Like the ancient Acropolis, Greece's current economy is in ruin. (Photo Credit: CC BY/*clarity*/Fotopedia)

Greece is quickly sliding toward third-world status as austerity measures drive citizens to riot. The International Monetary Fund is concerned that if Greece defaults on its multi-billion dollar debt, the cost to the Eurozone will be tremendous, sending other teetering nations over the edge, reports the Washington Post.

Europe fears Grecian formula

Flagging support for the euro and rampant unemployment has made recovery difficult for numerous Eurozone countries. Continuing to funnel billions of dollars into Greece would be a crushing financial blow to Europe, argued the IMF. In spite of austerity plans in place across the Eurozone, which include unpopular measures like cutting funding for public programs and public employees, signs of recovery have remained elusive. Similar sluggish returns in the U.S. and Japan have damaged the global economy. For Greece to receive any more aid money, the IMF is requiring that the nation follow severe cutback plans to the letter.

“We have entered into a new phase of the crisis that I would term the political phase, where hard political decisions need to be made because the window for substantial policy action is closing. Time is of the essence,” said IMF financial counselor Jose Vinals.

Papandreou hanging on by his fingernails

Amid the chaos of Greece’s slide – it has the lowest credit rating of any developed nation on Earth, according to Standard & Poor’s – Prime Minister George Papandreou attempted to assemble a new cabinet in order to maintain political control. He has announced that he will replace finance minister George Papaconstantinou, who was the face of the government’s austerity plan, with defense minister Evangelos Venizelors. Numerous sources compare such moves to shuffling the deck chairs on the Titanic.

The Wall Street Journal noted that not all the news surrounding Greece and the economy is bad news. German Chancellor Angela Merkel and French President Nicolas Sarkozy have announced their nations have reached agreement regarding a Greek bailout package that has been called the “Vienna Initiative.”

Greek riots intensify as credit collapses

Tens of thousands of protesters blocked Athens’ Syntagma Square Wednesday in effort to pressure Greek Parliament into rejecting the latest austerity measure proposal. If the plan passes, it is believed that it will only provide a short-term fix, as Greece is currently not selling long-term bonds and is depending solely upon emergency installment loans. With Greece’s CCC national credit rating, the interest rates demanded by investors are tremendous.

“There is very little way that Greece can pay back the debt,” said Jonathan Tepper of London economic research group Variant Perception.

Is the US like Greece?

Financial doomsday cultists like to say that the U.S. should watch its p’s and q’s, lest it fall into the same social welfare/entitlement trap that has nearly consumed Greece. The U.S. has a much larger, more diverse economy than Greece, which means that the fall would take much longer. Yet a weak U.S. dollar could hasten the process, resulting in a credit downgrade.

Greece’s credit rating is world’s lowest

Sources

CNN Money

Wall Street Journal

Washington Post

As states try to get rid of payday loans, other types of loans pop up in their place. Photo Credit: AR McLin/Flickr.com/CC-BY

Virginians frequenting pawn shops and title lenders more

Many states have passed laws intended to closely regulate, if not outright eliminate, payday loan lending. However, such laws don’t eliminate the need or demand for a short term credit product. The state of Virginia passed laws several years ago capping the interest rate on payday loans, which has reduced use of that particular product but not demand for financial help. Up to 10 percent of all Virginia households were estimated to have used some sort of alternative financial service, according to BusinessWeek, in a recent study done by the University of Virginia. Four percent of Virginians reported using payday loans at some point and 3 percent frequent pawn shops. Between 2004 and 2008, 70,000 Virginian households used refund anticipation loans and between 2005 and 2009, almost 150,000 Virginians used car title loans.

New class of lenders

Some of the most frequent laws passed against payday lending mandate loan repayment be done over a period of more than two weeks. The state of Colorado passed a law a year ago making the repayment period six months instead of a couple of weeks, according to the Greeley Gazette. As a result, former payday loan lenders are offering six month installment loans. When Arizona let the law allowing payday lenders to lapse in 2010, many thought that payday lending would disappear. Instead, according to the Arizona Republic, many stores simply started offering car title loans instead. In February of this year, a bill was introduced to the Arizona legislature that would authorize installment loans at higher-than-normal interest, as many consumers still need a source of short term credit. North Carolina, according to BusinessWeek, just approved a bill authorizing installment loan lenders to charge more than 36 percent interest on loans up to $1,500.

Supply and demand still rule

Though there are many products that a lot of people find less than palatable, such as payday loans, there is obviously still a demand for these products. A lot of people who don’t have access to bank credit find themselves short in between paydays or have an emergency come up that they didn’t plan for. Then they have to seek out alternative financial service providers in order to get the credit they need. Because many of these lenders don’t benefit from the kind of protections banks enjoy, they have to charge higher interest rates in order to stay open. It is undeniable that there is a demand for these types of short term credit.

Sources

BusinessWeek on VA

Greeley Gazette

Arizona Republic on payday loans leaving

Arizona Republic on new loan bill

BusinessWeek on North Carolina

The number of people using their retirement accounts as a source of spare cash is increasing. Photo Credit: godfreja/Flickr.com/CC-BY

The number of people taking loans from their 401(k) accounts is reaching record highs. More people are resorting to taking money from their retirement accounts, which many advisers would say is not a sound financial move. Some members of Congress are trying to limit the number of times a person can borrow from their retirement funds.

