Monday, July 31, 2006
The toll on the poor
Here are some factoids I gleaned from this month's issue of Mother Jones magazine. If you're falling into one or more of these traps, you need to make some changes:
* Among households worth less than $13,500, their average net worth in 2001 was $0. By 2004, it was down to –$1,400.
Among the working poor, 13% of income is spent on commuting if public transportation is used, 21% if a private vehicle is used.
Initially an anti-redlining effort, sub-prime mortgages have risen tenfold since 1994.
Today, 1 in 4 sub-prime lenders are predatory, charging recipients 7% in up-front fees. Conventional or “prime” mortgage users are charged only 1%.
2% of prime mortgages carry prepayment penalties. 80% of sub-prime ones do.
13% of U.S. households don’t have a checking account. 1 in 10 don’t have any form of bank account.
In Chicago’s poorest areas, the ratio of check-cashing outlets to banks is 10-to-1.
Check-cashing fees for a worker who brings home $18,000 a year add up to about $450 —that’s 2.5% spent just to access income.
Nationwide, the number of payday lending outlets has risen 11,000% since 1990.
The average annual interest rate on a payday loan is more than 400%, costing borrowers $3.4 billion a year.
Credit card late fees are 194% higher than in 1994.
The average credit card balance for households earning less than $35,000 is $4,000.
At 11.5% apr, making the standard minimum payment of 2% per month, it takes 13 years to pay off a $4,000 balance.
In 2004, 7 million working poor families spent $900 million on tax prep and check-cashing fees to get their refunds sooner.
Average amount of time by which they sped up their refunds: 2 weeks.
Thursday, July 20, 2006
Senate moves to limit financial sales to military members
From the New York Times' Diana Henriques:
After two years of Congressional study, the Senate approved a bill yesterday that would tighten the rules governing the marketing of life insurance and high-cost mutual funds to American military personnel.
The measure differs slightly from a companion bill approved by the House last summer, 405 to 2, and those differences must be ironed out before final enactment. But sponsors of the Senate bill said yesterday that they were confident that the two versions could be reconciled, given their broad bipartisan support.
There ain't no way this one ain't passing! The only question is how much teeth and scope will it have?
Read on:
Like the House bill, the Senate version would give state regulators clear jurisdiction over insurance sales on military bases within their borders and would require the Defense Department to report people who violate military sales rules to those licensing agencies. It would also establish a central registry for tracking the agents base to base.
Both measures abolish an archaic form of mutual fund, known as contractual plans, with sales charges that consume half of an investor’s first-year contributions. Contractual plans have virtually disappeared from the civilian market, but they continued to be promoted heavily to military personnel until about 18 months ago.
The largest seller, First Command Financial Services of Fort Worth, dropped the product in December 2004. Without admitting or denying wrongdoing, First Command paid $12 million to settle lawsuits in which federal securities regulators accused it of deceptive sales practices.
So far, so good. So what's not covered?
The Senate bill does not include House provisions that would bar military lenders from using threats, appeals to a commanding officer or involuntary garnishing of a service member’s pay. But Senator Clinton said she did not think that those differences were “deal breakers.”
No, and they shouldn't be. First of all, the use of threats in collections is already prohibited by the Fair Credit Collections Act. Second, if a servicemember owes the money, he or she owes the money. I don't see why a servicemember ought to be exempt from the due process of law that applies to everyone else. If garnishment is not an option, the creditworthiness of all servicemembers will take a hit, and legitimate creditors will be less likely to be willing to lend to servicemembers, or expect higher interest rates to compensate them for the inability to pursue judgements and subsequent garnishments.
Furthermore, such a rule would allow anyone who got in over their heads to join the military in order to avoid/delay/deter creditors, in a sort of blue-collar version of offshore asset protection planning.
These are not the kinds of people the military wants.
Third, as a commanding officer, if I have a soldier who is having debt trouble, I want to know. If the debt problems are serious, I know whether the soldier is moonlighting or why, I can counsel him on the command policy regarding moonlighting before it becomes a problem, I can refer the soldier to credit counseling - even make it mandatory - and in extreme cases I can refer the soldier to one of several relief organizations that may be able to help.
If creditors can't approach me with problems, it's not that I can't help them. It's that I can't help the soldier.
