Many credit unions are now offering payday loans. Image: informatique/Flickr/CC BY-SA

Credit Unions, which are generally considered more trustworthy than traditional banks, are more and more frequently offering short term loans that rival payday loans in many aspects. This change comes in response to new federal guidelines. Many analysts find this trend disturbing, while others see it as offering credit union members more options.

Many find credit unions appealing

Credit unions are cooperative financial institutions that are owned and controlled by members. By dispensing prudent loans without the profit motive of traditional banks, they are becoming more and more attractive to jaded consumers. Many say they are fed up with the hidden charges and impersonal customer service they receive from regular banks. However, when it comes to immediate short-term financial needs, credit union members have often had to to look elsewhere.

That is changing rapidly as more and more credit unions are offering low-cost, short-term loans with higher interest rates.

Federal rate cap increase

The National Credit Union Administration, in a voluntary program called Better Solutions, offers a package of services and products for participating credit unions. In September 2010, the NCUA changed its rules for short-term loans, raising the annual interest rate cap from 18 to 28 percent. Under these new guidelines, a credit union must allow borrowers at least 30 days to repay a short-term loan and not to allow more than three per customer in a six-month period.

A less predatory option?

More than 500 federally insured credit unions are offering these kinds of loans. Industry advocates say they are offering their customers alternatives to more predatory lenders on the market. “We spent a long time trying to do this in a way that would work for members and for the credit unions and not be predatory,” said Debbie Matz, chairman of the NCUA.

Detractors ascribe profit motives

Detractors, however, ascribe much less altruistic motives to the loans. Some say it is just a way to generate more revenue for an industry that suffered greatly in the financial crisis of 2008-2009.

Credit unions, which operate as nonprofit groups, aren’t allowed to raise investor capital like traditional banks can in times of trouble. According to the NCUA, about 4,600 credit unions — or about 7 percent of the industry — are at a high risk to fail.

Linda Hamilton, a consumer activist in Salt Lake City, says “they are promoting these loans as payday alternatives, but they are not really alternatives.” Hamilton, who is opposed to payday loans, sees these credit union sponsored loans as little more than the same thing.

Guidelines are voluntary

Because the new NCUA guidelines are strictly voluntary, many credit unions sell loans at higher rates than the federal program suggests. The Mountain America Federal Credit Union in Utah, for example, offers a five-day $100 loan it calls “MyInstaCash.” The loan costs $12, a 876 percent annual interest rate.

Be informed

Karen Datko of MSN Money says that these credit union payday loans aren’t necessarily good or bad. “It really pays to be an informed consumer before you apply for one,” she advises.

Sources

Paydayloan.net
Washington Post
MSN

Condo ownership provides a halfway point between renting an apartment and owning a single-family home, yet many owners are now stuck in tough situations. Image: Flickr / danebrian / CC-BY-SA

On March 1 of this year, new rules about the types of mortgages the government can purchase went into effect. There are also rising rates of default on condo fees. Combined, these two factors are making condo ownership one of the least attractive options for new home buyers.

New mortgage rules for condos

In order to underwrite mortgages or a short term loan on a condominium, banks will have to consider a new set of rules if they want to sell their mortgages to federal entities. The rules dictate that condo buildings must not have too high a percentage of renters, must not have pending litigation regarding the safety or habitability of the building and must have less than 15 percent of homeowners delinquent on their condo fees. The FHA is also requiring that apartment buildings that have been turned into condos be inspected, which costs $1,200 per building plus $30 per unit.

The new delinquency problem

During the housing boom, condos became a very popular option for new home buyers. Rather than handle the maintenance of a separated single-family home, condos offered the option of paying a monthly fee and having most maintenance taken care of. Most condo associations assume that between 2 and 5 percent of fees will go unpaid. In many associations, delinquency rates are approaching 40 percent or more. The average delinquency rate in the last year has gone up to 15 percent. This problem is forcing many condo associations to do what many homeowners are already doing — making hard choices about what to pay and what to defer.

Many condos left in limbo

Many condo associations are being left in an odd sort of limbo by these new regulations. Owners in these buildings are often blocked from re-selling their units because buyers cannot get financing or the association requires a certain percentage of units to be sold. Left unable to pay their rising association fees and, at times, their mortgages, condo owners also have no way to sell their property. This leaves strategic default and renting out the property they own, while paying for yet another place to live, two of the few options for condo owners.

Sources

MSN Real Estate
Chicago Tribune

Financial reform under the Dodd-Frank Act is necessary – and expensive. (Photo Credit: CC BY-ND/iChaz/blogmosaic)

The Dodd-Frank Wall Street Reform Act was intended to save U.S. consumers a significant amount of money – but at what cost? With any governmental undertaking, there’s a financial burden taxpayers shoulder. According to a Government Accountability Office (GAO) report, that burden will amount to as much as $2.9 billion over five years, the price of Wall Street reform.

