loans and credit

One recent trend in the realm of personal loans is the development of what is known as peer-to-peer lending. Coming in tough economic times, these types of personal loans offer a way of side-stepping traditional lending outlets by setting up a loan with one of the person-to-person lending networks that have sprung up over recent years. The loan business is booming these days with the advent of the cash advance or payday loan, but such loans carry the weight of heavy fees which result in exorbitant APRs. Also, traditional sources of money, such as credit cards or unsecured personal loans carry high rates of interest as well, to say nothing of all the fees.

Today, those who need a personal loan, who own a home with enough equity could obtain one in the form of a home equity loan. However, if you don’t own a home (which may include more and more folks who recently lost their homes to foreclosure), one attractive alternative has been online offers from peer-to-peer lending networks. This method of lending money allows borrowers to side-step banks and borrow money directly from individual investors through a peer-to-peer lending service. It effectively eliminates the middleman or institution and returns lending to its earliest societal forms; simply, the one with cash lends it to the one in need.

Growth – Amazingly, lending in this manner grew exponentially. According to a report in a Wall Street Journal affiliate site: “…in 2005, there were $118 million of outstanding peer-to-peer loans. In 2006, there were $269 million, and, in 2007, a total of $647 million. The projected amount for 2010 is $5.8 billion.”

Attention – Such growth attracted the attention of the Federal Reserve Bank of San Francisco. A 2008 meeting held between community leaders, investors and the largest peer-to-peer lending program in the world at the time, occurred to discuss this innovation and the implications it had for potential community development. The conclusion was that such lenders provided a service to the community and it was important that “… the community development finance industry be aware of this emerging technology.”

Problems – Such lending also attracted the attention of the United States Securities & Exchange Commission. In an effort to get a regulatory handle on the growing industry, the SEC declared that peer-to-peer lending was by definition, activities creating securities. If companies were not properly registered, they violated the Securities Act. Renaud Laplanche, a founder of one of the lending organizations views such SEC registration as providing credibility to the industry. Despite its quick start and early problems, peer-to-peer lending is here to stay.

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Next time you see one of the ubiquitous commercials for FreeCreditReport.com, you should also notice an interesting addition: The commercials for this and other companies promising you a free credit report must now include an onscreen message that the federal government offers its own free credit report service. This new message is a result of the Credit CARD Act of 2009 signed by Pres. Barack Obama in May of last year. That act, which took effect on Feb. 22, is designed to protect consumers from deceptive credit card practices. But it also includes a provision mandating the new message on advertisements for services that offer “free” credit reports.

AnnualCreditReport.com

Companies must now make note of the existence of AnnualCreditReport.com in all of their print, radio, online and television advertising. This Web site is run by the nation’s three credit bureaus, Experian, TransUnion and Equifax, and allows consumers to order one free copy of each of their three credit reports every 12 months. The site charges consumers nothing to do this. This is in stark contrast to sites such as FreeCreditReport.com. That particular company, in fact, has been the target of several lawsuits claiming that the credit reports it offers are far from free. To qualify for the free reports from this company, consumers must also enroll in a not-free-at-all credit-monitoring service. Some consumers have sued the company claiming that they were unaware that they were being charged a monthly fee for this service.

Don’t be Tempted

The come-ons from companies such as FreeCreditReport.com are often quite persuasive. They make it seem as if you can lose your home, your job and your car by not ordering a free credit report from them. The truth is, you never need to order a credit report from any site except for AnnualCreditReport.com. Any company that tells you differently is lying.

Experian Should be Ashamed

The most disappointing fact about the FreeCreditReport.com ads is that the company is owned by one of the big three credit bureaus, Experian, which owns AnnualCreditReport.com. The credit bureau should be held to a higher standard. It’s shocking that the company has resorted to such dishonest marketing. Fortunately, avoiding the Experian trap is easy: Go nowhere near FreeCreditReport.com. Sure, you might like the catchy jingles that go with the company’s commercials. You might even think the commercials are clever. That’s fine. But when it’s time to order your free credit report, visit AnnualCreditReport.com instead.

Expect to see some changes in the way your credit card statement looks this month. New federal credit card rules took effect last Monday that will require credit card companies to list how long it would take for you to pay off your balance making the minimum payment and provide a tally as to what the full amount paid would be.

