Be wary of payday loans online

via Be wary of payday loans online, clarionledger.com

ftc-stop-payday-loan-scam.jpg

Pymnts.com

PDF: online-payday-loans

The online loan industry is booming, and with it, the potential for fraud. Every day, cash-strapped Americans fill out loan applications from ads they see on websites, social media and emails. While some of these companies are really offering loan services or connecting borrowers with real loans, many others are just a way for scammers to make a quick buck.

Some consumers who thought they were applying for payday loans online got a nasty surprise a couple of years ago when their information was allegedly sold to scammers who cleaned out their bank accounts and maxed out their credit cards without their consent. The Federal Trade Commission announced last week that they’d closed down one such operation.

The FTC reports that it has charged one defendant, Jason A. Kotzker, and co-defendants with taking the information from consumers (which was supposed to have been sent to payday lenders) and instead passing it to companies like Ideal Financial Solutions, which then “raided consumers’ accounts for at least $7.1 million.” Then, the agency alleges, Kotzker and fellow defendants helped Ideal Financial hide the fraud from banks.

This isn’t the first time the feds have shut down such “data broker” operations, which target consumers seeking online payday loans. Instead of offering them the loans they sought, these operations have often signed consumers up for “membership programs” which are nearly impossible to stop. Such scams are plentiful and lucrative for their operators and won’t stop anytime soon.

If you’re looking for a loan online, you need to be careful. Many legitimate-looking sites are just fronts, designed to reassure you that you’re dealing with a legitimate company. The FTC has some good advice to avoid becoming a victim. Here are a few suggestions, from the FTC and other sources:

  • Keep a close watch on your information. Merely filling out the fields on an online application — whether or not you hit the “submit” button — can be dangerous. Many scam sites use keylogging, software that tracks and records your keystrokes.
  • Read the fine print. If any part of the application or fine print is hard to read or decipher, don’t follow through.
  • Review your bank accounts for unauthorized charges. Scammers can hit their victims pretty quickly online, so it’s important to review your bank statements thoroughly, or (better yet) track your bank accounts daily through the bank’s website or app. This will let you know if anything’s fishy so you can report it.
  • Beware of “no-credit-check” loans. Most lenders are going to perform a credit check to determine your creditworthiness before offering you a loan, even if it’s just an employment verification. If there is no evidence the lender has checked into your credit or background, it could be a red flag.
  • Beware of unsolicited offers. Often, tracking software can help flag web users who look online for loans. This can lead to pop-up ads and unsolicited loan offers. Disreputable companies often use these tactics to find victims.
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How to avoid pitfalls of co-signing loans

Businessman and woman hand signing agreement in office

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via Bill Moak: How to avoid pitfalls of co-signing loans

PDF: The_Clarion-Ledger_State_20160611_A002_2

Being asked to co-sign a loan is not as common as it once was, but is still an option in many cases as people with poor (or unestablished) credit seek to borrow money. It may be a nice thing to do, but a new survey has found that co-signing is loaded with potential pitfalls, and you should give careful consideration to the possible implications before you sign on the dotted line. Often, co-signers get burned and if things don’t work out as planned, can be on the hook to pay back the debt, see damage to their credit scores or maybe even suffer from a damaged relationship.

Co-signing allows a third party to agree to take on some of the responsibility for the loan for someone who can’t get enough credit by themselves. According to a recent survey by Creditcards.com, about one in six adults have co-signed a loan or credit card application for somebody else. Most commonly, the co-signer is over 50, helping a child or stepchild obtain a car loan. Co-signing can help your friend or family member get through a tough time, or establish a credit record for the first time. But, a new survey points out, there are many potential hazards that should be investigated before signing.

“Once you co-sign, you are legally responsible for the debt,” said Michelle Dosher, consumer engagement program manager for the Credit Union National Association. “It can be hard on you, and it can be hard on family and friends if that situation doesn’t work out as it was intended.”

Creditcards.com surveyed 2,003 U.S. adults about their experiences with co-signing, illustrating the potential pitfalls. Here are a few of the results:

  • Nearly four in 10 co-signers had to step up to pay some or all of the credit bill because the borrower didn’t follow through on his or her obligations.
  • Twenty-eight percent reported their credit scores dropped because of late payments or nonpayments.
  • About a quarter of respondents said their relationship was damaged because of the arrangement.