Retirement accounts being raided

AON Hewitt, the human resources company of the AON Corporation, noted in 2010 that one in seven, or about 14 percent, of people who had a 401(k) managed by AON Hewitt had borrowed from their retirement account, according to SmartMoney. That was a 14 percent increase from 2009. During 2010, investment houses T. Rowe Price and Vanguard both noticed an 11 and 14 percent increase in 401(k) loans, respectively. It is thought that up to 28 percent of all people holding a 401(k) account have taken a personal loan from their own retirement account at some point. It is estimated that up to 30 million people may borrow from their retirement accounts by 2014, according to CBS.

Congress seeking to cap borrowing

In May of this year, Congress announced that it would be introducing a bill that would limit the number of times that a person could borrow from their 401(k). Senator Herbert Kohl, a Democrat from Wisconsin and namesake of the Kohl’s department store chain and the chairman of the Senate Special Committee on Aging, sponsored a bill called the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act. It was co-sponsored, according to Business Week, by Mike Enzi, a Wyoming Republican. The bill would limit the number of loans a person could borrow to three per person over their lifetime. Currently, there is no limit, and a person can take a loan against a 401(k) as many times as they want to, or are permitted to by their employer or plan administrator. The bill, according to Govtrack, was referred to the Senate Finance Committee in mid-May and hasn’t gone anywhere since.

Advantages to borrowing

Taking an installment loan from one’s 401(k) has some advantages and disadvantages. First, any interest or appreciation that the funds would have made while the loan is being repaid is lost. However, the interest rate on the loan itself may make up for any lost interest. If an account is only gaining 3 percent but the interest rate on a 401(k) loan is 6 percent, the borrower technically has doubled their gains for the amount of money that was borrowed. If the loan, according to SmartMoney, is used to pay off high interest debt, that is also a net benefit; essentially, a high interest debt has been replaced with a low one. Also, the thing about borrowing from a retirement account is that one pays ones’ self back, not a bank. That said, if one loses their ability to repay, or defaults on the loan, then retirement funds have been lost. Furthermore, the Internal Revenue Service imposes a 10 percent tax on early 401(k) withdrawals.

Sources

SmartMoney

CBS

Business Week

GovTrack

Internal Revenue Service

Peer to peer lending sites, a rapidly growing industry, let consumers bypass banks and get personal loans through their computer at home. Image from Wikimedia Commons.

Peer-to-peer lending sites are starting to come into their own. Peer-to-peer lending, a form of crowdsourcing where qualified loan borrowers can solicit personal loans from investors, has been growing as flagship sites like LendingClub and Prosper have been rapidly expanding.

Peer-to-peer lender Prosper makes big haul from investors

Prosper.com, one of the largest peer-to-peer lending operations, recently announced a fairly large round of venture capital raising, according to the Washington Post. The growing site managed to raise $17.2 million in funding from new investors Crosslink Capital and Draper Fisher Jurvetson. Previous investors also threw some money in, including TomorrowVentures. TomorrowVentures is the venture capital firm founded by Eric Schmidt, the current Google CEO. The company has been growing by leaps and bounds in the past few years, having amassed a loan portfolio of more than $236 million. That includes $5 million in April alone, according to the Wall Street Journal.

Prosperous business model

The peer-to-peer lending model is a fairly recent innovation. Borrowers who qualify for loans through the site announce they need a loan, give the reason and request an amount. Investors then pledge various amounts of capital that can range from less than $50 to a few thousand. Prosper began just more than five years ago and has done hundreds of millions in loan business. LendingClub.com, another high-profile peer-to-peer (p2p) lending site, has similarly been growing steadily. LendingClub grew by 24 percent in 2010 and lent $17.5 million in loans in April of this year alone. LendingClub has captured nearly 80 percent of the market since launching in 2007, according to ABC, growing at the rate of 10 percent per month. At the beginning of 2011, the site had done $204 million in loan business.

Not subprime loans

Not everyone is eligible to borrow installment loans through these sites. Loan applicants are subject to a credit check upon applying for a membership, and neither Prosper nor LendingClub will lend to a borrower with a bad credit score. Lenders can also ask prospective borrowers about incidents in their credit history, so anyone looking to pull a fast one is not going to get far. LendingClub won’t accept customers with a credit score lower than 660. Prosper states credit is a factor for prospective borrowers and that Prosper is good for borrowers “if you have good credit.” Neither of these sites benefits from Federal Deposit Insurance Corporation backing, and lenders have to be discerning.

Sources

Washington Post

ABC

Wall Street Journal

Prosper

Lending Club

More people question whether the cost of college is worth it, and there are compelling arguments on both sides. Image from Wikimedia Commons.

The past few months have featured a lot of coverage about the booming levels of student loans. Unlike other installment loans, there’s no way to discharge the debt, and many students are left holding the bag with fewer opportunities for decent employment. Many are questioning whether college is worth it.

College not worth it, says wide swaths of media

One may notice that similar columns appear on various news and opinion sites bearing a headline implying “College is not worth it” and some that assert the opposite. Billionaire Peter Thiel controversially offered anyone willing to drop out of or forgo college a personal loan from him of $100,000 to start a business. One of the people who took Thiel’s offer wrote a column for CNN stating college wasn’t worth it because it stifled entrepreneurial innovation. The author of a recent column on the Reuters website, John Wasik, contends that because tuition has risen 467 percent since 1986 whileinflation rose 106 percent, the cost of college may not be worth it because real wages are not keeping pace with inflation.

College pays off, but for whom?

