Predatory Lending OC Goss

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Predatory LendingOC Goss
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Objectives

• Understand the definition of a Predatory loan.
• Identify signs that indicate a lending practice
  is predatory.
• Identify who is the targeted audience.
• Identify strategies to avoid the payday lending
  trap.
• Identify alternatives to using payday lenders or
  other unwise credit offers.

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What is Predatory lending?

• Predatory Lending living by preying on other
  organisms in terms of lending, predatory means
  practices where a lender takes unfair advantage
  of a borrower, sometimes through deception,
  fraud, or terms such as very high interest or fees

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• Predatory lending has become a major issue of
  military readiness, with spiraling debt causing
  service members to lose security clearances or
  become distracted from their missions. The
  significance of this problem prompted the then
  President Bush to sign H.R. 5122, the John Warner
  National Defense Authorization Act (NDAA) for FY
  07. This act provides new consumer credit
  protections for service members and their
  dependents, including limitations on terms of
  consumer credit extended to service members and
  dependents.

Congress passed the amendment after the
Department of Defense released a report outlining
the negative impact of predatory lending on
members of the military. The Talent-Nelson
Amendment bars creditorsincluding payday
lendersfrom charging an interest rate that
exceeds 36 APR. In addition, the amendment bars
rollovers, mandatory arbitration agreements, and
credit transactions in which the creditor gains
access to a consumers bank account through a
check or electronic access.
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10 Signs that a Lender or Financial Practice Is
Predatory

• -High interest rates/excessive fees
• -Lending regardless of borrowers ability to
  repay
• -Loan flipping
• -Deferred check payment
• -Mandatory arbitration clause
• -Single balloon payment
• -Asset-based lending
• -High closing costs
• -Fraud or deception

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Are we being targeted?

• The GAO identifies the following groups as being
  especially vulnerable to being targeted
  by predatory lenders
• -Most are young
• -Most are financially inexperienced
• -Low incomes and family responsibilities leave
  them in need of additional cash
• -Government paycheck ensures predatory lenders a
  steady source of income for repayment

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You are being targeted!!

• Think about how many payday loan establishments
  are located near your base gates. Notice, too,
  the ads for payday loans in military-affiliated
  publications. These are not coincidences you are
  their target!
• These lenders prey on your fear of how your
  command will react if they discover you are
  having financial difficulties. These predatory
  lenders feed on this perception and are ready to
  "help" you with the reassurance that the command
  need not know.

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Identify ONE sign of predatory lending.

• A. Extremely thorough credit check
• B. Debt-to-income ratio test
• C. Excessively low interest rates
• D. High interest rates

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A. Predatory lenderB. Reputable lender

• As you read the base paper, you see the following
  ad for a loan "Low credit, bad credit, no
  creditwe don't carewe'll get you the cash you
  need! Come see us today!" Based on this ad, how
  would you characterize the lender?

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Which statement should alert you that the loan
may be a predatory one?

• The loan will have regular, consistent monthly
  payments throughout its term.
• B. The loan will be granted based on your
  debt-to- income ratio and credit history.
• C. The loan is due in full in two weeks' time.
• D. The loan will NOT be flipped into another
  loan by this institution.

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• "We're friendlyCome See Us!"
• This, too, is probably true because if you're
  like nine-out-of-ten payday borrowers, you will
  end up taking five or more of these short term
  loans a year, with an average payback of 834 for
  a 339 loan!
• Why wouldn't they be friendly and make loans easy
  and convenient for you?!

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Car Title Loans

• Like payday loans, car title loans are marketed
  as small emergency loans, but in reality these
  loans trap borrowers in a cycle of debt. Lenders
  accept the title from a vehicles owner as
  collateral for short-term loans, usually for much
  less value than the vehicle's worth. Desperate
  people often sign the contract without reading it
  completely and surrender the title only to find
  that if theyre even one day late on a loan
  payment, the lender has the right to repossess
  the car, sell it, and keep all the money from the
  sale.

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Credit Card Abuses

• Teaser interest rates for credit cards can be
  really attractive bait. Transfer higher
  interest balances to our card at 0. Sounds
  good, doesnt it? Be sure to read the fine print
  and understand exactly how long and under what
  conditions the rate applies.
• Teaser rates can be great deals, but only if you
  can pay off the debt before the higher rate kicks
  in.

