Leading shopping centre investor Pareto today announced it has entered into new unsecured loans with Absa, achieving its ambitious goal of ensuring unsecured finance across its entire portfolio.
Ignoring collectors is not recommended. That leaves three good options. You can pay the bill in full. You can try to settle for less than you owe. Or you can dispute the bill and refuse to pay.
How should you proceed? I asked Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. Hes also worked for lenders, for a collection agency and as a credit counselor, so hes been on all sides of the table when it comes to collections.
It is advisable for home loan seekers to obtain a credit report, before applying for a large loan, such as a home loan. This report, which provides a person’s credit score, can be obtained from any one of the four credit bureaus operating in the country CIBIL, Experian, Equifax and Crif High Mark. A score between 750 and 900 is considered as excellent. However, if the score is below 675, one may need to improve the credit score before applying for a home loan.
“A good credit score can help you get a loan at a more attractive rate of interest. This can lower your interest burden by lakhs of rupees, during a loan tenure of 15-20 years,” asserts Sujit Kumar, a Delhi NCR-based lawyer, who improved his credit score, before applying for a home loan.
Immediate measures When it comes to improving your credit score, first check for any error in your lender’s record books. While you may have repaid a loan, the bank’s records may still be showing some credit outstanding against your name. Rectifying such mistakes, will improve your credit score.
Disagreements between a lender and a borrower may also be the cause of a poor credit score. Resolving such disagreements, paying the dues and closing the loan account can boost your score.
The most important thing for a good credit score, is to make all the payments on time. If you have missed a particular payment, make amends right away by paying up.
Consolidating your credit will also help. You may have taken five personal loans. Consolidating all these loans, into a single one, will look better on your records, by indicating that you are not excessively credit-hungry.
Also, when it comes to credit card bills, many borrowers pay up only the minimum amount and revolve the rest of their credit card loan. This is a bad practice, as the rate of interest on credit card loans is very high. If you have been doing so, replace the credit card loan with a personal loan, which will bring down your interest charges and enable you to meet your dues.
Long-term measures In case you have a delinquent loan against your name and you dont have the ability to repay right away; this is a situation that can only be remedied over a period of time. If you have a high proportion of unsecured loans, vis-à-vis secured loans, you should try to alter the mix over a period of time.
Another behavioural change that you must make, is to avoid shopping for loans excessively. In trying to bag the best possible deal, do not apply or make enquiries at 15-20 banks. Each time you make an enquiry, it gets registered against your name and indicates that you are credit-hungry.
Also read: These are the factors that decide whether you get a home loan or not
If a person is too hungry for credit, it reflects poorly on his credit score,” cautions Arun Ramamurthy, director, Credit Sudhaar Services.
Suppose that your credit card provides you with a credit limit up to Rs 2 lakh, dont use up the entire limit as this is also perceived as a sign of credit hunger.
Despite your best efforts, if you are not able to achieve a good credit score on your own, then, there are professional agencies that you can turn to, such as Credit Sudhaar, etc. These agencies can help you to achieve the right mix of secured and unsecured loans. They tell you about the right number of credit cards you should own, given your economic status. They also inform you about the maximum percentage of credit on your credit card, beyond which you should not go.
Payday lending is often portrayed as a manipulative industry only concerned with preying on naïve consumers. Thus, it is no surprise that Alabama policymakers are calling for restrictions against the industry.
Without an understanding of economics and finance, however, well-intended regulators could harm the very payday loan customers they are hoping to help.
It is important to recognize that payday lending meets an important need in the community. According to a survey by Federal Reserve economist Gregory Elliehausen, over 85 percent of payday lending customers reported that they took out a payday loan in order to meet an unexpected expense. While we all face unexpected expenses, the typical payday lending customer finds these circumstances especially difficult since traditional lenders and even close friends and family are often reluctant-or unable-to make unsecured loans to them given their poor credit histories.
While the need for short-term lending often isn’t disputed, reports of Annual Percentage Rates (APR) of several hundred percent often invoke anger and hostility, and provide the impetus for calls to restrict this rate to under 40 percent. But this is an inappropriate portrayal. The typical payday lending loan is under $400, lasts under four weeks (even including consecutive new loans and renewals), with an interest charge under $19 per $100.
Where does the high APR come from, then? For example, let’s assume you take out a $400 loan for two weeks with a total finance charge of $76. That amounts to a nearly 495 percent APR using a common calculation. Basically, the APR is calculated by projecting the interest rate for an entire year! Looking at the APR, however, is extremely misleading because the vast majority of these loans last only two to four weeks. Limiting the APR to 40 percent would mean that a payday lender could only charge $6.14 for a two-week loan of $400.