College, though, does pay off for some people. In fact, the student loans pay particularly well for some people. The government, according to the Wall Street Journal, makes more money on student loans that are defaulted on than on loans that are paid religiously. Current estimates are that 85 percent of all defaulted students loans will end up being collected. Not only that, but the government expects to collect up to $1.22 on every dollar of student loans that are outstanding and in default. Credit card companies, by comparison, usually make about 10 percent of all defaulted debts back. The reason is that defaulting on student loans is different from other kinds of loans. The typical personal loan from a bank can be discharged in bankruptcy, and a house or car can be repossessed.

Average experience says college worth it

Going by the numbers, there appears to be a real incentive to attending a four-year institution and emerging with a bachelor’s degree. According to the Bureau of Labor Statistics, the college educated have an unemployment rate of 4.5 percent as of May of 2011. Those with only a high school diploma have an unemployment rate of 9.5 percent. According to the U.S. Census, men with a high school diploma or equivalency in 2009 earned on average $36,332 and women earned $22,868. Men with a bachelor’s degree earned, on average, $70,568 and women with a bachelor’s earned $42,128 on average, per year.

Sources

CNN

Reuters

Wall Street Journal

Bureau of Labor Statistics on Unemployment

Census page on income (requires Microsoft Excel to download tables)

If your credit card statement is this frightening, take advantage of the provisions of the Credit Card Act. (Photo Credit: CC BY/Jason Rogers/Flickr)

In 2009, President Obama signed the Credit Card Act into law. One of the provisions of the law is that credit card companies, in conjunction with the National Foundation for Credit Counseling, must provide resources for consumers who have difficulty with their finances. While they’ve held up their end of the bargain, recent NFCC studies have found that consumers simply aren’t taking advantage, reports Bankrate.

Free credit counseling, fallen by the wayside

Only 150,000 U.S. consumers struggling with credit card debt have accessed the nonprofit help to which banks and the NFCC have access, said NFCC spokeswoman Gail Cunningham. The contact number is toll-free and printed on credit card statements. As credit card debit still weighs heavily on the average, recession-weary American, the lack of initiative is troubling.

“I certainly think one of the reasons for the low response rate from consumers could be attributed to a lack of prominence,” said Cunningham. “Perhaps the number is buried somewhere.”

Within the recesses of public prejudice might be where that number is buried. Experts believe that many consumers who see the toll-free Credit Card Act number on their credit card statement may think it’s yet another “service” from the big, bad credit card company to take their money. However, Cunningham has observed that the number has been absent from some statements, which would be a violation of law.

Credit card debt shrunk in 2010

A study by Credit Karma indicates that from January to December, U.S. consumer credit card debt decreased by 8 percent nationally, to an average of $7,404 per person. Eight states, including California, Colorado, Connecticut, Indiana, Oklahoma, Tennessee and Nevada, showed as much as an 11 percent improvement.Wisconsin made the biggest dent in credit card debt, slashing and burning through the credit jungle for a 31-percent improvement over 2009.

On the other side of the scale, states like Delaware, Iowa, Louisiana, Missouri, Nebraska and New Mexico grew their credit card debt by as much as 6 percent. Mississippi was the biggest loser in the Credit Karma Survey, with 8 percent growth.

Looking for credit card help?

Visit the National Foundation for Credit Counseling website at nfcc.org for the information on non-profits near you that can help. The Federal Reserve’s website also has a free calculator with which you can calculate how much you’ll owe if you only make the minimum monthly payment on your credit card. For your mobile, there’s a useful Android Market app called Personal Financial Calculator. Or, if you are looking to compare overdraft APRs of installment loans and other consumer loan products, check out our “Loan Overdraft Calculator,” linked below.

Sources

Android Market: Personal Financial Calculator

Bankrate.com

Federal Reserve

Loan overdraft calculator

National Foundation for Credit Counseling

Obama signed the Credit Card Act. Are you using its programs?

Applying for a loan will cause a credit score to take a hit. Photo: TrinityCreditServices/Flickr/CC-BY

The point of a credit score is so companies can project whether a person is a risk to extend to credit to. However, a person’s credit score takes a hit every installment loan or mortgage lenders ask to see it, meaning a person looks like more of a credit risk for trying to use credit.

Lose credit to use credit

Anyone who applies to get a loan of any kind, whether it’s a simple installment loan for personal use or a larger loan like a mortgage, is subject to a credit check. A lender gets applicants’ credit scores from one of a number of agencies. Unfortunately, the manner in which the score is requested can hurt a person’s credit rating. It’s called a “hard pull,” according to AOL News. When a lender requests a credit score from a credit rating agency with the intention of possibly lending to the applicant, a couple of points are taken off the top of the credit score.

Two-week window

One of the main incentives of maintaining a good credit score is to be able to get the best possible interest rates. Ironically, a good credit score can be negatively affected when a person applies for a loan that they worked hard to be able to get the best rate on. However, there is way to loan shop and avoid a precipitous drop. Shop for loans within a 14-day period. If all “hard pulls” are done within two weeks, all inquiries count as one. After that, don’t apply for any more loans until your credit score climbs back up.

Rating agencies not in the business of making it easy

Though credit rating agencies Experian, EquiFax and TransUnion are in the business of providing information to other businesses — not to consumers — they have come under fire for keeping so-called VIP lists, according to the New York Times. The three main credit rating bureaus have been accused of treating information for the wealthy and high-profile people in a more preferential manner and the Federal Trade Commission is currently investigating the allegations. The credit bureaus, according to Fox, deny that any such considerations are made.

Sources

AOL News

New York Times

Fox

The United States Senate doesn't want people using their 401(k) accounts as a piggy banks. Image from Wikimedia Commons.

