History Repeating Itself

Homeowners whose loan rates are soaring may want to head for the exits. Many of them may find no way out.  If they sell their home or refinance, they will face a penalty of thousands of dollars for paying off their loans early. According to the Center for Responsible Lending, these exit fees, called prepayment penalties, were added to more than two-thirds of the adjustable-rate loans. Those loans initially carry a very low interest rate, known as a teaser because it is below the market rate and rises sharply over time. The lenders say the trade-off is the only way to offer low monthly payments initially because otherwise borrowers would flee when rates adjust upward and make the loan a losing deal. The fees usually equal several months’ interest, and they decline over a few years before disappearing altogether.

Homeowners often think they can keep up with their rising payments or that they will simply refinance later, but the penalties can dash that hope. State governments, regulators and members of Congress are considering whether to rein in prepayment penalties. Senator Christopher J. Dodd, Democrat of Connecticut, said this week that he would introduce legislation to eliminate the penalties and make other changes in home lending practices. When interest rates were high in the 1970s, states took steps to protect consumers from onerous prepayment penalties. Such fees generally disappeared from standard loans. In the late 1990s, though, subprime loans to people with weak credit blossomed, and with those loans came a resurgence in prepayment penalties. A number of states limit the penalties, but only state-regulated banks are generally subject to those restrictions; mortgage companies and national banks are not. Experts say that many borrowers do not really understand the implications of prepayment penalties (if they are aware they have them at all) and fall prey to sophisticated marketing.

In a 2002 lawsuit by the Association of Community Organizations for Reform Now (Acorn) on behalf of a group of borrowers against Household Finance, Acorn said that lenders referred to the practice as “closing the back door” by making it too costly for borrowers to get out of loans with rising rates. The art of finding borrowers was carefully honed, according to the lawsuit. Among the techniques was sending a check and telling recipients they could have access to a small loan by cashing it. Those who did went on a hot list of prospects in a strategy referred to as target practice, according to the suit.

 A study by the Center for Responsible Lending shows that borrowers in minority neighborhoods received a disproportionate share of loans with prepayment penalties. The Pew Hispanic Center reported in 2002 that African-American families had a median net worth of just under $6,000. Hispanic families had nearly $8,000.  For white Americans, the median net worth was $88,651.

The Young, Healthy, Childless and Wealthy Asians In Demand For Luxury Items

The affluent young and elderly in the Asia-Pacific region are expected to account for 83% of spending on luxury goods and services by 2016. Older people are forecast to hike their spending on luxury items by 2.7 times to US$800 million, said MasterCard’s Worldwide Insights Report.  Apart from China and India with their masses of young people, demand from premium consumers over the age of 60 and in the top third of the market by household assets is seen as outpacing growth from the young premium consumers, those in the top third of income earners with no children.

1. Japan tops the list with young premium customers prepared to spend US$35.2 billion by 2016  and compared to US$67.8 billion by their older counterparts.

2. China emerged second with the well-heeled young forecast to spend US$26.4 billion and the seniors US$18 billion.

3. Australia’s youth spending US$6.2 billion and US$6.3 billion by the elderly.

4. The projected amounts for Taiwan’s affluent young and elderly are US$4.5 billion and US$3.7 billion.

With the rapidly aging population maintaining good health and more time to enjoy it, the demand characteristics of this segment are changing.

Time To Go Get A Military Credit Card

In a survey of more than 36,000 cardholders conducted by Consumer Reports, five of the largest MasterCard and Visa issuers, JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC (which together control about 80% of the market) earned crappy rating scores.

The Highest Scores Go To….
The card issuer USAA Federal Savings, which scored 95 points out of a possible 100, earned the highest rating. The Navy Federal Credit Union and other credit unions followed suit with high scores. The top three rated issuers charged interest rates between 9% and 11%. Until recently the USAA Federal Savings card has been limited to members of the military, retired military personnel and their families. It’s now opened up its membership policy so that almost anyone can join. Credit unions are run by their members, so they are more likely to take care of you if you have a problem, and they are less likely to suddenly increase their interest rates.

The military rate are much lower than the two lowest-rated issuers, Direct Merchants (scoring 67 points) and Washington Mutual’s Providian (earning 61 points), which both charge 17%. Consumers also said they were very satisfied with the two popular credit cards American Express and Discover, whose median interest rates are 14% and 15%. Cardholders said that they had far fewer billing headaches and other problems with the card issuers at the top of the ratings.It’s more important than ever to have a card with a higher Consumer Reports rating because the lower-rated ones can cost you a lot due to their higher interest rates and fees.