As a reserve component commander, I get very few appeals from creditors. If I get any at all, it's from AAFES, and usually on very small amounts. On active duty, it's a much bigger concern.
The matter of abusive military lending is more likely to be addressed, she said, in negotiations over the House and Senate versions of Defense Department authorization bills. The Senate version, unlike the House bill, would limit the interest rate on loans to service members to 36 percent — effectively ending military access to “payday loans,” which are very short-term loans with finance charges that can run up triple-digit annual interest rates.
No, it will definitely NOT end military access to "payday loans," for the simple reason that it is very difficult to lend at interest rates above 100% APR and still manage to lose money.
Well, I suppose the retards that run these shops could manage it, but that's not really my concern. Consider:
1. The average payday loan borrower has to cough up $800 to repay a loan of $325.
2. The average payday loan is recycled, or flipped, eight times by the same lender. That's (1.36 x loan amount)^8!!!!!!
I support the policy recommendations of the Center for Responsible Lending:
1. Set a minimum repayment period of 90 days, with no prepayment penalty.
2. Eliminate the use of the personal check as collateral. (This would be bad for payday lenders, but good for pawn brokers, as it would drive business their way. Which is cool because I love pawn shops, and bought my first real fiddle at one. Plus, it's much easier for soldiers to walk away from a valuable securing a pawn shop loan than it is for them to swallow the threat of bounced check fees and possible legal problems.)
3. Eliminate the mandatory arbitration clause. The real reason these bastards insert mandatory arbitration clauses in their contracts is to neutralize the threat of class action lawsuits. They know their business model wouldn't stand up in front of a jury, and so rely on mandatory arbitration to isolate their customers from the communities from whence juries are drawn.
4. I part company with the Center for Responsible Lending on this one: Let the market set interest rates. All lenders should be required to disclose their APRs as well as the nominal interest rates on the loans. All lenders should further be required to disclose the AVERAGE amount of interest collected per dollar lent at that branch over the trailing three-year period. No signed disclosure, no collectibility on the loan.
Then the soldier still has access to the trash credit markets, but is in a position to make a more informed choice.
5. Commanders on active duty should appoint financial education NCOs. These soldiers can take a certifying course via AKO, and make approved financial education materials available to soldiers. Care should be taken to ensure that these NCOs receive training via an independent source, and are therefore hopefully less vulnerable to financial misinformation.
In practice, this may be very difficult to do, because financial professionals themselves cannot reach consensus over permanent cash value insurance policies vs. buy-term-and-invest-the-difference approaches. But there's a lot we can do, nevertheless.
Splash, out
Jason
Wednesday, July 19, 2006
Why you shouldn't get financial advice from a magazine
Don't bother with the article.
Read the comments.
Yes, they're largely written by annuity salespeople with a vested interest in the product. They're also right.
Ms. Bremmer is clueless. She doesn't grasp the concept of annuities as a risk management tool (as opposed to an investment), and doesn't grasp that 401ks and 403bs are NOT "alternatives" to annuities. You can put an annuity within one! As a matter of fact, much if not most of the assets within 403bs especially are annuities.
Naturally, she's written for the New York Times.
Oh, and a couple of books.
More people ought to be buying annuities, not fewer!
What an embarrassment!
Splash, out
Jason
Tuesday, July 18, 2006
All Selected Reserve Members Soon Eligible for TRICARE Benefits
Every member of the selected reserve will now have the option to purchase their health coverage
from TRICARE. Health coverage for selected reserve members who want TRS and complete all the required steps begins Oct. 1, 2006. The new TRS program eligibility determination period runs from July 1 through Sept. 25. Selected reserve members must work with their service personnel offices to determine which one of three TRS tiers they qualify for.
Servicemembers can review TRS program eligibility requirements at www.defenselink.mil/ra/ .
For additional information about the TRS benefit for members of the selected reserve visit http://www.tricare.osd.mil/reserve/reserveselect/index.cfm.
Friday, July 14, 2006
Old professions: Going after PayDay lenders
From a speech by USMC Major General Mike Lehnert, commander of Marine Corps Bases (West)
With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers. Pay day lenders take advantage that California has some of the weakest laws in the country. In North Carolina, pay day lenders are limited to 36% annual percentage rates of interest. Here in San Diego we regularly see rates of 460% and I have seen rates as high as 920% being charged legally against our service members. Service members go into a cycle of debt. Ultimately because we expect our Marines to be financially responsible, their ability to reenlist, compete for good jobs and keep a security clearance is effected.
