• Home
• Personal Finance
• Economy
• New School
• Asked & Answered

• ABOUT
• FAQ
• RESOURCES
• ADVERTISE
• CONTACT

Predators Just Move On

It’s the nature of capitalism today. Once one area is sucked dry or the predatory scheme is uncovered these predators move to another area. Now, the predators have moved on to auto loans.

Center of Public Integrity’s released a very informative report called Buyer beware. Here are a few excerpts from the report (I strongly encourage people to read the entire report):

The politically powerful industry has also mastered a few high-pressure tactics of its own. Chief among them is the “yo-yo,” where dealers let buyers drive a new car home in hopes of locking them into a deal and later tell them their financing fell through. The tactic can lure buyers to accept a higher interest rate.

And while the financial crisis rendered subprime mortgages extinct, Wall Street is once again buying up bundled subprime auto loans, fueling a market aimed at the most vulnerable consumers and relieving dealers of the risks of making bad loans.

While the consumer thinks the negotiations are over at that point, dealers know that a lot more profit can be made off the financing.

For starters, dealers routinely jack up the interest rate on a loan and split the profit with the lender. So if you qualify for a 4 percent loan, the dealer will say the best he can do is 7 percent. Half of the extra profit goes to the dealer as a “markup.”

Buyers never know they’ve been charged more because the markup usually isn’t disclosed. The Center for Responsible Lending calls these “kickbacks” and calculates that they cost car buyers $20 billion a year.

It should be no surprise that new Consumer Financial Protection Bureau is powerless against these predators. The auto dealers/lenders secured an exemptions from the new consumer protection law. Money speaks volumes in Washington.

Here are the key finding of the Center for Public Integrity’s report.

The best defense is the best offense against predatory lenders. We have to arm ourselves with information and an understanding of what the predatory practices are so that when we experience them we know to just walk away. The Center for Responsible Lending has a wealth of information about auto loans and the predatory practices. Please check them out before making that next auto purchase.

Another thing: if you don’t know or not sure about something - ask someone before you sign on the line (other than the dealer) - a neighbor, friend or us. We can no longer expect or afford to wait for our government to protect us from predators. We are in this together.

Good luck.

 

 

 

Time to Move Our Money

Higher bank fees are on the way and the so called “free checking” is dead. But we don’t have to take this. We can move our money - all of it - including retirement accounts.

Nice system we have. Too Big to Fail (TBTF) banks crash the economy, receive $13 trillion bailout, recovery nicely then stick it to their customers (again):

J.P. Morgan Chase (JPM), which has has 27 million checking accounts, has announced it will impose fees ranging from $10 to $12 per month on those accounts—though the fees can be avoided if you maintain a minimum daily balance of $1,500 or set up a direct deposit of $500 or more each month into your account….

Meanwhile, Bank of America (BAC), which has 57 million consumer and small business customers, has started a pilot program to charge new customers in Arizona, Georgia and Massachusetts for checking accounts, says spokeswoman Anne Pace. The four account options on offer have fees ranging from $6 to $25 a month, but customers maintaining a minimum daily balance of $5,000 won’t have to pay the fees.

TBTF banks require tens of billions of dollars in revenue to feed their ginormous size and pad the pockets of TBTF CEOs and executives. A slight reduction in revenue could mean that CEOs and other executive get a slightly lower bonus. Of course, TBTF Banks are saying that new (very weak) financial regulations are the culprit. But these regulations haven’t been implemented yet. These new high fees are in anticipation of new regulations. READ: just another excuse to raise fees and increase revenues. We should’ve ended TBTF banks when we had the chance.

We don’t have to accept these higher fees. It’s not that difficult to move our money to a community bank or credit union. Here are some resources to help with moving our money:

1) Keep Your Balance: A Shopper’s Guide to Better Banking;

2) Move Your Money Project - 7 Simple Steps to Move Your Checking Account;

3) Credit Union Locator

It’s time we send a message to TBTF banks that they may own both political parties but they don’t own us. Let’s let our business do the talking. It’s time to move our money!

Good luck.

 

YIKES!

It seems we just keep bouncing from one economic crisis to another and never really addressing the fundamental problems that caused the crises. Maybe it’s just the nature of our economic system. I came across two articles last week that hint at another crisis that we may be facing relatively soon. The crisis of retirement savings.

I hope I am absolutely wrong.  Check out these two articles:

1) Retiring Boomers Find 401(k) Plans Fall Short

From the article:

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

401K’s were a huge scam perpetrated on working people. They were a huge give away to Wall Street in the form of huge fees, commissions and trading schemes. Workers were told that they were now ‘in control’ of their retirement savings. Yeah right. Many people never understood investing and but were expected to pick investment on their own or rely on an “expert” who was typically paid on commission.