“If you co-sign and the person you are co-signing for missed a payment, that amount of debt and any missed payments can become part of your credit history, lowering your score,” Dosher said.

Dosher adds that a default can make your credit score plummet without you even knowing unless you have arranged with the borrower beforehand to keep you apprised on the loan.

“It’s your name on the line,” Dosher added. “You might have excellent credit now, and someone else’s default could ruin your credit score and affect what you are able to do on your own in the future, like refinance a home or buy a car.”

Rebecca Schreiber, a certified financial planner and co-founder of Pure Financial Education, notes that co-signing has declined over the past few decades, probably because people are becoming aware of the potential problems, but some may still decide to take the risk because they want to help out a loved one. “Co-signing is a sign of faith in another person. Sometimes we just see a financial transaction and we forget about the message behind that transaction. But co-signing is making a statement that you believe the other person will behave in a responsible way and you have faith in them.”

According to the CreditCards.com poll, co-signers tend to be:

  • Older than 50. Twenty-four percent of 50- to 64-year-olds have co-signed a loan or card for someone else, followed by 22 percent of those older than 65. Only 14 percent of 30- to 49-year-olds have been co-signers.
  • Wealthy. Of those who earn more than $75,000 annually, 24 percent have co-signed for someone else, compared to only 11 percent of those who earn less than $30,000.
  • Helping a child or stepchild. Nearly half (45 percent) of co-signers have done so on behalf of a child or stepchild. Co-signing for a friend was a distant second at 21 percent.
  • Signing for an auto loan. Auto loans accounted for 51 percent of all co-signings, followed by personal loans (24 percent), student loans (19 percent) and credit cards (16 percent).

“If you could help an adult child go from a rental situation into homeownership and they just don’t have the credit score built up yet, (co-signing) can be great way to get them started,” said Karen Lee, an author and financial planner. When it comes to helping out a child or stepchild, 58 percent of 50- to 64-year-old co-signers have done this as well as 53 percent of co-signers older than 65.

Having to pay a loan for which one co-signs can put a serious strain even on the strongest relationships. To avoid the pitfalls, here are a few red flags that might make you think twice:

  1. The person has a pattern of not meeting financial obligations. “We all know people who are financial train wrecks,” Lee said. “If one of your financial train-wreck friends comes to you for help, but they’ve ‘turned over a new leaf,’ I would still avoid that situation.”
  2. You’re not financially stable yourself. In addition to evaluating the person you may co-sign for, you need to evaluate your own financial well-being. Do not sign on the dotted line if you are feeling financial strain. “If you don’t have (the funds) to literally give away right now, don’t do it,” Lee advises.

For the complete survey results, visit www.creditcards.com/credit-card-news/co-signing-survey.php.

Miss. student loan forgiveness reveals a mess

via Moak: Mississippi student loan forgiveness, clarionledger.com, 12/3/2015

PDF: EDMC Student Loans

There’s a lot of money to be made in the business of for-profit education. This fast-growing industry has found the increasing demand for college degrees can be lucrative, garnering billions from students looking to enhance their resumes in an increasingly-competitive environment. Many of those students receive financial assistance, including federal student loans. But with the rapid growth of the industry have come increasing concerns about some for-profit institutions. Regulators have cited concerns about recruitment practices, sketchy quality and lack of accountability, among other issues.

In mid-November, a company named Education Management Corp. (EDMC) reached an agreement with 40 attorneys general to significantly reform its recruiting and enrollment practices and forgive more than $102 million in student loan debt from about 80,000 students nationwide. That amount will include $1,229,321 in loan forgiveness for about 1,358 Mississippi former students, Mississippi Attorney General Jim Hood revealed in a recent news release.

Pennsylvania-based EDMC operates 110 schools in 32 states and Canada through four education systems, including Argosy University, The Art Institutes, Brown Mackie College and South University.