Financial stability is not entirely dependent on taxpayers

While it may seem as if taxpayers are being asked to pay without end, the Dodd-Frank Act reportedly will not require full taxpayer subsidization to function, writes the Wall Street Journal. Of the 11 agencies that will be responsible for putting the Dodd-Frank laws into practice, six are either fully or partially funded by revenues and assessments from companies and/or entities that the Dodd-Frank agencies oversee. Three others are covered by congressional appropriations, while the watchdog Consumer Financial Protection Bureau will receive its money from the Federal Reserve, all of which was originally obtained from assessments and other revenues, rather than from taxpayer wallets.

Financial institutions will pay the government more

Banks, credit unions, investment houses and short term loan outlets are slated to pay the U.S. government more to operate under Dodd-Frank laws. This has raised concerns within the financial community that competitiveness will be hampered by over-regulation, and House Republicans have taken up that torch, using GAO report findings to support the idea that Dodd-Frank is too much for a slowly recovering economy to bear.

Breaking down the numbers, the GOP plans to highlight such things as the $975 million cost for the 11 agencies in the first year of the Dodd-Frank Wall Street Reform Act. That’s the baseline used to project the five-year, $2.9 billion price tag. Moreover, hiring 2,600 full-time workers (including 1,225 for the Consumer Financial Protection Bureau) will produce significant cost.

Other highlights from the GAO report

From the upcoming GOP presentation to the House Financial Services Subcommittee on Oversight and Investigations, the Journal points out the following:

• A Fed estimate from earlier this year projected a cost of $77.5 million to pay 290 full-time staff dedicate to Dodd-Frank implementation. Three new offices – the Office of Financial Stability Policy and Research, Financial Market Infrastructures Risk Analytics and Financial Market Infrastructures Oversight – were created to run Dodd-Frank laws smoothly.
• The first of the three Fed sub-offices, the Financial Stability Oversight Council, will pay seven full-time staff up to $7.9 million beginning in fiscal 2012.
• The Office of Financial Research has $74.5 million earmarked for use in fiscal 2012 and will hire 135 full-time staff to perform duties under Dodd-Frank.

Sources

Dodd-Frank Act Summary

Government Accountability Office

Wall Street Journal

GOP on what Dodd-Frank might cost small businesses

Bridge loans bridge the gap while loans are being secured. Image: Flickr / 96dpi / CC-BY-SA

Though the term comes up most often during real-estate transactions, bridge loans are becoming more popular for many reasons. Bridge loans are relatively simple to understand. Like most financial products, however, the details are what can make a bridge loan work out — or not.

Bridge loan basics

A bridge loan began as a form of short-term financing for high-dollar real estate loans. A bridge loan is a high-value, higher-than-standard-interest loan that amortizes (is paid off) very quickly. Bridge loans are made with the understanding that further, longer-term financing will be secured and used to pay off the amount of the bridge loan as soon as possible.

The benefits of bridge loans

Bridge loans provide short-term, fast cash flow for home buyers, businesses and individuals who need to bridge a financing gap. The benefit of this is that buyers or businesses are provided with the cash they need to meet obligations more quickly. For home buyers, it means being able to purchase a new home before the original home is sold. For this reason, bridge loans are becoming more popular as the economy recovers and credit markets open back up.

The drawbacks of bridge loans

Bridge loans come with a lot of risks. The loans have high interest rates because the risks associated with the loan are much higher. These loans usually require more collateral than the loan itself is worth. Bridge loans usually mean that the person with the loan will own two homes, and may be paying on up to three loans at once.

Bridge loan basics and personal finances

For home buyers who are looking to move quickly or businesses waiting on financing approval, bridge loans can make it possible. Everyday borrowers who do not have the capital to own and maintain two homes while they wait out a sale may end up digging themselves into an even deeper hole with a bridge loan. For startup businesses or home buyers with equity to spare, a bridge loan can be the short-term financing they need. If you do decide that a bridge loan is right for you, treat the loan the same you would any other — carefully consider interest rates, terms of repayment and cost over the life of the loan.

Sources

About.com
Investopedia

When it comes to ATM fees, JP Morgan Chase is setting the bar higher. (Photo Credit: CC BY-SA/Thomas Belknap/Flickr)

ATM fees are an unfortunate fact of life for out-of-network banking customers. Now ATM fees are on the rise, as banks look to recapture the overdraft fee money lost to the Dodd-Frank Wall Street Reform Act. According to the Huffington Post, all JP Morgan Chase customers could face $5 ATM fees very soon.

Chase ATM fee in Texas, Illinois

Banking giant JP Morgan Chase has begun charging non-customers in Illinois $5 to use a company ATM. In Texas, it’s $4. If Chase’s ATM fee increases produce enough revenue, the company has told the Wall Street Journal that the increases will go global, sending even more customers in search of short term loans because they’ve been charged an exorbitant amount to access their own funds.

According to Bankrate.com senior financial analyst Greg McBride, Chase’s $5 ATM fee is just the latest in a wave of changes sweeping the banking industry. As banks expect to lose billions of dollars in revenue once Dodd-Frank provisions involving overdraft and other fees fall into place, the “too big to fail” financial monoliths are passing the inconvenience on to customers.