The new credit card laws were passed by Congress in May and are an effort to level the playing field between consumers and credit card companies.

New credit card rules dictate:

Rising interest rates cannot be applied to existing balances.

Interest rates on fixed-rate credit cards cannot increase during the first year the account is open unless the consumer is over 60 days late in payment.

Banks can no longer automatically sign their patrons up to overdraft protection accounts, a practice that allows consumers to exceed the funds available in their bank account for a fee, and, typically, significant interest.

Credit card fees, such as the annual fee, cannot exceed 25 percent of the card’s initial limit, set at time of account creation.

People younger than 21 years old must be able to demonstrate a sound ability to pay or have a co-signer to be eligible to open a credit card account.

Monthly credit card statements must provide information on how long it will take to satisfy the balance if only the minimum payment was made and what the actual amount paid would be.

Any payment made over the minimum required must be applied to the balance with the highest interest rate.

Credit card payments must have the same due date each month and the payment cannot be said to be late unless it is received after 5pm that business day. If the due date falls on a weekend or holiday, the due date is pushed to the next business day.

In 2009, Americans paid over $15 billion in credit card fees alone, a fact the new credit card regulation seeks to change. These regulations are a follow-up to the provisions that took effect in August last year.

Mortgage lenders may simply have issued too many bad credit loans during the housing boom for the nation’s foreclosure crisis to end any time soon. At least that’s what the Mortgage Bankers Association is saying with its latest report. The good news is that the number of mortgage loans in the early stages of delinquency dropped in the fourth quarter of 2009, according to the association. The bad news is that the percentage of loans already in the foreclosure process rose. A recent report in the Christian Science Monitor interpreted this data as meaning that the number of homeowners defaulting on their mortgage loans may finally have reached its peak. But the report also said that the numbers indicate, too, that it will take a long, long time before the nation’s foreclosure crisis reaches its end.

Are Bad Credit Loans to Blame?

Critics were quick to point to bad credit loans – those mortgage loans given to borrowers with less-than-ideal credit and high amounts of monthly debt – as the main culprit in the housing collapse. They criticized lenders and banks for passing out too much mortgage money to too many homeowners who obviously did not possess stable enough incomes to afford their monthly mortgage payments. There was a lot of truth to this criticism: The beginning stages of the housing crisis were definitely fueled by these bad credit loans.

From Bad to Worse

As the housing crisis dragged on, stable, middle-class borrowers with conventional mortgage loans began to fall behind on their mortgage payments, too. This wasn’t a surprise; many of them had lost their jobs. With most of their annual incomes gone, they could no longer afford their mortgage payments. Foreclosures soared. And by this time, it wasn’t just bad credit loans, but all mortgage loans that were at the center of the spike.

Lessons Learned?

If the mortgage crisis truly is leveling out, and we’ll start to see foreclosures falling instead of rising, this becomes a good time to ask an important question: Have we learned any lessons from our mistakes? Have mortgage lenders learned to be more cautious when lending out money? And have borrowers learned that sometimes it makes more sense to wait to buy a home until their financial situations have improved? Let’s hope that we’ve all learned something from this terrible recession. If we haven’t, if we return to the days of rampant bad credit loans in the housing business, you can be sure that we’ll be suffering through another recession before too long.

In his State of the Union Address recently, President Obama characterized federal subsidies to banks making student loans, as “unwarranted taxpayer subsidies” and again stated his desire to end private bank involvement in the origination of student loans. One of the far reaching goals of the Obama administration is to overhaul the student loan industry by eliminating the middle-men – the private lending institutions.

If Congress passes such legislation, it would transform the financial aid arena and secure federal control of the industry. The government would consolidate federal authority of student lending into the United States Department of Education. Last year, lawmakers in the House of Representatives passed legislation which eliminated federal subsidies to banks that offer student loans. This would effectively terminate future involvement of private institutions. The issue has yet to be formally taken up by the Senate, primarily because even some Democratic senators have serious concerns about the plan.

Obama’s main initiative is to bump up graduation rates in post-secondary schools. He has called on every American to graduate from college, and would like to see the U.S. once again lead the world in the percentage of young people graduating from colleges and universities. He believes that access to college would be increased among students from families with lower incomes by eliminating private lending institutions.