The agreement will require EDMC to significantly revise its recruiting and enrollment practices. It mandates added disclosures to students, including a new interactive online financial disclosure tool; bars misrepresentations to prospective students; prohibits enrollment in unaccredited programs; and institutes an extended period when new students can withdraw with no financial obligation. EDMC also settled a $95 million civil suit brought by the U.S. Department of Justice. (It should be noted that EDMC did not agree with the findings of the extensive investigations.)

“This civil enforcement action holds EDMC accountable for what we allege were unfair and deceptive recruitment and enrollment practices,” Hood noted. “EDMC’s practices were unfair to our state’s students, and they were also unfair to our nation’s taxpayers who backed many of these federal student loans that were destined to fail. This is a rigorous agreement that not only provides some relief to a large number of former students through loan forgiveness, but helps ensure that the company will make substantial changes to its business practices for future students.”

“This case not only highlights the abuses in EDMC’s recruitment system; it also highlights the brave actions of EDMC employees who refused to go along with the institution’s deceptive practices,” U.S. Attorney General Loretta Lynch said at a news conference announcing the settlement of the federal “whistleblower” lawsuit. That investigation stems from 2007, when a recruiter and the EDMC employee who trained her came forward with allegations the school recruited students who were unlikely to succeed, using recruiters who were promised illegal enrollment-based incentives.

The state investigations, begun in January 2014, followed numerous complaints from current and former EDMC students, and provided a window into a disturbing pattern of alleged behavior.

“Our investigation gave us a pretty clear picture of how EDMC lured prospective students into its programs, and how many students left the program with unfulfilled promises and oftentimes tremendous debt,” Hood said. “We think this agreement addresses our biggest concerns about the company’s business practices and puts in place new transparency and accountability.”

Under the agreement, EDMC must abide by a number of provisions, including:

  • Not make misrepresentations concerning accreditation, selectivity, graduation rates, placement rates, transferability of credit, financial aid, veterans’ benefits and licensure requirements. EDMC shall not engage in deceptive or abusive recruiting practices and shall record online chats and telephone calls with prospective students.
  • Provide a single-page disclosure to each prospective student that includes the student’s anticipated total cost, median debt for those who complete the program, the default rate for those enrolled in the same program, warning about the unlikelihood that credits from some EDMC schools will transfer to other institutions, the median earnings for those who complete the program, and the job placement rate.
  • Require every prospective student utilizing federal student loans or financial aid to submit information to the interactive Electronic Financial Impact Platform in order to obtain a personalized picture of the student’s projected education program costs, estimated debt burden and expected post-graduate income.
  • Reform its job placement rate calculations and disclosures to provide more accurate information about students’ likelihood of obtaining sustainable employment in their chosen career.
  • Not enroll students in programs that do not lead to state licensure when required for employment or that, due to lack of accreditation, will not prepare graduates for jobs in their field.
  • Require incoming undergraduate students with fewer than 24 credits to complete an orientation program prior to their first class.
  • Permit incoming undergraduate students at ground campuses to withdraw within seven days of the beginning of the term or first day of class (whichever is later) without incurring any cost.
  • Permit incoming undergraduate students in online programs with fewer than 24 online credits to withdraw within 21 days of the beginning of the term without incurring any cost.
  • Require that its lead vendors, which are companies that place website or pop-up ads urging consumers to consider new educational or career opportunities, agree to certain compliance standards. Lead vendors shall be prohibited from making misrepresentations about federal financing, including describing loans as grants or “free money;” sharing student information without their consent; or implying that educational opportunities are, in fact, employment opportunities.

To be eligible for loan relief, you must have been enrolled in an EDMC program with fewer than 24 transfer credits; have withdrawn within 45 days of the first day of your first term; and your final day of attendance must have been between Jan. 1, 2006, and Dec. 31, 2014.

The agreement is expected to provide an average of $1,370 per person in loan forgiveness.

Stafford student loan rates: no help yet from Washington

From clarionledger.com, 7/9/2013

In the last several months, the Moak family has been trying to figure out how we are going to pay for college. With a child who’s a senior this year, we are looking at all the options. Thankfully, No. 1 son is a good student, so he is likely to get some scholarship money; however, it’s likely that we will still be on the hook for quite a bit, because college is expensive and is only getting more so. Grants will help take a bite out of the pie, but many families are looking at loans as an option to bridge the gap.