“The reality is that bank revenue is being squeezed by regulatory changes and the banks are going to be accounting for that in other areas,” said McBride.

Maintaining ATM networks is another expense cited by banks, as building and maintenance aren’t cheap. However, a Wall Street Journal study found that most of the 425,000 ATMs in the U.S. aren’t even owned by banks.

What’s going on behind the curtain

Consumer advocates believe that big banks are making noise about allegedly being forced to charge non-customers $5 at the ATM in order to drum up sentiment against the Dodd-Frank act, and consumer-oriented financial reforms in general. A lawmaker may hear this and be swayed. A consumer, on the other hand, may be too busy tracking down a short term loan to make up for the higher ATM fees to care about a bank’s problems.

The reality of the matter, according to consulting firm Oliver Wyman, is that banks generated $7.1 billion in total revenue from ATM fees in 2010. Of that chunk, $3 billion came specifically from banks charging their own customers for using another bank’s ATM, reports the Wall Street Journal. Non-customer ATM fees may only have accounted for 1 to 2 percent of total pre-tax operating profit for banks, but that’s still billions of dollars that the banks are scrambling to replace.

More customer restrictions

Chase’s $5 ATM fee is yet another prohibitive mark against the bank in the span of a week, as it is also considering a $50 cap on debit card transactions. Still, low to no monthly fee ATM and debit cards are a selling point for banks. Higher ATM fees are hidden in the fine print.

“It’s easy to compare debit cards by looking at the monthly fee, so banks are going to try to minimize the monthly fees and load you with (ATM transaction) fees,” said CardHub.com CEO Odysseas Papadimitriou.

Sources

The Atlantic

Huffington Post

Wall Street Journal

Don’t forget the high-to-low processing

Renters, Experian wants to help you with credit repair. (Photo Credit: CC BY-ND/Christopher/Stumble Forward)

Renters interested in rebuilding their credit scores now have another tool at their disposal, reports The Detroit News. The credit bureau Experian, which acquired the property management database company RentBureau last summer, will begin factoring rental history into credit scores. This move will help scores of consumers, but it may also hurt, experts say.

Millions affected by Experian’s decision at launch

Experian RentBureau, which collects rental history data from property management companies across the U.S. on a daily basis, makes renter data available almost instantaneously through a powerful database delivery system. Before the acquisition, RentBureau had collected up-to-date payment history data on about 8 million renters, a number that is expected to expand exponentially thanks to the new connection with Experian’s database of more than 215 million U.S. consumers. A few million consumers will appear in the Experian RentBureau database at roll-out.

Not only will Experian RentBureau make it easier for consumers interested in credit repair, but it will make the tenant screening process much simpler for resident screeners and property managers, enabling them to better protect their investment. Debt collector recovery rates have also increased through the use of the RentBureau system.

Getting credit for being on time

Experian RentBureau Managing Director Brannan Johnston said the service could help one-third of Americans who rent rather than own.

“It’s a huge thing for those individuals who don’t have a credit history, whether they are a recent college grad, an immigrant or maybe even a divorcee,” said Johnston.

Experian began adding positive rental history data in December, reports The Detroit News. By 2012, the company will also begin uploading negative information regarding evictions and skipped rent. Experian currently has no plans to add late payment data, which is not easily reflected in the company’s credit reporting system, but that doesn’t mean that renters can slack off and expect their credit to get off Scot free.

“If you skip out on your apartment, chances are that the manager is going to turn it over to collection and the collection agency will report to a major bureau,” said Johnston.

The credit reporting industry hasn’t caught on – yet

Credit bureaus Equifax and TransUnion, as well as credit-scoring company FICO, do not have plans to incorporate RentBureau information at this time. FICO spokesman Craig Watts said that once FICO has analyzed RentBureau data internally, the company will make a decision as to whether it should factor in to a consumer’s overall credit score.

Tips for renting without a credit check

In some cases, it is possible for a consumer to rent an apartment without undergoing a credit check. Much like consumers with bad credit who are able to take out short term loans, other methods of evaluating a tenant’s worthiness are available. Ask around. About.com suggests using Craigslist and Sunday newspaper classifieds to find landlords who do not use traditional credit checks. In general, a no credit check rental agreement will need a co-signer and should expect to pay more each month.

Sources

About.com

The Detroit News

Experian

How RentBureau works

Some legislatures are hoping to limit lawsuits by limiting lawsuit lending. Image: Flickr / trumanlo / CC-BY-SA

Lawsuit lending is a relatively new industry in the United States. Investment brokers and banks offer plaintiffs loans to live on and fund a lawsuit while it is in court. Some states are legislating these short term loans out of existence, others argue that it is a needed service.