The United States Senate is currently considering a bill that would prevent people from using their 401(k) funds as a source for personal loans. The new legislation that is being put forth would potentially put a limit on how many times a person can draw from retirement accounts before retirement.

Retirement accounts are not piggy banks

A bill is going before the Senate that would put a permanent cap on the number of times a person can legally draw on 401(k) or other IRA funds before retirement, according to BusinessWeek. Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) are proposing the bill to limit withdrawals from 401(k) and other retirement funds in order to keep people from draining retirement accounts and jeopardizing their futures because of a temporary shortfall. Senator Kohl was quoted as saying that a retirement account is not intended for use as “a piggy bank.” The bill is called the “SEAL 401(k) Savings Act.”

Nearly a third of account holders borrow

By the end of 2010, almost 28 percent of all people who had some sort of 401(k) or similar account had an outstanding loan they took from the account, according to a study by Aon Corp, and the average balance was $7,860. Aon Corp also found that of the people who took out installment loans from their retirement funds, 58 percent had at least two outstanding loans. Aon also found that close to 70 percent of people who borrow from retirement accounts default. Fidelity Investments, according to USA Today, found that about 22.5 percent of 401(k) account holders with Fidelity had a loan balance outstanding at the end of 2010. This indicates that between one-fifth and one-third of people who have a 401(k) or other type of retirement account end up having to use it as a source of emergency funds.

Retirement becoming more daunting

The prospect of being able to retire one day, and to do so with confidence, is becoming more daunting for many people. Social Security, Medicare and Medicaid are typically pillars of security for retirees because portions of their paychecks have been going toward these programs for decades. However, it is becoming apparent that these entitlement programs may not be the guarantee they once were. Social Security is on track to becoming insolvent, and the Social Security Administration would need to raise $6.5 trillion to become totally solvent again, according to CNN. The Social Security Trust Fund is set to be depleted sometime within the next 25 years according to many estimates, and current Social Security payroll taxes won’t cover all outlays.

Sources

BusinessWeek

USA Today

CNN

North Carolina's Capitol building. (Photo Credit: CC BY-ND/Ivy Dawned/Flickr)

The North Carolina General Assembly has introduced a bill that would enable installment loan companies in the state to adjust loan fees to compensate for losses to the recession. The Jacksonville Daily News reports that N.C. H810 would amend the North Carolina Consumer Finance Act to allow lenders to increase the processing fee on installment loans of $2,000 or less by as much as $100. Lawmakers are also seeking to add a handling charge of $3 per month for every $100 borrowed.

Increased loan fees have Marines on alert

Marine Corps Installations East director of Legal Assistance Michael Archer took aim at the proposed changes to North Carolina installment loans, claiming that higher loan fees would “encourage usurious lending” and lead borrowers straight into a squalid debtors’ prison, straight out of Charles Dickens. In the process, he also denounced payday lending, which is already illegal in the state and not currently slated to return.

“We have a lot of businesses, particularly lenders, that target military installations, large places like Camp Lejeune and Fort Bragg,” said Archer. “We have a very unsophisticated population as well. They have crosshairs on their backs and they are vulnerable.”

Archer expressed these concerns – however unfounded – in spite of the fact that installations like Camp Lejeune already have tight regulations regarding the proximity of installment loan and military loan companies to the military base. Wherever need exists, however, consumers find a way.

“It’s very difficult, both procedurally and practically, to put a place off limits,” Archer told the Daily News.

Battle turns to education

Camp Lejeune financial counselor Lewis Summerville is prepared to launch a series of educational workshops for Marines and their families should H810 be signed into law. Added education would enable military consumers to make informed decisions regarding the use of installment loans.

Such would be the case if educators like Summerville even considered adopting an even-handed approach to the military lending issue. However, as the Jackson Daily News suggests, the actual education Marine families in North Carolina will receive is the unstudied, “just say no” approach.

“We can only educate and make sure they make the right choice in not taking that loan,” said Summerville.

Do your research

Independent studies have shown that installment loans contribute to financial well-being, rather than causing poverty. If Michael Archer and Lewis Summerville had taken the time to read existing research, perhaps they’d have valuable information to add to the installment and military loan dialogue.

Sources

Jacksonville Daily News

eLobbyist: N.C. H810

North Carolina Consumer Finance Act

North Carolina professionals support installment loans

Someone interested in a personal loan or small business loan can apply for one in minutes by using crowsourcing sites. Image from Wikimedia Commons.

Small businesses are able to get funding through crowdsourcing like any private individual looking to do the same. Crowdsourcing is raising funds by getting a large number of people to contribute small amounts of funds bundled into one personal loan. It’s also called peer to peer lending.

Crowdsourcing model bypasses typical middleman

Over the past few years, there has been a lot of attention paid to crowdsourcing. The idea is to use a social media-like model to raise loan capital or donations for causes. People or organizations simply put their ideas and how much they need to raise on a crowdsourcing site, and other individuals or organizations can pledge funds toward the goal. Some crowdsourcing sites don’t actually collect the funds unless the target is reached, like Kickstarter. Kickstarter was the site a Detroit man used to crowdsource, or crowdfund, the necessary capital to bring Detroit a life-size Robocop statue. (The film took place there.) The idea is simple; try to raise money from one’s peers on the internet by going around the cumbersome traditional middlemen: banks.