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Rent-to-Own Contracts

• Its simple you just agree to payments that
  sound low and you can have that bigger TV,
  kegerator or new living room furniture right now.
  The predatory lender is counting on the buyer
  not doing his homework. If a salesman told you
  the price of a new sofa was 1000, why would you
  agree to pay 2000 for it? Thats basically what
  rent-to-own does it stretches out those
  convenient, low monthly payments until you have
  paid several times the actual value of your
  purchase. The disguised effect is to charge
  interest that often exceeds 500 APR. If you buy
  a CD player at payments of 39.59 a week which
  was originally 500, in just 6 months you would
  have paid 950.16!

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What have you learned?

• A tax refund loan is a good choice for most
  people because it gives you quick access to money
  that is coming your way from the government.
• A. True
• B. False

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• Money's tight for Billy. He's a good budgeter,
  but he doesn't have a lot of extra cash for the
  unexpected. His tires are pretty bald, so he
  needs to replace themnothing fancyjust solid,
  dependable tires. His account's nearly empty,
  but he could afford monthly installments over
  time. He has good credit, and a dependable
  jobhe's a Sailor. Select the type of loan he
  should AVOID.
• A. Car title loan from the business in town
• B. Navy-Marine Corps Relief Society Loan
• C. Loan from a family member
• D. Signature loan from his credit union

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How does this affect me?

• The financial impact is important, but so is the
  impact to operational readiness and a service
  member's career. Financial problems are the 1
  reason security clearances are revoked. A Sailor
  in a non-deployable status doesnt help his or
  her command, and that doesn't help his or her
  career.

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What can I do to avoid this?

• Avoid the Trap
• The most important thing an individual or couple
  can do is to create a realistic spending plan and
  stick to it. It just makes sense not to spend
  more money than you have coming in.
• Live within your means. Give yourself a reality
  check concerning those need-to-have-it-now
  impulses.
• Be responsible with your use of credit. Use it
  when you need to, but be sure you completely
  understand the terms and penalties in case you
  cant live up to them.
• For those who feel they could use some advice,
  your Command Financial Specialist (CFS) receives
  training to help people plan their finances.
  Every Command has at least one CFS who has
  received extensive training from the Fleet and
  Family Support Center (FFSC) on helping people
  successfully manage their finances.
• If you are already involved with a payday lender,
  plan an exit strategy by seeking help.

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Identify ONE action you can take to help you
avoid predatory lending.

• A. Only take loans from businesses that employ
  ex- service members
• B. Pay the highest interest rate you can find to
  ensure you are getting a top-quality loan
• C. Have the loan contract reviewed by the Navy
  Legal Service Office before signing
• D. Put your car up as collateral and get a car
  title loan.

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Which philosophy will help you avoid the payday
lending trap?

• A. Live within your means
• B. Use a payday loan as a "small emergency only"
  loan
• C. Use a credit card to get the rewards
• D. Buy what you want when you want it

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Where can I get help?

• The following offer a wide variety of financial
  assistance, education, and resources
• -Better Business Bureau (BBB)
• -Command Financial Specialist (CFS)
• -Consumer Credit Counseling Service (CCCS)
• -Federal Credit Unions
• -Fleet and Family Support Center (FFSC)
• -Navy Legal Services Office (NLSO)
• -Navy Marine Corps Relief Society (NMCRS)
• -Military OneSource 1-800-342-9647 for advice
  and assistance, 24/7
• -American Red Cross via the Armed Forces
  Emergency Service Center 1-877-272-7337
  provides 24/7 emergency financial advice and
  referral

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Check this site out!!

• www.PayDayLoanInfo.org - This site will show you
  the true cost of a payday loan. Just plug in the
  amount borrowed and the repayment terms, and the
  cost will be shown as an APR. You can also check
  out laws governing payday loans in your state and
  find links to resources for consumers. If you
  have never truly looked at payday loans before,
  this site can be a real eye-opener!

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Congratulations! You made it!

• You should now be able to
• Identify signs that indicate a lending practice
  is predatory.
• Identify who is the targeted audience.
• Identify strategies to avoid the payday lending
  trap.
• Identify alternatives to using payday lenders or
  other unwise credit offers.

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Questions?