The expense of bringing a lawsuit

Becoming the plaintiff in a lawsuit can be an expensive undertaking. While large payouts can be awarded, it often takes years and thousands of dollars just to bring a case to court. Though the average payout of a personal injury lawsuit is in the range of $285,000, many plaintiffs simply do not have the money to bring or continue a lawsuit. In order to finance these lawsuits, more and more people are turning to lawsuit loans.

The emerging lawsuit loan market

Banks, investment firms and other investors are starting to take on the cost and risk of personal lawsuits. These bad credit loans, not payday loans, are categorized as “loans” in some states, “investments” in others. The investors/lenders often require between 150 percent and 300 percent of the investment amount, but only if the plaintiff is awarded damages at the end of the case. If the plaintiff loses the case, the investors do not collect any cash. Some states are attempting to put annual percentage rate caps on these loans. Others are passing consumer-protection legislation that caps the involvement lawsuit loan lenders can have in the case. Maryland is considering a bill that would limit the lenders to collecting no more than 200 percent of the total loan amount.

Arguments for and against lawsuit loans

Personal injury lawsuits and tort cases are often the focus of discussions on cost-cutting. Rising costs of malpractice insurance and business insurance are often blamed on the number of personal injury lawsuits. Proponents say that lawsuit loans provide a needed service that opens up the legal system to individuals who do not otherwise have the resources to pursue lawsuits. Opponents claim that these loans are usurious, and by providing resources for even more lawsuits to be filed, these lenders are abusing the legal system for profit.

How lawsuit loans affect your wallet

If you have never been involved in a lawsuit, lawsuit loans may not sound like a big deal. This financial product, however, does affect many people. Personal injury or tort lawsuits have an effect on the cost of products, services and insurance that everyone must pay. In states that do not have payout caps, these lawsuit loans could further increase the cost. Alternatively, these lawsuit loans are also a balancing force, allowing those without extensive financial means to access the legal system to have their grievances heard.

Sources

Star Advertiser
MedicalMalpractice.com

Tax preparation giant H&R Block has lost significant ground since the tax preparation service cannot offer a cash advance against tax refunds this year. Image from Wikimedia Commons.

The loss of the ability to offer a cash advance against tax refunds has caused revenues to fall for tax preparation giant H&R Block. The latest earnings reports for the company indicate that revenues so far are less than expected this tax season. Earlier this year, the company was forced to abandon refund anticipation loans when a key partner was sued by the FDIC.

Tax season off to a slower than normal start

A decline in people paying to have their tax returns prepared has led to a decline in revenues for tax preparation giant H&R Block, according to CNBC. Block expects  January earnings will come close to breaking even, but activity began to pick up in mid-February. From Jan. 1 to Feb. 15, online returns prepared through H&R Block increased by almost 28 percent, though total digital tax returns only registered a 7.3 percent increase since the start of the year. Preparation fees for H&R Block have declined by 7.6 percent since the start of the year, and part of the loss is because the company is no longer offering the popular refund anticipation loan, a cash advance against an income tax refund.

Blocked from lending by suit against key partner

Short term loans against tax refunds are similar to payday loans, in that a customer is advanced cash immediately instead of having to wait for their tax refund. The refund is signed over to Block, and borrowers receive less than the total refund because fees are deducted. In December of 2010, H&R Block announced that the company would not be offering refund anticipation loans, a very popular product among lower and mid-income customers. A key partner in the financing of the loans, HSBC, was enjoined by the Federal Deposit Insurance Corporation from lending refund loans. Nearly 17 percent of Block customers took out a refund anticipation loan in 2010.

FDIC countersued by refund loan lender

A prominent tax refund lender has sued the Federal Deposit Insurance Corporation for interfering in the tax refund loan business, according to Business Week. Republic Bank and Trust, a bank based in Kentucky, is suing the FDIC and claims the agency overstepped its boundaries by labeling the loan products “unsafe and unsound” when the FDIC ordered Republic to stop lending the loans last month. Republic lent more than $3 billion in refund loans last year to almost 836,000 people. The bank observed a default rate of only 2.13 percent. The suit alleges that the FDIC is trying to coerce loan lenders into dropping a product that government officials don’t like, even though the product is popular.

Sources

CNBC

Business Week

Reno's short-term loan from the state is going to go unpaid, with no consequences. Image: Flickr / MoneyBlogNewz / CC-BY

The city of Reno, Nevada, has found itself in a tough position. The city mishandled short-term loans that were supposed to be paid back in one year. The city’s failure to understand the terms, however, means these loans will be stretched out over 10 years.

Reno’s short-term loans

The state of Nevada provided more than $8 million in short-term loans to the city of Reno, Nev. These loans were intended to be used to support the streets department, sewer department and the city’s general fund. The state expected to have the money paid back within a year. When that year came to an end, however, the city didn’t have the money to repay the state and didn’t even know that it had to be paid back. City officials are calling this an “incorrect interpretation of current law.”

Loans being re-written

In order to handle the $8 million debt to the state of Nevada, Reno officials are trying to get the loans re-written. The debt is being stretched from a one-year obligation to a 10-year obligation. The city will be required to pay more interest on the money, and the state will hold the loans over time. In the short term, this is another $8 million worth of money the state will have to cut out of its yearly budget.