Entrepreneurs turn to crowdsourcing

Crowdsourcing is a way for business owners or individuals to get access to loan capital, whether it’s to fund a startup small business or if a person simply needs some personal loans. People launching a startup company can turn to crowdsourcing sites or peer to peer lending sites like Prosper and Lending Club. The model is similar; applicants state the reason for the loan and how much they need, and investors pledge funds if they are interested. The site usually gets a small percentage of the funds raised as a fee for facilitating the service, according to USA Today, and borrowers can accept or decline terms on any installment loans that are offered them. Small businesses just getting off the ground can look into microfinance sites like Kiva that allow investors to put small dollar amounts into a loan for a small business, starting at the amount of $25.

Borrowers should do their homework

If a businesses or people are interested in crowdsourcing a project, they should know exactly what they are looking for in order to apply through the most appropriate service. For instance, Kiva Microfinance is a good place for small startups looking for microloans. Lending Club is fairly discerning, as the site will reject anyone with an insufficient credit rating, and it rejects far more people than it accepts. These are great opportunities for investors, as Kiva boasts nearly a 99 percent repayment rate and Lending Club has similarly high rates of return, according to MSNBC. Lending Club usually has a rate of return between 9 percent and 10 percent of the total investment, according to Slate.

Sources

USA Today

MSNBC on the Robocop Statue and other crowdsourcing sites

Slate

See more at Kiva and Lending Club

Here are some tips to help you remain open for business. (Photo Credit: CC BY-ND/West Virginia Northern)

Getting a small business going and keeping it operational requires a great deal of planning and effort. With some key strategies in place, these processes can be made easier. Here are some small business tips that can be your keys to success.

Save money before you start

Loans from friends, banks or the Small Business Association are one thing, but doing it yourself is satisfying. As it can take months before your new small business begins to turn a profit, a lineup of unhappy creditors can perhaps be avoided and your small business credit can be maintained. Home equity loans and credit cards are a painful way to repay business installment loans, so try to do it yourself. Once things start going your way, bank the profits back into your business.

Begin with a small seed

Don’t rent too large a space or hire too many people before it’s necessary. It will cut into whatever profits you do manage to procure.

Cover your assets

As your own boss, you are liable for all debts and judgments incurred by the business. It pays to protect yourself by buying liability insurance and forming a corporation or limited liability company (LLC) so that your personal assets aren’t in play if things go bad. Also, make sure to pay your bills and taxes on time.

Have a clear business plan

Your business plan should clearly define in just a few sentences how the business will generate profit. Know your costs, from buying inventory to paying rent, salaries and more. Then you’ll know how much business you’ll have to do each month to cover – although you’ll no doubt want to do better.

Remain competitive

Due diligence research keeps you up to speed with the competition and opens doors for innovation in your field. Also, protect your trade secrets – customer lists, survey methods, marketing strategies, et al – under the law through non-disclosure/non-compete agreements, computer encryption technology and confidentiality policies. When bad things happen, come up with a plan immediately, rather than allowing trouble to fester.

Put all contracts and transactions in writing

While not all transactions are legally required to be documented in writing – such as lease and storage agreements and offers of employment – it’s a good habit to get into. Regarding contracts, those that last longer than a year, involve sales worth $500 or more or transfer ownership of copyrights or real estate must be documented, writes Yahoo! Small Business.

Hire good, legal people

Take the time to hire the best, most enthusiastic employees, and treat them fairly. You’ll get value for your money, and they’ll believe that your business is worthy of respect. Customers will notice the difference and tell a friend. Plus, remain abreast of all IRS requirements for small business, including legal requirements for having at-will employees.

Sources

Business Know-How

Yahoo! Small Business

Small business bookkeeping tips

Social Security benefits are becoming more difficult to garnish under new government regulations. Image from Wikimedia Commons.

A newly enacted law makes it more difficult for debtors to garnish Social Security benefits. Banks cannot garnish any benefit payments like Social Security or disability unless there are two months of benefit payments, which is not incredibly likely to happen. However, the new rule only applies to banks.

Government benefits under new protections

The Department of the Treasury and other government agencies have changed a key rule concerning debt collection and recipients of federal benefits including Social Security, disability or other federal benefit payments, according to CNN. Banks are prevent from garnishing or taking money out of the accounts of people who are recipients of government benefit payments, unless the account has at least two months of benefits sitting in it. However, since many people who depend on government benefits do not always have that much in savings, that means that withdrawing funds for overdraft or other account fees may become a bit more tricky. Bank fees, including checking account fees and overdraft fees, have not been decreasing with the recession in the slightest, according to WalletPop, and Americans are expected to pay at least $38 billion in fees for 2011.

Slight change for creditors

Creditors, on the other hand, can still garnish government benefits. However, the rule for creditors changed slightly. Any creditor has to obtain a court judgement which allows them to garnish income before they can start extracting payments for past due balances. Whomever someone owes for credit cards, same day loans or installment loans, the creditor has to get the go-ahead from a court to do it. Before the funds can be accessed, though, a creditor has to determine which funds technically came from government benefits, whereas they previously did not have to. Government, on the other hand, can garnish anyone’s benefit payments if that person owes the government money.

Social Security checks phasing out

Soon, Social Security checks will be an anachronism, as the Social Security Administration is phasing out paper checks in favor of direct deposit, according to USA Today. For those recipients that don’t have bank accounts, the SSA will furnish them with a prepaid debit card in a partnership with Comerica bank. Currently, about 85 percent of Social Security recipients already receive their benefits through direct deposit. Each direct deposit transaction costs the federal government about 10 cents to complete. Each paper check written out and mailed costs about $1. The government issues about 120 million checks every year, and switching to a paperless system will save taxpayers over $100 million per year.

Sources

CNN

WalletPop

USA Today

Couples who decide to forgo the wedding rings face some different financial challenges. Image from Wikimedia Commons.