2) Fidelity Says Average 401(K) Account Balance Reached 10-Year High in 2010

Sounds great and any retirement savings is good but wait for it. Wait for it. The average 401(K) account balance reached $71,500. That’s good news!?! Come on, that’s not even close to what is needed to retire without experiencing a huge drop in living standard.

What can we do?

Individuals:  First, determine how much it will cost to retire. Here is a Retirement Nestegg Calculator. Second, we can continue to save as much as possible on a tax-deferred basis. Third, be careful with investments - remember it’s called a Nest Egg for a reason.

Policy:  First, strengthen Social Security - possibly lowering retirement age and increasing benefits (Social Security is NOT broken). Second, we may need some type of investment account that guarantees a certain level of income similar to a Guaranteed Investment Contract for individuals.

It’s clear we need to do something. Good luck.

 

Credit Cards are EVIL

We should really rethink how we view debt particularly credit card debt. This stuff is toxic and if not handled properly can be hazardous to our financial and mental well being.

Credit cards provide us with instant gratification.  The ability to get something we want right now without having to wait and save for it.  I am just as guilty as anyone else when it comes to instant gratification.  But getting over instant gratification is just one way to start rethinking how we perceive credit card debt. 

We often rationalize or more like fool ourselves into thinking that we can pay-off credit card balance in the next billing cycle but it seems it never happens.  In the U.S. the average household credit card balance is $14,750. We are not doing a good job of paying off those balances and we are paying a heavy price for instant gratification.

Consider that $14,750 credit card balance and this story from earlier in the week: My credit card had a 79.9% APR.  That’s not a typo. First Premier Bank is offering people with bad credit a credit card at 79.9% rate. The crazy thing according to the story is that people are signing up for that card. Of course there are various fees attached this card:

First Premier charges a total of $135 per year in fees. It starts with a $45 processing fee to open the account. Then there’s an annual fee of $30 for the first year—$45 for every subsequent year. Plus, there’s a monthly servicing fee of $6.25 (or $75 a year).

Cash advances will cost you $5 or 3%, whichever is greater; late payments ring up at $35. The bank will also charge you $35 if a payment on your account is returned due to insufficient funds or any other reason.

Remember credit card debt is EVIL. 

Let’s calculate the finance charges on a credit card at 79% APR using the average household credit card balance of $14,750.  The typical formula for finance charges is:

Average Daily Balance x Annual Percentage Rate (APR)  x Number of Days in Billing Cycle ÷  365

$14,750 x 79.9% x 28 (Feb.) / 365 = $904 

Wow! That’s $904 in finance charges in ONE MONTH alone. The minimum monthly payment is usually slightly higher. 

EVIL. EVIL. EVIL.

Ok, a person with bad credit and a 79.9% APR credit card probably doesn’t have that much credit on one credit card.  So let’s assume $1,000.

$1,000 x 79.9% x 28 / 365 = $61.29

Again, this is $61.29 in finance charges in one month alone!  Melodramatic? So let’s use the average APR for credit cards which is 14.25%.

$14,750 x 14.25% x 28 / 365 = $161.23

That’s even high especially considering minimum monthly payment is higher and what about other monthly expenses such as mortgage/rent, food, gas, etc.

Credit cards are the snake in that Garden of Eden story.  They satisfy our desire for instant gratification but at a heavy price later.  This is something we definitely want to change for our own salvation from financial and possibly mental devastation.

Good luck. 

Refinance or Not?

I have been receiving a lot questions later about refinancing.  Unfortunately because of the financial crisis it’s no longer a simple yes or no answer.  It truly depends.

Refinancing for some people may seem like the right option especially since mortgage rates are still relatively low - 4.99% for 30 year fixed (2/8/2011 - Bankrate.com). And with overall interest rate environment trending higher because of the perception of an economic recovery this may be the right time to make that move.  There are several things to consider before signing the refinance mortgage papers:

1. Research your home price - look online at sites like Realtor.com, ask local realtors about housing prices.  The point is that many areas of the country are still experiencing ‘negative equity’ which means that home values are far less than what is still owed on mortgage.  This could shut out a lot people.
2. Decide how long who plan on staying in current home. If it’s not a long-term commitment then it may not be worth refinancing especially considering potential fees/points attached to refinancing.
3. Perform a calculation to determine monthly and overall savings from a potential refinancing.  Bankrate.com has a good refinancing calculator and here is another from dinkytown.
4. Shop around and compare.  Don’t settle for the first bank you come across.  If you’re a member of a credit union consider them - if you’re not a member of a credit union then consider joining one.  Credit unions may offer lower cost refinancing mortgages than big banks.
5. Before you sign anything make sure you understand all disclosures, loan terms and the loan documents themselves. If you don’t understand something please ask someone or find the answer some way some how before signing on the line.

Good luck.

Page 2 of 23 pages  <  1 2 3 4 >  Last »