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Protect Yourself From Abusive Lending Practices

October 28th, 2010

The Consumer Financial Protection Agency (CFPA) has its guns trained on the big banks and financial institutions. However there has to be some oversight on the smaller banks and thrifts.

Abusive lending practices are not the exclusive territory of the big banks and lenders. There are several area of concern.

Overdraft fees

Overdraft fees are no longer automatic. You have to opt-in and this involves signing a document. Read the terms and conditions carefully. Remember an overdraft fee could be $35 or higher.

Bank payday lending

Payday loans are made by storefront operators and small businesses in strip malls. They could be cash checking shops or pawn shops. It is illegal to operate a payday loan business in New York. However you are still bombarded with the advertising. The companies work through toll free numbers and the internet from their base in an unregulated state, such as Delaware. The loans are then delivered via electronic funds transfers. The survival of a payday loan operation depends on partnering with a bank. The bank can provide working capital to help grow the business quicker. This is a classic case of “rent-a-bank”. The payday loan operator has a working relationship with a bank  in the hope of using the bank’s status and authority to step around state laws. In return, the bank makes outrageous profits while keeping its hands squeaky clean.

Subprime Fee Harvester Credit Cards

For many consumers who have never had a credit card, or for those that lost the right to own a credit card, the advertisements could be enticing. They jump at the idea and sign up for a card without understanding the full implications. For example, they might be given a card with a $500 limit. However, when you factor in the annual fee of $69, and the account set up fee of $99, you are left with $332 available to use. This is not a good deal.

Third party direct deposit Arrangements with check cashers and loan companies

Many federal benefits such as Social Security, SSI, VA pensions are deposited directly into a bank account. However many of the recipients do not have a bank account. Recipients are charged steep fees to set up these direct deposit accounts. In addition, exorbitant interest rates are charged for loans based on future receipt of the money. For example, if the check from the VA will be deposited into the account on the first of the month, and the customer needs money a week prior, the bank will write a small loan. The interest will generally be much higher than for a regular loan, such as a car loan.

As a consumer you have to be vigilant. Question any transaction you did not authorize. And finally, do not sign the documents if you have a gut feeling something is wrong. Remember, your gut is always right, even when you are wrong.

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Related articles

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Entry Filed under: Financial Reform