Would you be willing to lend an unsecured $400 out of your own pocket to a financially risky person for two weeks for only $6? Certainly not! Especially if you consider that, as a payday lender, you would have to pay rent on a building, pay your electricity bill, make payroll, and incur expected losses on unpaid loans.
Even without interest rate restrictions, payday lending isn’t a very lucrative business; a Fordham Journal of Corporate #038; Finance Law study finds that the typical payday lender makes only a 3.57 percent profit margin. That is fairly low when you consider that the average Starbucks makes a 9 percent profit margin and the average commercial lender makes a 13 percent profit. Interestingly enough, the average bank overdraft charge of $36-an alternative option for payday lending customers-could easily result in an APR of several thousand percent.
In a review of the research on payday lending in the Journal of Economic Perspectives, economist Michael Stegman recommends that policymakers resist implementing legislation restricting the interest rate charged by payday lenders and instead examine ways to help prevent the small number of customers who are caught in a cycle of payday lending debt. This is because the vast majority of payday lending customers pay off their debts and voluntarily agree to the interest rates charged. In fact, Gregory Elliehausen finds that over 88% of payday lending customers were satisfied with their most recent loan from a payday lender. Almost no payday loan customers reported that they felt they had insufficient or unclear information when taking out their loan.
Christy Bronson, a senior economics student at Troy University, conducted a survey to see if these national results held true here in Alabama. The results from her study on payday lending customers in the Wiregrass area corroborated these national results. A full 100 percent of respondents reported being satisfied with their most recent payday loan experience and 78 percent reported being satisfied with their payday loan experiences overall. If most payday lending customers were caught in a vicious debt cycle, you would expect customer satisfaction to be much lower. Survey participants in the Wiregrass area also overwhelmingly indicated that they were satisfied with their knowledge and understanding of the terms and conditions of payday lending. The survey also found that payday lending customers in the Wiregrass area used payday loans moderately and found that the overwhelming majority of payday lending customers do not consider themselves to be in financial difficulty as a result of using payday loans.
There is a logical explanation for these findings. Payday lenders don’t profit from customers who can’t repay their loans. Cycling debt only increases the risk that the payday lender will not get their interest or principal back and will lose out to secured creditors in a bankruptcy. This is why many payday lenders in Alabama came together to form Borrow Smart Alabama, an organization designed to better inform payday lenders and to set a code of ethics and accountability for payday lenders in Alabama.
Running payday lenders out of business with severe interest rate restrictions or costly regulation won’t keep customers in urgent need of cash from borrowing money. We know from experience that banning goods or services that people want doesn’t prevent a black market from emerging. Just look at examples of alcohol, drug, and gun prohibition. Payday lending customers, lacking the credit worthiness required for traditional lines of credit, will only be forced to use less desirable-and more expensive-credit options such as loan sharks, online lending, or overdrawing their bank account or credit card.
Daniel J. Smith is the associate director of the Johnson Center at Troy University. Follow him on Twitter: @smithdanj1. Christy Bronson is a senior economics major at Troy University.
THIRUVANANTHAPURAM: Keralas finances are alarming and there is a need to ensure 20-25 per cent annual growth in tax collection for the next five years, according to a white paper tabled in the state assembly on Thursday.
The white paper tabled by finance minister TM Thomas Issac said that for a state holding a negative cash balance in reality, it was an impossible task to take on immediate and short-term liabilities of over Rs 10,000 crore and that the situation was alarming.
Apart from meeting the day-to-day challenge of keeping the treasury afloat to meet the routine expenditure of administrative machinery, Kerala was constantly facing grave paucity of resources for financing all its other plan and capital expenditure, the report said, adding the state has been living on a financial lie.
In the last three years, budgetary exercise was fudging of accounts, Issac told reporters. Schemes and projects were announced without the funds to back them up, he said.
The annual plan size during this period had been fixed at about 10-15 per cent even beyond the states estimated capacity — to announce an artificially-bloated plan size each year, the minister said.
In the process, unfortunately, budgets have lost their sanctity and budget speeches have become exercises in conjuring up unachievable visions of schemes and projects, he claimed.
Kerala was also unable to reduce revenue expenditure beyond a certain extent due to commitments in the social sector and increase in salary, interest payments and pension, which is mainly attributed as reason for its burgeoning revenue deficit of the state, he said.
However, the minister said, government would check Non plan revenue expenditure, which was necessitated as the previous government had announced various projects which were not included in the budget and were sanctioned as outside the agenda (OA) by the cabinet.
If youve been carrying the same rewards credit card in your wallet for several years, theres a good chance you could get a better deal.