One thing that has gotten a lot of attention in recent months is the doubling of the interest rate for federally-subsidized Stafford loans. Since 2010, the interest rate for these loans has been kept at an affordable 3.4 percent, but thanks to politics in Washington, the student loan rate doubled on July 1 to 6.8 percent (higher than the rate for many private loans). There is talk of a deal to restore the old rate before school starts again, but for now, we are stuck with the higher rate. (The new rates do not apply to non-Stafford loans, or those taken out before July 1.)

Some insiders estimate that the rate hike could cost the average student about $2,600. That’s a lot of added pressure, considering that most students graduate with substantial debt at a time when they’re just trying to get their feet on the ground, and will not reach the peak of their earning potential for many years.

Is there hope for a solution from Washington? Well, the rate hike was put off for a year last year by a Congress that didn’t want to anger younger voters. And the sequester taught us to never to believe those who say the worst-case scenario can’t happen. Hopefully, they will get a solution soon, but I’m not counting on it.

The good news is that we don’t have to count on Washington to bail us out. While loans can be part of the solution, there are many resources out there. Often, scholarships and grants go unclaimed because parents just don’t know about them. Parents aren’t alone; your best friend could be the Financial Aid officer at the institution your student will be attending. Financial Aid officers love a good challenge. There are also many good tools out there to help you calculate and prepare for college. But parents should also be careful; there are sharks in those waters, as explained in this warning from the Consumer Financial Protection Bureau.

The bottom line on paying for college: the pros say it takes a lot of work and research. Don’t wait until the last minute, and ask for help. Ultimately, whatever your situation, there is money out there for deserving students.

Report examines effects of “payday lending” on consumers

via Report examines effects of “payday lending” on consumers | Consumer Watch, clarionledger.com, 4/26/2013

Short-term lenders are everywhere. It seems that every time there is a vacant storefront, there is a payday lender, check-cashing business or title loan company looking to do business. “Payday loans” — a short-term, high-interest loan intended to put a virtual band-aid on your checkbook until your next paycheck arrives — have been on the radar screen of consumer protection agencies for years. The problem is not just that the consumer borrows money, but that they keep rolling over the balance when they can’t pay it, resulting in high fees.

The federal government’s Consumer Financial Protection Bureau this week released a white paper on payday lending. The paper studied how much people are borrowing, how often, and whether that leads to debt.

There are some interesting facts revealed by this study. Only four percent of payday loans are made to consumers with income more than $60,000 per year. That should be no surprise; it has long been thought that the lower-income segment is the primary demographic of payday lenders. Most came from consumers at or near poverty level. Nearly 1/3 of loans were made to people making between $10,000 and $20,000 per year. More than half of those receive public assistance.

Payday loans are typically tied to the borrower’s payday, not just 14 days as is commonly believed. The study looked at how this affects consumers long-term. More than a third of borrowers take out between 11 and 19 payday loans per year, while 14 percent take out 20 or more loans.

There is a lot of money to be made in the payday lending business. Many lenders charge a fixed fee for every $100.00 borrowed. The median APR on a payday loan is 322%, with the average APR being slightly higher at 339%. The real cash cow for payday lenders are those frequent borrowers; 76 percent of payday loan fees come from those who take out at least 11 loans a year. This points to a long-term dependency, and a never-ending cycle of debt. A quarter of borrowers paid at least $781.00 in fees during a year.

But, as the payday loan industry is constantly pointing out, it appears that these lenders are providing a service to some, who use the services at low-to-moderate levels. “It appears these products may work for some consumers for whom an expense needs to be deferred for a short period of time,” notes the report. “The key for the product to work as structured, however, is a sufficient cash flow which can be used to retire the debt within a short period of time.”

The need for small loans, often a high-risk enterprise at which many traditional lenders have balked, is being filled by payday lenders. In some countries, this practice (micro-lending) is providing needed cash for short-term projects.

“However,” the CFPB notes, these products may become harmful for consumers when they are used to make up for chronic cash flow shortages. We find that a sizable share of payday loan and deposit advance users conduct transactions on a long-term basis, suggesting that they are unable to fully repay the loan and pay other expenses without taking out a new loan shortly thereafter.”