Payday Lenders Exempted in Financial Regulatory Legislation
August 16, 2010
It seems the payday lenders were exempted from federal legislation being drafted that would increase financial regulatory control. Control of the payday lenders became a political pawn in bi-partisan negotiations to create a new consumer protection agency. Read more
Virginia Passes Law Limiting Car Title Lending
August 6, 2010
Most consumer advocates consider car title lending to be predatory. One of the main reasons for this attitude is that car title loans usually carry high interest rates. The loan offerings attract people who are already in debt or have bad credit and are unable to obtain a loan through normal bank channels.
Virginia’s state legislature decided to address the issue and has been working on a new bill that will set lending limits on car title loans. The Virginia Senate passed a measure in February and now the state House has followed suit in March. It is expected the Governor will sign the bill into law.
Virginia’s bill accomplishes two things: it creates an interest rate cap and limits loan terms. The new law creates a tiered interest rate schedule. For example, a 22 percent interest rate per month would be the maximum rate on a loan that is smaller than $700. For a loan greater than $1,400 the cap is 15 percent per month. In between $700 and $1,400 there is a tiered schedule of interest rates allowed to be applied based on the loan amount.
Other provisions of the bill include limiting the loan to one year and restricting eligible borrowers. The loan amount must be less than half of the car’s value. The law also prohibits interest from accruing on a loan once the car has been repossessed.
It is interesting to note that the interest rate limits still allow a lender to charge a triple digit interest rate over a period of a year. Some Virginia legislators do not believe the law goes far enough in establishing limits and see the new law as continuing to allow predatory lending though on a scaled back basis.
The final legislation represents a compromise between consumer advocates, lenders, and industry groups. Of course, not everyone is happy with the bill because some say it still allows high interest rates. Individual provisions in the bill strike a sour note with many. But like most laws, the legislation represents a compromise.
This legislation is reminiscent of restrictions placed on payday loans almost two years ago. There have been previous failed efforts to limit car title loan terms, but all previous proposals have failed. This bill is historic in that it not only limits loan terms but places a cap on interest rates.
Car title loans are often sought by the financially illiterate or people desperate for money who also have bad credit or no assets other than an auto. Many people do not understand the terms they are agreeing to when they take out a loan using their car as collateral. Once the loan becomes delinquent, the auto can be repossessed leaving the person with no transportation and a debt they are unable to pay. Though the new legislation still allows what some see as usury interest rates, it is hailed by Virginia consumer advocates and legitimate lenders as important legislation that addresses predatory lending practices.
Loan Modifications Affect Consumer Credit Scores
July 25, 2010
Many consumers feel like they have been victimized by the banks as a result of their risky behavior in the subprime mortgage market. With the collapse of the housing market and the connected fall in house prices, coupled with job cutbacks and unemployment, many consumers were relieved to discover they could get help avoiding foreclosure through the government backed home loan modification program.
What consumers did realize though is that requesting a mortgage modification, even if not in foreclosure, could negatively impact credit ratings. This has angered consumers trying to do the right thing and discovering they are penalized anyway for years to come. People in foreclosure are not surprised to find their credit rating lowered due to late payments. But even consumers who have not made any late payments are finding their credit scores lowered by asking for modifications to their current mortgages.
According to the logic of lenders and credit rating agencies, anyone asking for a modification is indicating they are having financial problems. The credit score can drop by as much as 100 points when a temporary mortgage modification agreement takes effect. It does not drop again when the temporary agreement becomes permanent. But consumers who apply for the loan modification program and are not approved will see more than 100 points drop off their credit score.
The drop in the credit score affects the ability to get credit for years. Housing counselors agree with consumers that the negative credit scoring is not fair. Homeowners were not told their credit ratings would be impacted before applying for the modifications. Consumer advocates believe consumers are being punished even though they are acting responsibly and trying to stave off mortgage defaults.
Lenders like to point out that the loss of credit points is much less under the modification program than it would be due to foreclosures. A foreclosure can cost 150 points or more, but that is really little consolation. Already feeling victimized by the banks, consumers now feel victimized by their own government.
Lenders believe that the credit point drop is justified because consumers asking for loan modifications are obviously in financial trouble. The lenders believe the lending market should be aware of the consumer’s true financial status. If the credit score was left unchanged, borrowers would still qualify for loans they cannot afford.
The Obama “Making Home Affordable” program has been an enormous disappointment. Meant to help a million homeowners, only 170,000 have actually found assistance as of February. Many of the applications are bogged down due to missing documentation and mortgage companies dragging the process down through delays. The Obama administration has tried to put pressure on lenders to speed up the process, but to date the efforts have been largely unsuccessful.
The discovery that credit scores can fall even when not in mortgage default was yet another blow to embattled consumers. The Treasury Department and the banks offer little advice other than to say that paying bills on time in the future will lead to higher credit scores.
Proposed Virginia Car-Title Loan Regulations are Criticized
November 16, 2009
You see the care loan title businesses everywhere and they are often payday loan operations also. Some people are opposed to these businesses because the lenders charge excessive interest rates and fees on the assets of desperate consumers. To some these places are like predatory lenders rather than legitimate operations. Read more
Cash for Clunkers Had Some Clunker Results
November 9, 2009
A lot of taxpayer money has been thrown around recently in the automotive sector. The federal government is contemplating its third round of bailouts for an ailing auto industry. Read more
New Predatory Lending Regulations Go Into Affect
November 3, 2009
Congress has passed new regulations concerning mortgages and predatory lending. The purpose of these regulations is to prevent lenders from selling mortgages riddled with fine print that binds consumers financially in ways unbeknownst to them. Read more
U.S Driving Survey Shows Less Driving By Americans In 2009
September 24, 2009
A recent survey conducted by GMAC Insurance has revealed that about 30% of the participants polled have declared their plans to do less driving in the next 12 months. Read more
Can You Find Bad Credit Auto Loans With Low Rates
September 22, 2009
Now, more than ever, subprime auto lenders are filling the gap created by the closing of many auto-financing companies. In fact, it is now possible to secure bad credit auto loans at far more affordable rates and flexible terms than ever before. Read more
Cash For Clunkers Criticized
September 14, 2009
Prior to the establishment of the Cash for Clunkers there were a number voices that were critical of the program’s viability. The sentiment was that while the program sounded good on the surface but it wasn’t good overall for the national economy. Read more
Bank Of America Selling Auto Loan Bonds
September 8, 2009
In a recent announcement, the Bank of America Corporation has said that it plans to sell those bonds that are backed by auto loans and eligible for a special program offered by the Federal Reserve that would reinvigorate weak lending markets. Read more
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