Unmarried couples are becoming more common, as fewer heterosexual couples elect to become married and same sex couples aren’t allowed in many areas. Moral arguments aside, a relationship that avoids convention also has some different financial risk built into it. There are also some benefits to it as well.

Omitted or denial of vows leads to different challenges

Couples that elect not to get married or couples that are not legally permitted to get married face some different challenges when it comes to the matter of personal finance, and there are more of them every year. The Census Bureau, according to Business Week, recorded 7.5 million heterosexual couples and 620,000 same sex couples cohabitating in 2010, an increase of 14 percent since 2009. The American Academy of Matrimonial Lawyers observed a 48 percent increase in the number of lawsuits when unmarried couples break up, given the legal ambiguity of untangling the family finances. Legal marriage, on the other hand, makes the issue far less cloudy as those rights are easier to determine legally.

Liability and access

The two issues for unmarried couples are those of liability and access. For instance, if a person cohabiting with a partner defaults on some bad credit loans, the person who took out the loans is the one responsible unless the other person was a cosigner. On the other hand, when it comes to assets like cars or houses, the owner is the one with the name on the title regardless of who was making payments. Medical decisions also go to the next of kin rather than a person’s partner. In essence, the law is firmly set on the side of the married and unmarried couples have fewer legal rights. However, there are precautions that can be taken.

Cohabitation agreements

Marriage is, at the heart of the institution, a contract above all other things. An unmarried couple can form just such a contract, called a cohabitation agreement. Cohabitation agreements can establish the allocation of assets in case the relationship disintegrates, and about 39 percent of the American Academy of Matrimonial Lawyers noticed more cohabitation agreements in 2010, so people are catching on, according to USA Today. An agreement should be vetted by an attorney to make sure it will hold up in court so one party isn’t left holding the bag for the other’s installment loans that they haven’t made payments on. It also helps to have a paper trail of the relationship, according to CNBC, such as joint financial statements and so forth in case proof of the relationship needs to be furnished. If a person wants to grant their partner rights of medical access, they can be designated their health care proxy in case of emergencies.

Sources

USA Today

CNBC

Business Week

This July, families considering military loans will be able to seek advice from the Office of Servicemember Affairs. (Photo Credit: CC BY-ND/Robert Niehaus/RDN)

Young military families face numerous financial challenges, as deployments and household relocation wreak havoc. That’s why Elizabeth Warren and the soon-to-be-active Consumer Financial Protection Bureau appointed Holly Petraeus, wife of U.S. Army Gen. David Petraeus, to chair the Office of Servicemember Affairs. NPR reports that with Holly Petraeus looking out for military families as a consumer advocate, the world will be safe for military loans.

Holly Petraeus is ‘Mom, apple pie and a pit bull’

According to Rod Davis, a colleague of Holly Petraeus’ at the Better Business Bureau, the Office of Servicemember Affairs new chairwoman is all-American and a fighter.

“She’s Mom, apple pie and also a pit bull,” he said. “You get her in your corner and watch her go.”

Fight is exactly what Petraeus, 58, did as the head of the Better Business Bureau’s Military Line program, which provides free financial literacy and consumer protection information to U.S. military communities. In the top position at the Office for Servicemember Affairs, Holly Petraeus plans to help educate military families on when such things as payday loans and installment loans – referred to military loans for active military and their immediate families – are a good idea. Also, Petraeus will work with the CFPB to help combat overly expensive variations on military loans that attempt to skirt federal lending laws.

Petraeus has been there before

As a military wife of 35 years, Holly Petraeus and her husband, Gen. David Petraeus, know what it’s like to make impulsive financial decisions. Everyone is young once, but that doesn’t mean one has to make harmful financial decisions in order to learn valuable life lessons. Unlike the civilian population, where problem debt can roll on for some time through collections and the legal system, military members who don’t pay their creditors can be forced to pay by their superiors. That’s why it’s a better not to learn the hard way with military loans, says Petraeus.

The Office of Servicemember Affairs is slated to open for business in July 2011, when the Consumer Financial Protection Bureau opens its doors.

Sources

Better Business Bureau

NPR

Holly Petraeus on military loans

Credit card use continues to decline. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Use of credit cards is beginning to trail off as more people start preferring to use cash. Fewer people are willing to go into debt and less willing to borrow money for purchases by using a credit card. Card use has been declining for some time, and higher interest rates and fees make credit cards less attractive to the cost conscious.

Major credit bureau notes decline in credit card use

Credit bureau TransUnion has noted a decline in the use of general purpose credit cards, according to Daily Finance. The credit rating bureau asserted in a recently released study that nearly 8 million people quit using a general purpose credit card, the kind normally issued by a bank. The number of people who either don’t have or don’t use a credit card now is more than 78 million, according to TransUnion. TransUnion also noted that credit card delinquencies declined by 9.8 percent during the third quarter of 2010. TransUnion credit rating bureau compiles data used in determining a persons’ credit score.

Federal Reserve notes less credit card use

TransUnion also noted that consumers were still using other forms of credit, such as installment loans, despite the drop in credit card use. The Federal Reserve, according to the Wall Street Journal, observed that credit card use was still declining in February of 2011, but non-revolving credit use was increasing. Revolving credit use, or bank-extended lines of credit and credit cards, declined by $2.71 billion during February 2011. Revolving credit use has only risen once since 2008. Non-revolving credit, or non-mortgage consumer loans such as auto loans or personal loans, increased by more than $10 billion during the month of February. The increase was likely driven by auto sales, which have been increasing steadily for the past few months. The Federal Reserve data indicates that TransUnion’s assessment of declining use of credit cards and continued use of other forms of credit is plausible.