What are the advantages and disadvantages of the proposed change?

Advantages of Federal Control: • Savings from existing government subsidies to banks are intended to be channeled into programs like Pell Grants which supposedly should increase access to college or trade schools among poor students providing the foundation for a better future via a college education or vocational training. • Less emphasis on ability to repay since the federal government is not concerned with losing money since it already guarantees

loan defaults to lenders through the subsidies. Also, a generous forgiveness program currently exists.

Disadvantages of Federal Control: • No competition means the federal government will have a monopoly over student lending which is a bit controversial even for some Democrats. The government could dictate the interest rate or loan terms they deem “reasonable” because there will be no need to worry about losing business. • This would essentially install an entitlement program on par with Medicare or Social Security. These programs currently have very little money to provide what they were intended to accomplish. If politicians have access to yet another source of taxpayer money, there is no guarantee that loans will always be readily available.

• Government bureaucracy is famous for its tendency to be slow and good customer service is rare.

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The Federal Trade Commission (FTC) estimates that crimes of identity theft affect 9 million people each year. It is the most frequent complaint that people file with the FTC and has held the number one spot for the past five years. According to a 2008 national research study on fraud, an identity theft occurs every 79 seconds! Ironically, in that same year, even Ben Bernanke, who is the current chairman of the Federal Reserve Bank, had his family’s personal financial information stolen when his wife’s purse was stolen.

According to the study on fraud, the simplest and most common form of identity theft is credit card fraud. In the case of the Federal Reserve chairman, his wife had her purse stolen when she was in a public place. The credit cards in the purse were what the thieves were after. Initially, they will charge money to the cards, but with a credit freeze placed on the lost card, thieves will not be able to get much; therefore, they may focus on obtaining sensitive financial information so they can open other accounts in the name of the card holder.

The damage can come almost instantaneously with charges to a credit card, but if your personal information is compromised, the effects can stretch out over a long period of time. When credit cards get into the wrong hands, take immediate action!

1. Make a note of what was stolen and make telephone calls to all of the relevant credit card companies ASAP and report the theft. They will institute a credit freeze on your accounts.

2. Follow the phone reports with a letter or personal statement explaining the situation. This may include a copy of the identity theft report or other documentation.

3. Follow the directions from each of your creditors. Make sure you send any written reports to the correct addresses of the departments that handle fraud and not the payment processing centers.

4. Request new cards and find out how long it will take to receive them as you will want to make sure that only you get them.

5. Change any and all passwords for all financial accounts and make sure passwords are random and not something that could be easily figured out from previous password patterns.

6. Check your credit report for any problems immediately and place a security alert on your account information.

7. You can also request that your bank report your information to ChexSystems, a check verification service. An alert can be put in place at this service, in case a thief has set up a false bank account in your name.

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Since the financial crisis began a couple of years ago and banks found themselves on the hot seat with regulators and their customers, many consumers have gone through the process of switching banks over the past several months. Bank customers are looking for banks that simplify the banking process and make it easy and comfortable for their customers. People want banks that make it easier to save, to view accounts and carry out transactions online, and to understand the fee structure which is a major source of confusion at some banks.

When switching banks, there is a right way to do it and a wrong way to do it. If you’re making a switch because of a bad experience, you’re likely to rush through the process and create hassles and headaches that are avoidable with careful planning. A recent survey showed that 11% of bank customers move their accounts to different banks every year. The number would likely be much higher if the process wasn’t so difficult and cumbersome. Taking the time to do it right is worth the extra few weeks that the process can take.

Open Your New Account: The first step is to open an account at your new bank so that you have a place with an account number to transfer everything into. Talk to a banker and tell them what you’re trying to accomplish so that they can provide with information and resources that might be helpful during your transition. It’s ok to put some money in the new account right away, but leave plenty in your old account to cover anything that might get processed there over the next few weeks. Order checks, a debit card, and anything else you might need to start moving your transactions to the new bank.

Move Your Direct Deposits: Look at your past few months’ worth of bank statements and highlight all the deposits that were made. Any deposits that occurred electronically or automatically will need to be moved to your new bank. To move deposits from your employer, contact your HR department and fill out the necessary paperwork. Contact each other depositor to your account and have them begin making deposits to your new account as soon as possible.

