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Predatory lending tactics continue with greater stealth

by Broderick Perkins

Hold onto your assets.

(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.

Auto loans

• 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.

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