No investigation into funding mismanagement

Though the city of Reno misread the rules regarding this loan, there will be no investigation. Nevada Taxation Director Dino DiCianno has said that this mishandling is a “technical violation of state laws.” Though it is a legal violation, the state will not be investigating the city officials. Instead, the state is going to review and approve the re-writing of the loans into a 10-year debt. The state is responsible for reviewing each city’s budget, so the responsibility for missing the loan payments is shared. Who, exactly, shares the responsibility for “misinterpreting” the state law will not be investigated.

Source

RGJ

The private microfinancing site 40Billion.com offers commercial paper, traditionally a tool for large corporations, to small businesses. Image: CC The Truth About/Flickr

The online private microlending and social networking company 40Billion.com announced new short-term loan options for small businesses Monday. Using unsecured promissory notes, commonly called commercial paper, small and medium-sized businesses can finance opportunities through 40Billion.com for up to nine months. A week earlier, the microlender launched integrated social networking tools, enabling its members to use LinkedIn and Facebook accounts to help raise money.

A new short-term loan option

Commercial paper has been used for more than a century, mostly by large corporations wanting to raise quick, cheap working capital. Now 40Billion.com is offering the commercial paper option to small and medium-sized businesses that wish to borrow from $5,000 to $1 million for up to 270 days. Commercial paper is an unsecured promissory note to meet short-term financing and cash flow needs. In certain situations, commercial paper can be an affordable alternative to a traditional bank line of credit.

Why commercial paper?

According to 40Billion.com, commercial paper offers several advantages over traditional bank loans. Commercial paper is unsecured, meaning it doesn’t create a lien on the borrower’s assets. The discount rate is negotiated through 40Billion.com with investors seeking to diversify and earn a quick return. Businesses with strong Social Business Rating System (SBRS) scores and good relationships can get affordable rates. SBRS is 40Billion.com’s proprietary rating system that evaluates businesses on criteria other than traditional credit scores. The broad range of maturity, from 15 days to 270 days, provides flexibility for a variety of short-term cash needs such as payroll, inventory and marketing.

Social network financing

Founded in 2008, Atlanta, Ga.,-based 40Billion.com claims to have facilitated more than $30 million in loans between investors and entrepreneurs.The company said it helps its members find new customers and financing resources via social networking. 40Billion.com users can log in with LinkedIn or Facebook. The financing site automatically displays the users profile from either of those social networks. Users can also import contacts from e-mail programs. The integrated social networking tools in 40Billion.com also suggest new contacts that members may know through past associations or similar interests.

Sources

Information Week

News Wire Today

40Billion.com

Check cashing services are often grouped with payday lenders, but they're not the same thing. Image: Flickr / livenature / CC-BY-SA

The Texas legislature is currently hearing testimony on proposed legislation that would affect credit services. The payday loan bill would reclassify payday lenders, title lenders and check-cashing services. Legislators have said they are looking to negotiate the details.

Texas payday lending regulations

Under current Texas law, payday lenders, check-cashing services and title lenders operate as “credit service organizations.” This is a business classification that was originally intended for businesses that help customers get out of debt. Credit service organizations are not subject to limitations on the interest rate they charge. Instead, CSOs are asked to pay just a licensing fee of $100 per year.

Searching for the regulatory sweet spot

Initially, the bills presented in the Texas legislature would have essentially shut down payday lending, check-cashing and title lending in Texas. Reclassifying payday lenders and forcing them to operate under usury laws would force them to charge no more than 36 percent APR. Because most payday loans have a term of two weeks, charging a 36 percent annual interest rate would put lenders out of business because this amount is not enough to support their businesses. Legislators pointed out that these lending businesses do provide a service that is needed, as evidenced by their heavy use. Sen. John Carona has called it a “gold rush,” stating that the lenders are “entitled to make a profit,” but he feels it shouldn’t be a usury-level profit.

Differentiating credit products

Though the Texas legislature is grouping payday lenders, title lenders and check-cashing businesses, these are three very different businesses. Payday lenders offer a short-term loan, secured only by a promise to pay on the next payday. If the loan isn’t paid back, the lenders have little recourse. Title lenders offer loans secured by a car title. This means if the loan isn’t paid, the lender takes possession of the vehicle. Check-cashing services cash checks for customers that cannot or do not want to go into traditional banks for their financial services.

Sources

Dallas News
Payday Lending Statistics report

Maryland lawmakers are hoping a short term loan of foreclosure fees will keep property values up. Image: Flickr / TheTruthAbout / CC-BY-SA

In some areas of the country, the number of foreclosures continues to rise. One Maryland county is hoping to address the problem with a fee on foreclosed homes. The bill would also make it a criminal offense to let a home fall into disrepair.