Card issuers are competing hard for your business by promising rebates on everyday purchases. Many issuers are also dangling heaps of extra points or cash back — worth $500 or more, in some cases — if you spend a few thousand dollars in the first three months after opening the account.
Can a mortgage lender claim it’s part of Indian tribe, offer home loans at 355 percent? Money Matters
Q: I heard a commercial for a bank offering mortgages but I was a little thrown off when the ad said their interest rates are too low to disclose on the radio. The phone number for the company is 877-860-CASH. Whats up with this company?
A: The name of the company is CashCall Inc./CashCall Mortgage. If that doesnt set off alarms for you right out of the gate, then I dont know what would.
First, if you look up the company through the Better Business Bureau, youll see it has a C-minus rating, primarily because its been sued or faced legal action from various state agencies in California, Florida, New York, Pennsylvania, Maryland, Colorado, Minnesota and a bunch of others.
Among the cases youll find:
In August 2013, New Yorks attorney general filed suit against CashCall Inc. forviolating the states usury and licensed lender laws. The companies charged annual rates of interest from 89 percent to more than 355 percent to thousands of New York consumers, the BBB says on its web site. These interest rates far exceed the maximum rate allowed under New York law, which is limited to 16 percent for most lenders not licensed by the state.
And in December 2013, the Consumer Financial Protection Bureau filed suit against CashCall Inc., saying the company issued loans to consumers but claimed it didnt have to obey consumer protection laws. The CFPB said CashCall said the funding for the loans was provided by Western Sky, which claimed to be part of an Indian tribe, and that that status would void any licensing requirements and other consumer protections.
The CFPB alleges however, that Western Sky was not in fact part of an Indian Tribe and was actually just a front to allow CashCall to violate state and federal laws, according to the list of government actions against CashCall. The CFPB suit seeks to order CashCall to forfeit these loans and award civil money penalties.
In both of these cases, the actions are pending.
And last year, the company settled with the Michigan Department of Insurance and Financial Services. The company was accused of servicing and collecting loans with interest rates that ranged from 89 percent to 169 percent. CashCall agreed to cease and desist and establish a $2.2 million settlement fund to be distributed to all Michigan consumers with Western Sky loans.
Other consumer complaints against CashCall say the company charged late fees on payments that werent late and took money out of customers checking accounts without authorization. (It apparently requires direct debit. Shocker.)
In one complaint, a customer said he borrowed $10,000 from CashCall 7-1/2 years ago and had been paying $333 a month. He checked his remaining balance and found it was $9,827.33. He had paid out $29,637 on a $10,000 loan and was told he still owed $9,827. So he had paid only $123 in principal in seven years?
As far as the company saying it couldnt disclose its interest rate, that should be alarming. Its also strange because the company states todays interest rate pretty prominently at the top of its home page. Today, its 3.38 percent, with no closing costs. (Another red flag.)
In any case, thats less than the national average, according to Freddie Mac. (Another red flag.) And its in line with local banks that arent shrouded in so much mystery and dont have such long records of complaints alleging egregious behavior. And the local banks are overseen by many layers of regulators, and they dont claim to be insulated from government regulation because of alliance with any Indian tribes.
Finally, Ill be honest; Im not completely sure whether the company is offering mortgage loans, or unsecured loans without the home as collateral. In my research, I found references to both. Maybe they actually offer both. It doesnt really matter.
I wouldnt take out a loan from a business with this many question marks.
Q: I received a call from my nephew, who gave me this sob story about him breaking his nose (so he would sound differently), getting arrested for DUI and needing $1,500 to get him out of jail.
In a blow to banks and the marketplace lending industry, on June 27, 2016, the US Supreme Court denied the petition by Midland Funding to hear the caseMidland Funding, LLC v. Madden (No. 15-610). That case involves a debt-collection firm that bought charged-off credit card debt from a national bank. The borrowers legal team argued that a buyer of the debt was subject to New York interest rate caps even though the seller of the debt, a national bank, was exempt from those state law rate caps due to preemption under Section 85 the National Bank Act. The borrower won on this startling argument and the debt collector appealed to the Supreme Court. The Office of the Comptroller of the Currency (the regulator for national banks), the US Solicitor General and various stakeholders in the banking and lending industries vigorously argued that the 2nd Circuits decision contravened established law. The fear was that, if preemption strips loans of their usury-exempt status when the loans are sold, then banks ability to sell consumer loans, including the common practice of banks originating and quickly selling those loans to investors and marketplace lenders, would be significantly limited, if not curtailed.
The Supreme Court denied the debt collectors appeal without explanation, which means the 2nd Circuits ruling is binding law in that Circuit, which includes New York, Connecticut and Vermont. However, the 2nd Circuits ruling is not the law outside of the 2nd Circuit.