Interest rates and fees on the rise

Because of the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), banks have stricter rules about how they can change interest rates. The rates are not capped, according to Fox News, but the card issuing institution is prohibited from raising interest rates without a certain amount of notice. The average interest rate on credit cards is beginning to slowly rise along with the number of memberships fees that banks are charging customers.

Sources

Daily Finance

TransUnion

Wall Street Journal

Fox News

The Anti-Poverty Coalition of Greater Dallas wants payday lending in Texas to end. (Photo Credit: CC BY-ND/Nik Hewitt/Best of Both Worlds)

Jobs fight poverty. Gainful employment grants motivated, enterprising consumers with the means to provide. Yet groups like the Anti-Poverty Coalition of Greater Dallas seem to have missed the memo, suggests the Payday Pundit. The Dallas Observer reports that the Dallas coalition is working hard to shut down personal loan and installment loan companies in Texas, as if eliminating thousands of jobs resembles a blow against poverty.

Blazing a trail out of poverty through scorched earth

Larry James, the CEO of Dallas-based non-profit CitySquare, told local media via press release that the coalition has a burning desire to find pathways out of poverty:

“The Anti-Poverty Coalition of Greater Dallas is a new coalition that seeks to move 250,000 people out of poverty permanently by 2020 by coordinating efforts to keep people from falling into poverty and increasing pathways out of poverty,” writes James.

‘A treadmill of debt’

The attack against the personal loans and installment loans industry amounts to keeping people from falling into poverty – “a treadmill of debt” – said James. Legislation such as Texas HB 410 and SB 253that bars payday lenders from being classified as credit service organizations would challenge existing zoning ordinances. By instituting a “strong zoning ordinance to decrease the clustering of payday and auto title lending stores,” the Anti-Poverty Coalition of Greater Dallas believes the shackles of poverty would lift from the wrists and ankles of the poor citizenry. Allegedly, there would be no more tears for those who were financially razed, not by bad personal spending habits and the exploitation of Wall Street, but by the so-called evils of payday lending. In truth, eliminating payday lenders limits consumer choice and costs Texas jobs, both dire consequences in light of the recession-ravaged economy.

An indirect attack, at best

Instituting zoning ordinances via HB 410 and SB 253 that would require personal loan and installment loan outlets to be at least 1,000 feet apart would only be the beginning, industry experts believe. Direct attacks against payday lenders such as demanding an untenable 36 percent APR cap have proven unpopular when it comes to battling poverty, as it would shut payday lenders down, which means people would lose their jobs.

Attacks through zoning fail to disguise the true intent of such “anti-poverty” coalitions. If groups like the Anti-Poverty Coalition of Greater Dallas took the time to understand the extant independent research that shows the connection between the absence of access to short term loans in a community and higher levels of poverty, perhaps charitable groups could find a more worthwhile target for their efforts.

Sources

Dallas Observer

Payday Pundit

Texas HB 410

Texas SB 253

Texas Secretary of State

Jobs fight poverty

Experian is being sued for fraud; customers say the company doesn't provide relevant information in the credit reports it provides to customers. Photo Credit: Swampyank/Wikimedia Commons/CC-BY-SA

A lawsuit has been brought against credit bureau Experian in California. Experian is one of the three main credit bureaus, along with TransUnion and Equifax, and credit ratings from those bureaus are used in creating a persons’ credit score. The plaintiffs in the suit, which may become class action, are alleging fraud.

Plaintiffs say free credit report sites give false info to consumers

Plaintiffs in the California lawsuit against credit bureau Experian are saying the bureau has defrauded. They say Experian provides misleading information on the websites where the company sells copies of credit reports, according to MSNBC. The suit claims that Experian provides the wrong score, purposefully, through FreeCreditScore.com and FreeCreditReport.com. The sites, which charge a $14.95 per month fee to users so they can monitor their credit report activity, provide the Experian PLUS score. The reason why the plaintiffs are seeking a class action status is because that isn’t the score lenders would look at if a person applied for a personal loan.

Lenders look at FICO scores

When lenders or other parties check a person’s credit score, they aren’t looking at a score that one credit bureau comes up with. Lenders look at the FICO score, or the number from the credit scoring system developed by Fair Isaac and Company. Fair Isaac scores are calculated by looking at certain data about a person and coming up with a numerical rating of that persons’ credit worthiness. Experian, Equifax and TransUnion all produce credit scores with the FICO formula, and those scores are reported to lenders. The lawsuit accuses Experian of fraud because the PLUS score is not reported to anyone and would not be considered if someone applied for a job or installment loan. The suit says Experian misled consumers by advertising worthless information for sale. Experian had to be compelled by threat of a Federal Trade Commission suit to advertise the link to the government site where consumers can request the one free report from each bureau that people are allowed by law.

States trying to get employers to mind their own business

Labor rights advocates have never been enthralled with the idea of employers checking the credit scores of potential new hires. At least half of the United States isn’t either; 49 bills in 25 states are currently before state legislatures to legally bar employers from checking credit scores of a potential new hires. Though credit bureaus that sell the reports to businesses and some businesses contend that it can catch a potential problem employee, civil rights and labor advocates insist that it is prying into an area that no employer has a right to.

Sources

MSNBC

USA Today

Salt Lake City, Utah, is going to be installing payment systems throughout the city that can take payment from customers using their smartphones. Image from Wikimedia Commons.