Maryland’s high foreclosure rate

Maryland has been facing high foreclosure rates since the housing collapse in 2008. Prince George County in Maryland has had one foreclosure for every 457 households thus far in 2011. Many of the homes in Prince George County are not being maintained, which is reducing property values at the same time inventory is going up. Not only does this lead to urban blight, Prince George County tax revenues are falling.

Charging a foreclosure fee

Prince George County has been appealing to the state lawmakers for the right to do something about homes that are not maintained. The county wants to charge owners of foreclosed homes $75 per year. This money would go into a county fund that would pay for contractors to clean up abandoned homes. Essentially, it would be one more fee on the short term loans of foreclosures. The county would also be given the right to send inspectors to check on foreclosed homes.

Problems with foreclosure fees

Getting a short-term loan in the form of foreclosure fees is intended to help the city care for foreclosed homes and improve property values. The fee, however, could be the equivalent of trying to squeeze blood out of a turnip. The county says it will not be trying to collect the $75 fee from homeowners in debt. However, that means that the county may be trying to collect a per-house fee from banks that own the properties and are not maintaining them. In order to help ensure this happens, the county may also be creating a criminal or civil misdemeanor offense for not “keeping a property up to neighborhood standards.”

Source

Washington Examiner

Payday lenders are having to turn to Indian tribes to form partnerships that can keep their businesses open. Photo: Chika/Flickr.com/CC-BY

In order to circumvent state regulations, payday lenders are turning to Indian tribes to stay in business. Indian tribes are protected legally by a doctrine known as sovereign immunity, which exempts them from some state and federal laws. Demand is well established for payday loans, but states are starting to regulate them out of business.

Stifling regulation sends payday lenders to tribes for legal shelter

Payday lenders have been subject to an increasing amount of regulation, to the point it is difficult for operators to keep their doors open. Some lenders are beginning to form business partnerships with Indian tribes in order to circumvent strict regulation that prevent lenders from being able to make a living in the payday loans industry, according to the Wall Street Journal. Indian tribes are protected by a legal doctrine called sovereign immunity, which grants certain exemptions from regulation and lawsuits. Payday loan lenders need only incorporate their business on tribal lands and form an agreement with the tribe in order to offer a cash advance in whatever manner the firm sees fit.

Sovereign immunity

Essentially,  an entity with the protection of sovereign immunity is protected from prosecution or lawsuit, but the extent of immunity varies. Native American tribes and reservations are considered nations unto themselves, and businesses incorporated on tribal lands are not subjected to the laws of the state or states the reservation is located in. For instance, say a short term loan lender incorporates on a reservation located in Arizona but doesn’t have offices on the reservation. Even though the loan company is not located on a reservation, it is incorporated on tribal land. Sovereign immunity exempts the company from having to comply with Arizona law regarding small loans.

The scourge of payday loans

Payday loans are treated like a leper by some within the financial services industry. Even though the demand for the services is well established and similar businesses existed before the Statue of Liberty was built, many have called for the industry to be legislated out of existence. Payday lending as an industry represents more than $10 billion in the U.S. economy as a whole.

Sources

Wall Street Journal

Jackson Hewitt is suing H&R Block for defamation. Image from Wikimedia Commons.

Tax preparation giant H&R Block is being sued by Jackson-Hewitt over an ad campaign blasting the short term loan program offered by Jackson Hewitt. Both companies offer some form of a refund anticipation loan or a loan against an income tax return. Tax season is when both companies make the bulk of their revenue.

H&R Block’s short term loan ads land company in court

An advertising campaign run by tax preparation giant H&R Block has resulted in the company being sued by competitor Jackson Hewitt, according to Reuters. The lawsuit alleges that H&R Block deliberately misled consumers about Jackson Hewitt through the commercials about a program called “Second Look,” which mentions Hewitt by name. The commercial offers a free review of returns prepared by competitors. The commercial says two of every three returns prepared by Hewitt had errors and had missed deductions. Hewitt is also claiming that Block made false statements about the short term loan program Hewitt offers, being refund anticipation loans, or RALs. Hewitt maintains that customers can get a loan of up to $1,500 in day.

The tax cash advance

Refund Anticipation Loans are a cash advance against an income tax refund. Filers who are due a refund can get a check for their expected refund amount, minus a fee for the preparer and loan lender. The tax preparer files the return and takes the income tax return as payment, while the borrower walks away with instant cash rather than waiting for a deposit or a check. H&R Block is unlikely to be able to lend these loans this tax season, as a key financier and partner of Block, HSBC, was forbidden from funding the loans by the U.S. Treasury.

IRS advises to e-file

The Internal Revenue Service does not have an official position on RALs but suggests people electronically file and elect to have their refund directly deposited. A refund can be deposited electronically in far less time than it takes for a paper check to arrive, whether the check is being sent to Jackson, Mississippi, or to Hawaii.

Source

Reuters

To find cheap airline tickets, plan ahead, buy early, check weekly airfare pricing trends and take advantage of technology. Image: lemoncat1/Flickr

To find cheap airline tickets, it’s best to study airfare pricing trends, do your homework and remain vigilant. Airlines offer a certain percentage of seats at a discount to fill planes, but they don’t want to make it too easy. Because airfares are in a constant state of flux, finding cheap airline tickets takes timing and a little bit of luck.

