(6/3/2011) Erate Exclusive - If you think predatory lending went the way
of NINJA (no income, no job or assets) mortgages, teaser credit card rates
and cigar chomping used car salespeople, think again.
Predatory lending is alive and well in all forms of financial services
from auto loans to tax refund loans, according to the Center for Responsible Lending, which has
compile a host of predatory lending red flags to alert you to financial
danger, Will Robinson, danger.
It's just that efforts to separate you from your money have gotten harder
to spot as financial institutions feign transparency by adding stealth to
their preoccupation with predatory practices.
Lookout for these signs of predatory lending.
Mortgages
• Ads that say bad credit doesn't matter and lenders or brokers who
contact you or try to rush you into decisions are come-ons. Predatory
lenders often target senior citizens and people of color to place them in
unnecessarily expensive loans. Ignore these ruses.
• To get you in the door, mortgage lenders will quote you
artificially low monthly mortgage payments that may include only the
interest and principle. You'll still have to pay property taxes and
homeowners insurance. Know in advance if your monthly mortgage payment will
include the costs of property taxes and insurance (in which case the lender
will establish an escrow account for these costs).
• Don't be sold an adjustable rate mortgage (ARM) if you don't know how
high the rate can adjust during each adjustment period and over the life of
the loan. The initial start rate may seem bargain basement, but you can bet
when it's time for the rate to adjust, the lender will make up for it. Don't
count on a future refinance to bail you out of an unaffordable loan. Comparison shop.
Credit/Debit cards
• Credit card companies make big changes in small print, especially
interest rate increases. Always review both the initial terms and conditions
of your card and any materials sent later with each monthly statement.
• Watch for fees up the wahzoo. Credit card regulations have been
overhauled, largely to make issuers pile on the disclosures, but companies
have no limit on how much they can charge customers and no incentive not
to take you to the cleaners. In addition to cash advance and balance
transfer fees, card companies are adding inactivity fees, statement fees,
foreign currency fees and other miscellaneous surcharges.
• Credit card issuers will try to sell you payment protection,
identity theft protection, credit monitoring services or other products.
They make more money than you'll benefit. Watch for quotes in terms of
pennies per $100 used to make the price appear low. And watch out for those
"free trial period deals." If you forget to cancel with the period expires,
chances are you'll be automatically re-upped for a fee.
• The Credit CARD Act stops credit
card and debit card issuers from charging fees when you go over your credit
limit unless you specifically "opt-in" to authorize the
company to do so. However, when the issuer does cover your overdraft you'll
incur a fee as high as $35 for an over draft as small as a few dollars.
Some companies have begun to make deceptive calls pressuring customers to
opt-in. Consider not opting-in, but setting up your savings account or other
account to cover the overdraft. Better yet, be frugal, keep a running
balance of your credit and debit (usually attached to your checking account)
card and don't go over the balance.
• At the dealership, a car buyer initially qualifies for a lower
interest rate or "buy rate." The lender willing to fund the loan for the
buyer allows the dealer to increase the "buy rate." The dealer has a
powerful incentive to increase the interest rate because most of the extra
interest is "kicked back" to the dealer. Shop around for finance before you shop for a car.
Dealer loans are often more expensive than you can find elsewhere.
• Dealers attempt to inflate the overall price of the car loan
through unnecessary add-ons often sold in packages. Add-ons include vehicle
service contracts, credit life and disability insurance, rust proofing,
theft deterrent packages, and "window etching." Dealers who inflate the
vehicle's cost and loan size get a larger kickback.
Car title loans
Car title loans are short-term payday-like loans backed by
your otherwise free and clear car title. Fail to pay and you lose your
car.
• Most car title loans are due within a month. The
short term makes it harder for you to pay off the loan on time, forcing you
into a spiraling cycle of repeated loans. In Missouri, the state auditor
found that car title lenders make 3.5 times more renewal loans than new
loans each month.
• Car title lenders often express the cost of the loan as a fee, but
a typical car title loan may have a high annual interest rate of 300 percent
or more. Do the math.
Visiting the CRL website to get the low down on all the
many predatory tactics including those used by payday and tax refund
lenders.