As of today, these are some of the key takeaways for banks and the lending industry:
- For the immediate future, consumer loans originated to consumer borrowers in states other than New York, Connecticut and Vermont are not affected.
- Conceivably, the implications of the case could largely disappear, depending on what happens upon remand to the District Court. If the District Court decides that the loans were valid when made notwithstanding usury caps that only apply to a subsequent buyer of the loan, then the practical effect would be to return jurisprudence to its pre-Madden norm. It is likely that the OCC and the banking industry will vigorously pursue every opportunity to reach that result.
- Many marketplace lenders originate loans through state-chartered banks, which rely on interest rate and fee exportation under Section 27 of the Federal Deposit Insurance Act, not preemption under the National Bank Act. However, most industry observers are very concerned that future court challenges will not distinguish between exportation and preemption and will also discard exportation with respect to state interest rate caps.
- The Supreme Courts ruling makes New York, already a difficult state for a non-bank lender to make consumer loans, even less hospitable. An investor or marketplace lender that wants to buy New York consumer loans from a bank must have a lender license to charge up to 25% or be subject to the 16% rate for unlicensed lenders. This will make unsecured personal loans unprofitable for a large segment of consumers and accelerate the trend of many marketplace lenders avoiding New York altogether. Connecticut rate caps for unsecured loans range between 11% and 17%, which makes that state even less profitable than New York. Vermont has a similarly restrictive rate environment. All three states will likely see a substantial withdrawal from the market by a variety of consumer lenders. In addition to the withdrawal by non-banks, banks will see a steep increase in their costs to make or hold consumer credit in these three states. Banks will need to sharply discount consumer debt if they wish to sell it to a non-bank or, if the discount is too steep to be palatable, simply hold the debt on their own books. Either way, the increased costs and reduced profitability will make consumer lending less available and more expensive to the consumer.
- Securitization of consumer debt originated in the 2nd Circuit states is much more difficult (and probably impossible if the stated rates on the debt exceed state law usury caps for non-banks). The current practice is to use a national bank as the trustee of the securitized debt to rely on the traditional preemptive power of a national bank. If securitization is limited or stopped, this will also increase the costs of making these loans.
- Business purpose lending is not affected at all because state law usury caps only apply to consumers. In the future, we may see sole proprietor businesses attempting to assert consumer defenses, but so far this has not succeeded in a meaningful way. Similarly, real estate lending (including consumer mortgages), is generally not affected as such lending is generally excluded from state law usury caps.
- Some marketplace lenders are strategically pursuing their own lender licensing to give themselves the option of originating loans without a bank and to take advantage of the higher rate caps available to licensed lenders. Lending under ones own license also avoids a true lender lawsuit in which the consumer argues that the originating bank should be ignored and that consumer compliance should be evaluated solely based on the purchasing investor / marketplace lender.
So, while marketplace lenders and banks have taken a blow in the Supreme Courts refusal to hear Madden v. Midland, the blow is not as bad as it could have been because the effects are limited to the 2nd Circuit. And, even those effects may be muted depending on future developments in the case. Business practices can be adjusted. But, as is usually the case with bad law, consumers will pay the price in terms of more expensive and less available credit.
Compliancy with the TILA-RESPA Integrated Disclosures rule has become a thorn in the side for many lenders, however one lender found a way to overcome it.
In a report on the impact on TRID on residential mortgage-backed securities, Moodys Investors Service analysts write that several third-party firms have reviewed a number of recent mortgage loans for TRID compliance and found violations in more than 90% of the loans.
Kingston container terminal in Jamaica
KINGSTON, Jamaica — The Inter-American Investment Corporation (IIC), acting on behalf of the Inter-American Development Bank (IDB) Group, has signed a US$265 million financing package with Kingston Freeport Terminal Limited. The project will optimize and expand Kingstons container terminal capacity in Jamaica, as the port must stay competitive to handle larger ships now passing through the expanded Panama Canal.
The upgraded terminal will soon manage increased vessel volume, expanding capacity from 2.8 to 3.2 million Twenty-Foot Equivalent Units (TEUs) per year within the next six years. The project will contribute to strengthen Jamaicans relevancy in global trade and foster private sector activity and foreign direct investment.
The financing includes a US$205 million IDB Loan, comprised of an A-loan of US$94 million and B-loans of US$111 million from Cordiant, FMO, CIBC First Caribbean and CIFI. The package also includes co-loans from Proparco and DEG for US$30 million each.
Total project cost is US$452 million, and it is the largest infrastructure project funded by the IIC in Jamaica. In addition to long-term financing, the IIC provided assessments to optimize dredging and mitigation measures with the aim of protecting local biodiversity and cultural heritage.