Finding the cheapest airfares is a challenge

Airlines can change ticket prices several times a day. To know when the cheapest airfares are available, it’s best to sign up for e-mail alerts on travel web sites that track constantly changing airfares. Some travel web sites also help you to stay informed about airfare pricing trends, fees and surcharges. The earlier you purchase airfares, the better. Having that flexibility expands your options, especially if you want to borrow money with a short term loan to take advantage of savings on a dream vacation. Airlines start marketing the cheapest airfares about four months ahead. Planning ahead also helps you identify trends to determine when the cheapest airfares are available.

Airfare pricing trends

When you can’t plan ahead, savvy travelers say the cheapest day to buy airline tickets is Wednesday. Airfare pricing typically goes through a one-week cycle. Most sales, in which seats can be discounted up to 25 percent, begin Monday night. A discount carrier such as AirTran will offer a deal, and its competitors will match the price. Airlines often try to bump up airfares across the board on Thursday night. Such behavior makes Wednesday from midnight to 1 a.m., in the time zone of the airline’s home base, a good time to buy. That’s when airlines dump reserved low-fare reservations that aren’t booked. Get online late at night to snap up these opportunities because they go fast.

Going, going, gone …

The weekly airfare cycle is a relic of the time when airlines advertised daily sales in the newspaper and travel agencies sold tickets Monday through Friday. Sales launched early in the week gave time for the word to get out. Sales launched at the end of the week didn’t get noticed. The pattern still holds, even though the Internet lets airlines sell their own fares and screaming deals can pop up in Twitter tweets on smartphones anytime. It won’t be long before airfare prices are unpredictable. Ultimately, to find the cheapest airfares, you need technology on your side.

Sources

MarketWatch

ABC News

Seeking Alpha

Students in Nevada are organizing to fight cuts to education funding. Image: Wikimedia Commons

In Reno, Nevada, college students are gearing up for a fight. These students, however, are armed with statistics, numbers and suggestions. As the legislature considers cutting education funding yet again, some students are fighting back.

Proposed cuts to Nevada education

Nevada, like most other states, is facing huge budget deficits that it must balance. Nevada’s proposed budget for the next fiscal year includes a $162 million cut to higher education programs. The legislature is also considering taking a payday loan no fax from the Tobacco Settlement money — a trust fund that currently finances scholarships. The money would be instead be directed to other state programs in need of money.

New organizations of students

Rather than sit-ins and protests, college students are taking on the problems of the education budget in an entirely new way. Many student governments are creating new committees for the purpose of taking on the legislature. Student activist groups are having pre-legislature meetings to go over the financial details and legislation being considered. Buses are being hired to take huge groups of students to the statehouse to testify in hearings. With everything from dossiers on the legislators to talking points, the students intend to overwhelm the legislators to the point they have to listen.

Calling students future investment

The biggest point that students are making about the proposed cuts to education is that they are effectively a short-term loan. Sure, the state may get more budgetary money in the short-term. In the long term, though, the lack of educated professionals could hurt the state’s competitiveness. The University of Reno, Nevada, has already closed down both its career center and several student-support services. These cuts help schools stay solvent and stay open. At the same time, students contend that it means they are paying more money for an education that is simply sub-par.

Source

Nevada News

Social Security checks may eventually stop coming -- or sink our government. Image: Flickr / rharrison / CC-BY-SA

With Congress instituting a one-year freeze on payroll taxes, Social Security is facing yet another deficit. Many people are facing the possibility of needing to retire without social security and wondering what  exactly it would take to retire without support.

The financial status of social security

Since it was first instituted, politicians have hotly debated Social Security. The funding for Social Security is often called a “trust fund.” In reality, it operates more like a short term loan. The taxes of today’s workers go right to the checks of today’s retirees. Even low inflation can cut into the purchasing power of Social Security checks. This is usually addressed with cost of living adjustments — otherwise known as a COLA. With payroll taxes frozen and even more people retiring, the Social Security fund could run out of money.

What it takes to retire without social security

The average social security recipient receives about $14,000 a year from the Social Security fund. In order to retire without social security, a retiree needs a way to ensure income. Men who retire at 65 years old need an average of 17 years of income; women need an average of 20 years. In order to maintain a standard of living similar to Social Security and to account for just 3 percent inflation, a retiree needs to save about $300,000. In areas with a lower cost of living, such as Alexandria, Louisiana, that money has more purchasing power than in Baltimore, Maryland. Purchasing an annuity that will pay out approximately the same amount costs about $200,000 — though it is not backed by the federal government and could fail.

How to retire without social security

For many retirees, retiring without social security means finding money that seems like it doesn’t exist. Some are turning to reverse mortgages, others staying in the work force. Less than half of workers have saved more than $25,000 for retirement. In other words, to retire without social security, most workers need to start saving now – no matter how close to retirement they may be.