Salt Lake City, Utah, will soon begin experimenting with a wireless payment system in conjunction with three wireless networks. The system, called Isis, is set to debut in 2012 and will use cellular phones to wire payments from a person’s credit or debit line with a bank.

Cell phone credit card technology takes another step forward

Several months ago, the iPhone was equipped with near field communication (NFC) technology to be used as a wireless payment system. A computer chip is installed in an iPhone that can be picked up by a reader system. The bank account or credit card account connected to the chip’s owner is then charged by merchants. One merely needs to wave their iPhone with the NFC chip, and a deduction is made from the appropriate account. Many believe this will be a great leap forward in financial technology. Because so many phones have internet access, people can already use a smartphone to do banking transfers, balance their checkbook or get online personal loans.

Wireless payment network to debut in Salt Lake

Salt Lake City, Utah, will be equipped with an NFC system, according to NPR. The public transportation system will have NFC readers and fares can be paid by waving a phone by the NFC reader. Three major wireless carriers — AT&T, T-Mobile and Verizon Wireless — are forming a partnership venture with the city using Isis, the NFC system that those carriers are using.  Those carriers still have to come out with NFC equipped phones besides the iPhone. Sprint, according to BusinessWeek, is still developing its own NFC technology.

Tech not widespread enough

Critics have observed that NFC technology is not widespread enough to turn Salt Lake into the “place where you can leave your wallet at home,” as the ad campaign on the Isis company website contends. However, smartphones are beginning to become far cheaper to buy and payment technology is moving toward wireless systems.

Sources

NPR

BusinessWeek

Isis corporate site

It might be getting easier for some to pay the mortgage, but more foreclosures are on the way. Photo Credit: Brendel/Wikimedia Commons.

Fewer people are struggling to pay the mortgage, but the housing market is still in trouble. Recent improvements in the employment outlook bode well for struggling homeowners who have been hoping to get jobs, but the housing market is still in dire straits.

Number of underwater homes thought to be receding

A recent Harris Interactive poll, according to Daily Finance, revealed that, compared to last year, fewer survey subjects believed that their homes were underwater. Approximately 21 percent of the more than 3,000 respondents believed their homes were worth less than what was still owed on the home, compared to 24 percent in the same poll conducted at the same time last year. Additionally, 22 percent of respondents in the Harris poll were struggling to make mortgage payments, compared to 29 percent last year. However, 3 percent fewer people in the poll said they had a mortgage. The unemployment rate recently began to recede, which means fewer people will have to take out installment loans to cover the mortgage.

Distressed homes flooding the market

According to USA Today, analysts have been concerned with the number of distressed properties, which can keep prices down. It was estimated that, as of January, there were 1.8 million distressed houses or homes for which owners have gone 90 days or more without making payments. The price of a distressed home always is at least 20 percent lower, which makes them attractive to bargain hunters and real estate investors. Unfortunately, a large supply keeps home prices lower nationally. To make matters worse, the number of foreclosures is sure to begin rising in coming months as major mortgage lenders who had put a moratorium on foreclosures will resume foreclosing on homeowners, according to Reuters. Many of the nation’s largest mortgage lenders, including Bank of America and Wells Fargo, had to suspend foreclosures as questionable foreclosure practices at those institutions were being investigated by the government.

Cheap homes for those who can take advantage

It has been a buyer’s market for some time in real estate, and it is likely to stay that way. Home prices are anticipated to keep falling for at least the next few months, according to MSNBC. Mortgage rates are still coming off record lows several months ago, and people who can get the financing may never have to run out for same day loans to cover the mortgage payment if a low rate can be locked in. However, lenders have been fairly skittish in an uncertain climate.

Sources

Daily Finance

USA Today

Reuters

MSNBC

An extended payment plan can be the key to avoiding payday loan default. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Despite planning and the best of intentions, sometimes people find themselves unable to repay their payday loans when they come due. That’s why payday lenders that are members of the Community Financial Services Association of America (CFSA) offer an Extended Payment Plan (EPP). These types of installment loans enable consumers to repay their loans over a period of additional weeks regardless of the reason for default and free of additional charges.

EPP provisions vary by state and lender

Depending upon the state in which payday loans originate and whether the lender is a CFSA member, the stipulations of an Extended Payment Plan will vary. In the event that the laws of that state already provide for an EPP for consumers who get behind on their payday loans, state laws take precedence. CFSA members offer the service as an aid to consumers in states where a specific law does not already exist. CFSA-member extended payment plans generally allow consumers to repay their installment loans in four equal payments over the next four paydays, says eHow Money. If a borrower misses one of the four EPP payments, additional fees may apply.

How to request an EPP from CFSA-member lenders

• Make sure the lender is a CFSA member. The CFSA’s blue oval logo should be on display in the payday lender’s office or on the website. Even if the lender is not a CFSA member, it may offer its own extended payment plan. Ask for details.
• Contact the lender before close of business on the due date. If you’re going to run into trouble repaying your payday loans, contact your lender before close of business on the day before your loan is due. Go to the lending office or contact the lender online. Ask for an extended payment plan. You’ll then need to sign an agreement form that will specify the additional due dates. Read the extended payment plan carefully before signing.

If the lender is a CFSA member and you haven’t used an EPP in the past 12 months, but the lender refuses to offer you an EPP to help you avoid default, you can file a complaint. Contact the CFSA during Eastern time business hours at 888-572-9329 (fax 703-684-1219) or cfsa@multistate.com. Alternatively, contact the CFSA by mail at 515 King St., Suite 300, Alexandria, Va., 22314.

Sources

CFSA Consumer Complaint Form

CFSA: What is an Extended Payment Plan?

eHow Money