And The Losers…
Consumers who used the MasterCard and Visa bank cards through JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC, complained that they were assessed unfair late fees or experienced unexpected interest-rate increases. Providian had the worst ratings for unexpected interest-rate hikes. Cardholders said their bills arrived too late for them to get their payments in on time, and they were more likely to be charged a late fee even when they sent their payments a week before the due date. 28% of cardholders surveyed who pay the highest interest rates (interest of more than 25%) reported that their rate increase was due to a universal default clause. !!Dam that Universal Default Clause!! Cards that employ a universal default allow issuers to increase rates if a consumer makes late payments on other accounts, such as car loans, mortgages, or other credit cards. The survey said penalty fees for late payments more than doubled in the last 12 years, from an average of $13 in 1995, to $28 this year. Some fees were even has high as $39. Gasp!

What? They Can Call All They Want?!

There is no limit to the number of calls they can make to you, but if you feel they’re harassing, you can file a complaint with the Attorney General’s public inquiry division, according to this page on the CA AG’s website. Furthermore,

“There is no law that specifically limits the number of calls an agency may make to you, but repeated calls over a short period, which may be annoying or harassing, are prohibited. If you prefer that the agency contact you only by mail, you may ask them to do that. We suggest that you make that request by certified mail and keep a copy for your records (15 USC Sections 1692c & 1692d; CC Section 1788.11(d) & (e))…

…If you want to stop all contact from the agency you may request that they not contact you again. This request MUST be in writing. We suggest that you mail it certified, “return receipt requested” so you have proof of its delivery. Once the agency receives your letter, its employees can only contact you one final time to explain what action they plan to take. After that, contact must stop. Remember, though, that if you request no further contact in any way, you may leave the agency with no choice but to take you to court (15 USC Section 1692c(C)).” Hymph!

How To Kick A Scammy Car Dealer In The Nuts

While we spend a lot of time on this site talking about the importance of writing a good complaint letter, of finding the executive contact info, and cc’ing letters to appropriate regulatory bodies, sometimes the best way to win is to stop playing Mr. Nice Guy and start playing hardball. In the book “Unscrewed: The Consumer’s Guide To Getting What You Paid For”, the author’s first story is about how he himself got screwed, and then unscrewed, on the first car that he bought. Here goes:

“I replied, “What do you mean? You advertised the special. The sale representative should have told me about it! It’s just not fair.” “That’s our policy. I’m sorry.” “It’s a bad policy,” I said, for lack of any other words, and hung up the phone. I was livid. I’d just been screwed out of $1200… Something had to be done.”

That day, Burley typed up a notice and printed out tens of copies. He went to the dealership manager’s office, who continued to try to stonewall him and refer to their “internal policy”. Burley opened the envelope and placed the flyers in front of the manager. “What do you intend to do with those?” he asked.. “Mr. Smith,” I said coolly, even though my hands were sweaty and shaking, “at this point, it doesn’t really matter to me whether I get my money back or not. I am going to exercise my First Amendment right to stand on that public sidewalk in front of your dealership. I’ll hand one of these flyers to anybody walking onto your lot. I’ll be carrying a picket sign with the same message.”

The notice said: “AKAMAI MOTORS LIES TO ITS CUSTOMERS! They advertised a car at one price and then sold it to me for $1,200 more. For details, please call Ron Burley at [redacted].” I continued, “I’ll bet that, in just a handful of Saturdays, I can convince a couple of dozen people to shop elsewhere. It could end up that, by not paying me what’s due time, you lose ten times that much in future business. It won’t put any cash in my pocket, but I’ll feel a lot better about things. What do you think?” Mr Smith returned to let Burley know that bookkeeping was cutting his check at that very moment and he could pick it up on his way out. NICE!

Burley could’ve filed complaint letters and made calls up the management food chain, he could’ve cc’d letters to the Attorney General and the FTC, and maybe even eventually been forced to take the dealership to small claims court, where he would’ve won, as it is actually the law that merchants have to honor their advertised price. Instead, he chose a direct course of action that in broke the problem down to terms that any simple business could understand.