Source

Wall Street Journal

The high cost of installing a solar panel is no longer a barrier in Baltimore. Image: Flickr / agentdeclan / CC-BY-SA

In Baltimore, Maryland, using solar power at a home or business is about to get easier. A California-based company is going to offer zero-down and bad credit loans of photovoltaic equipment. These solar power leases are set to last 20 years or more.

Getting solar power to Maryland

In Baltimore, a California-based company is stepping in to get solar power on more roofs. Homeowners and businesses will be offered zero-down loans and leases of photovoltaic systems and equipment. The customers will need to pay the loan over the course of 20 years, which will cost much less per payment than a short term loan. Customers may be able to decrease the amount that they owe if they hook up their photovoltaic systems to municipal power.

How solar power leases out

The biggest barrier to most homes and businesses switching to at least partial solar power has been cost. A basic solar power system can cost more than $20,000. Some cities and states have tried to encourage renewable power systems by offsetting the costs with tax credits. SolarCity, a company in California, is taking the idea private instead. SolarCity offers full photovoltaic systems for a monthly fee. This means that the company makes a short-term loan of equipment to businesses and homeowners, then makes their money back over the years while the system is in use.

Is leased solar power cost effective?

Though the SolarCity power company makes its money with the leased power systems, are customers going to be making a good financial choice? Possibly. Solar power systems can be tied into city power and the excess sold back to the power company. The cost of installing a solar power system is no longer an issue, so it is a matter of balancing cost of maintenance with the amount of savings on one’s power bill. The short-term loan of equipment can definitely be worth the savings if power rates are high.

Source

Baltimore Sun

The benefits of inflation include more coin in your pockets, over time. Image: Flickr / MoneyBlogNewz / CC-BY

It may sound crazy to some people, but the benefits of inflation could help the economy. Studies have shown that most people are against inflation. Moderate inflation, however, could get the stagnant economy going.

The benefits of inflation – the basics

Inflation is a simple concept. When prices go up, the “real” value of money goes down. Inflation leads to increasing prices. Inflation also reduces the amount of risk that people and companies are willing to take on. Usually, the Fed controls inflation by raising interest rates, which makes it harder to take on risk. This action makes it more “expensive” to borrow money, both short term loans and long term loans.

The benefits of inflation for states

The Fed controls federal monetary policy with the banking system. Fed monetary policy uses the banking system to generate effects throughout the economy. With this centralized approach, many states have  inflation rates that may be more or less than the federal rate. Nevada, for example, has an inflation rate slightly higher than the federal average. Nevada’s economy is also recovering slightly faster than the national average. In Nevada, the benefits of inflation include making existing debt worth less and making wages rise to match inflation. Over time, people in states like Nevada have more money to spend and less “real” debt to pay off.

Why we hate inflation, despite the benefits

Inflation is often considered a dirty word — for logical reasons. Rising prices reduce purchasing power. The decreasing value of money also makes individuals more risk-adverse. From a fiscal standpoint, however, inflation can help the economy grow. Inflation shrinks debt to more manageable proportions. Inflation also discourages “quick fixes” for financial problems. Plus, when inflation is kept under control, “real” wages aren’t reduced and the standard of living improves.

Sources

New Yorker
Amateur Asset Allocator

The Texas budget has some huge holes that will be tough to plug. Image: Flickr / calsidyrose / CC-BY

In accordance with Texas law, the Texas legislature will consider a proposed budget for the 2012-2013 year. The budget contains severe cuts across the board. The budget comes close to making up a $15 billion shortfall, but may not go far enough.

The Texas budget shortfall

This year, the Texas legislature will have to find places to cut $15 billion. Some economists estimate that the “true” shortfall of the Texas budget could be up to $27 billion, once increasing costs of Medicare and school enrollment are taken into account. The Texas constitution dictates that the budget must be balanced, which means that the budget shortfall has to be made up with a combination of cuts and new income.

The new cuts on the Texas budget

Many of the cuts proposed in the current Texas budget are the equivalent of short term loans. The amount of money Texas will pay to Medicare providers will be reduced by 10 percent or more; health insurance for children will also be cut. Over the long term, this will reduce the number of medical providers willing to take Medicare. The budget proposal also cuts four community colleges, as well as all financial aid for new students. The Department of Criminal Justice, including prisons, would also be cut by 14 percent. State contributions to the employee retirement fund would be reduced to the point the fund could not maintain itself. About 9,600 state jobs would be eliminated in the budget, as well.

New fees in the Texas 2012-2013 budget

In addition to cutting billions of dollars out of education, health care, and retirement, the Texas budget also looks for emergency money in new fees. Tobacco users on state health insurance will be required to pay $30 a month. The state will also start charging a “monthly child support processing fee,” and “annual child support service fee” to those who are paying child support. An electronic filing-of-documents fee is expected to generate about $1 billion in revenue as well.

Sources:

KFDM
Washington Post