students who made some big mistakes a long time ago will suffer for a long time to come. Congratulations to those collection agencies that care more about money than humaneness.

 

Student Loans are Just that . . . Loans. Defaulting is a Risky Proposition – Part I

Millions of Americans are up to their wallets in debt for money they borrowed way back when and thought they’d get around to paying off . . . well . . . eventually. Good luck with that.

Almost 6 million people are at least a year behind in paying off their student loans for post-secondary education. And with new-graduate unemployment as high as it is, the prospects are getting worse. A September 9, 2012 article in the New York Times paints a pretty bleak picture. Sixteen percent of all those with outstanding balances—representing a whopping $76 billion—are in default. So what’s the upshot?

Many of the defaulters are being hunted down, not by the FBI or the local sheriff, but by collection agencies. This is ironic because in my last blog post I discussed the need to regulate collection agencies. Who should regulate them? The federal government (as well as the states). Who is hiring them? The federal government. So while the Consumer Financial Protection Bureau (CFPB) is taking steps to protect debtors from unsavory collection practices, the U.S. Department of Education (DOE) is hiring some of those same agencies the CFPB is trying to get in line. In the last fiscal year, the DOE paid $1.4 billion to collection agencies and other “bounty hunters” in order to recoup its losses.

Many years ago, there was a TV commercial for Chiffon margarine that ended with the catch phrase, “It’s not nice to fool Mother Nature.” Learning she had been fooled into thinking Chiffon was butter, Mom would summon up a thunderbolt. Substitute the U.S. government for Mother Nature and collection agencies for the thunderbolt, and you get a picture of what defaulters are up against. Unlike pitiful little banks and lame mortgage lenders, the fed can muster up some pretty loud thunderbolts of its own. The Times article tells the story of 29-year-old single mother Amanda Cordeiro of Florida, who is in the red on a student loan to the tune of 55 grand. She has had two tax refunds seized (private companies can’t do that) and has changed her phone number several times in the last year to avoid the harassing phone calls the CFPB is trying to put a stop to.

Other defaulters have had Social Security payments garnisheed. This makes life miserable for a lot of former students, especially those who have taken pricey courses at private for-profit schools, like University of Phoenix, ITT Technical Institute, Kaplan University and DeVry University. Many of these schools specialize in Internet coursework with disappointing completion rates for students and less-than-stellar job placement records. The educational institutes frequently coach students into taking out the loans, which are paid directly to the schools. Often, those who fail to find well-paying employment take it on the lam because they have no way to pay back the loans. Students who attended profit-making schools –about 11 percent of all students – account for nearly half of all defaults. Dropouts were nearly four times as likely to default as those who graduate.

While there are programs available to help desperate students pay off their loans over an extended period, with outstanding balance forgiveness at the end of that term, the companies that administer the loans for the government frequently fail to inform the borrowers of those programs. Mounting penalties and accumulating interest rates can lead to huge debt and ruined credit ratings, making life even more difficult when defaulters tries to take out a loan on a car or home, or when they apply for credit cards.

It is very difficult to wipe out government loans through bankruptcy, and they have no statute of limitations. The government has been able to recoup a whopping 80 percent of defaulted debt, about four times the rate of nongovernment lenders.

You may know the acronym ARM as standing for “adjustable rate mortgage.” ARM can also mean “accounts receivable management,” as debt collectors call themselves. The ARM industry is booming thanks to defaulted student loans. ARM companies seek government contracts because of their high rate of return.

When borrowers are delinquent paying for a year, the lender (Uncle Sam) declares them in default. If it cannot find the debtors, the government sics collection agencies on them.

 I leave you and those you care about with a checklist:

  •   Be very, very careful about taking courses from Internet post-secondary schools (see my column of July 17, 2012);
  •  Don’t take out a student loan unless you are damned sure you are going to finish your course of study;
  •  If you do apply for a student loan, get all the information up front about programs to help students who are having trouble paying off their loans;
  •  If you are already delinquent, go to the agency through whom you acquired the loan and ask for the information on extended payback programs;
  • And finally, if you are in debt up to your neck, don’t go making babies, or you’ll be asking for a heap of grief.

To be continued. “See” you in part 2.