Move your Automatic Payments: Setting up automatic bill payments is a great way to avoid late or missed payments but it can be a hassle to make changes to where these payments come from. Make a list of each payment that leaves your account automatically every month and talk to the receiving parties to switch the account that the payments originate from. Some recipients have an online tool that makes it easy to switch while others will ask for a request from you in writing. Allow at least 2 weeks for the switches to be enacted.

Close Your Old Account: It’s a good idea to leave you old account open for up to three months after you think everything has moved just in case something occurs in the account that you weren’t expecting. Checks sometimes come in several weeks after they were written, unexpected deposits are sometimes made, and it’s a good idea to keep the account open in case of anything unexpected. After you’re sure that everything has cleared the account it will be ready to be closed.

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You’re a loving parent who wants nothing but the best for your children. You sacrifice your time and money to make them as happy and successful as possible. So, naturally, you scrape together any spare funds and save it for their college education. Let’s explore the reasons why that’s not a good idea for you or your children and why you should make saving for your retirement your top priority.

Your Children Have Options
Your children will have alternative methods to pay for college. There is a plethora of different scholarships available to help cover at least a portion of college costs. They also have the option to take out a loan. This is a better option than you may realize at first. Rates on student loans are reasonable and there is flexibility regarding paying back the loan. However, nobody will loan you money to travel the world in your golden years. Your only choice is to delay your retirement.

They Will Thank You Later
You’ll have to let your children know ahead of time that they will be responsible for paying for their own education. It won’t be easy for you and the reaction will probably be ugly. They may complain and even say you don’t love them. Luckily, if you have teenagers, this is nothing new. Although, they may not take the news very well at first, they will appreciate it down the road.

It’s your job to explain how this will be beneficial for them. They may have to work a little harder now, but it’s better than the alternative. If you devote your finances to their education, you may not have enough to support yourself later in life. Just describe the scenario where you have to move back in with them and rely on them to help pay for your exorbitant medical expenses. I’m sure you can paint an unpleasant picture for them that will convince them paying for their education isn’t so bad after all.

Help Out Where You Can
Now that you’ve set expectations sufficiently low, see if there’s a way you can help them out to some degree. If you feel confident that you’ve adequately saved for your retirement, perhaps you could help cover some of their education costs. Although, perhaps you should hold onto that extra cash for when they move back in with you after they graduate.

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As social networking increasingly becomes our way of connecting with others, it is only natural that this online world of relationships crosses over to the world of finance and personal loans. On sites like Facebook people have thousands of friends from around the globe, and have virtual memberships in organizations and businesses that promote a common cause. We can feel closer to a face on a social networking site than we do to members of our own family or even next door neighbors. Is it any wonder that there are progressively more people also turning to online worlds to both borrow and lend money?

Person-to person lending (P2P) is taking file sharing to a whole new level on the internet. As credit restrictions tighten, unemployment rises, individuals are finding themselves in need of personal loans and unable to obtain them through traditional and conventional avenues. That’s where social lending sites come in. Borrowers can set up profiles listing both their monetary needs and their credit worthiness. Investors or lenders in turn can “shop” for borrowers and assume whatever risk and return they choose. For some investors this type of lending is more appealing than an uncertain stock market or dismal low-interest savings accounts. For borrowers this can be a better alternative than family members or payday lenders. Social lending sites can provide an avenue for potential borrowers to tell the story behind the need for a personal loan, and some believe that this creates a more humane lending environment. Sometimes we are more than our credit scores, and P2P lending, lets borrowers explain their situation to those who choose to listen.

Many internet lending sites provide a forum for borrowers and lenders to create promissory notes, track payments, and provide feedback on each other that will help (or hinder) them in future financial transactions with other members. A sort of EBay for personal loans, social lending is a creative alternative and option to a slow and tight credit market in the mainstream economy. The average rate of return on social lending sites is approximately 9% and many lenders like this number for short term personal loans. There is risk of course, and not every social lending site is the same. Like with any financial transaction, do your research and ask questions regarding any personal loan commitment. Social lending is lending with a personal touch, but it is still a business and should be undertaken with caution by both the lender and the borrower.

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