Let me be clear. Pay day lenders are not providing our Marines with a service. They are parasites, bottom feeders and scumbags. One of them sent me a note recently telling me that he was a member of an honorable profession and that I should back off. He told me that a pay day lending institution had been found in the ruins of Pompey after Mount Vesuvius erupted. I responded to him that archeologists also found a whore house and that antiquity did not bequeath virtue. It is a shameful practice.
* Among households worth less than $13,500, their average net worth in 2001 was $0. By 2004, it was down to –$1,400.
Among the working poor, 13% of income is spent on commuting if public transportation is used, 21% if a private vehicle is used.
Initially an anti-redlining effort, sub-prime mortgages have risen tenfold since 1994.
Today, 1 in 4 sub-prime lenders are predatory, charging recipients 7% in up-front fees. Conventional or “prime” mortgage users are charged only 1%.
2% of prime mortgages carry prepayment penalties. 80% of sub-prime ones do.
13% of U.S. households don’t have a checking account. 1 in 10 don’t have any form of bank account.
In Chicago’s poorest areas, the ratio of check-cashing outlets to banks is 10-to-1.
Check-cashing fees for a worker who brings home $18,000 a year add up to about $450 —that’s 2.5% spent just to access income.
Nationwide, the number of payday lending outlets has risen 11,000% since 1990.
The average annual interest rate on a payday loan is more than 400%, costing borrowers $3.4 billion a year.
Credit card late fees are 194% higher than in 1994.
The average credit card balance for households earning less than $35,000 is $4,000.
At 11.5% apr, making the standard minimum payment of 2% per month, it takes 13 years to pay off a $4,000 balance.
In 2004, 7 million working poor families spent $900 million on tax prep and check-cashing fees to get their refunds sooner.
Average amount of time by which they sped up their refunds: 2 weeks.
From the New York Times' Diana Henriques:
There ain't no way this one ain't passing! The only question is how much teeth and scope will it have?
Read on:
So far, so good. So what's not covered?
No, and they shouldn't be. First of all, the use of threats in collections is already prohibited by the Fair Credit Collections Act. Second, if a servicemember owes the money, he or she owes the money. I don't see why a servicemember ought to be exempt from the due process of law that applies to everyone else. If garnishment is not an option, the creditworthiness of all servicemembers will take a hit, and legitimate creditors will be less likely to be willing to lend to servicemembers, or expect higher interest rates to compensate them for the inability to pursue judgements and subsequent garnishments.
Furthermore, such a rule would allow anyone who got in over their heads to join the military in order to avoid/delay/deter creditors, in a sort of blue-collar version of offshore asset protection planning.
These are not the kinds of people the military wants.
Third, as a commanding officer, if I have a soldier who is having debt trouble, I want to know. If the debt problems are serious, I know whether the soldier is moonlighting or why, I can counsel him on the command policy regarding moonlighting before it becomes a problem, I can refer the soldier to credit counseling - even make it mandatory - and in extreme cases I can refer the soldier to one of several relief organizations that may be able to help.
If creditors can't approach me with problems, it's not that I can't help them. It's that I can't help the soldier.
As a reserve component commander, I get very few appeals from creditors. If I get any at all, it's from AAFES, and usually on very small amounts. On active duty, it's a much bigger concern.
No, it will definitely NOT end military access to "payday loans," for the simple reason that it is very difficult to lend at interest rates above 100% APR and still manage to lose money.
Well, I suppose the retards that run these shops could manage it, but that's not really my concern. Consider:
1. The average payday loan borrower has to cough up $800 to repay a loan of $325.
2. The average payday loan is recycled, or flipped, eight times by the same lender. That's (1.36 x loan amount)^8!!!!!!
I support the policy recommendations of the Center for Responsible Lending:
1. Set a minimum repayment period of 90 days, with no prepayment penalty.
2. Eliminate the use of the personal check as collateral. (This would be bad for payday lenders, but good for pawn brokers, as it would drive business their way. Which is cool because I love pawn shops, and bought my first real fiddle at one. Plus, it's much easier for soldiers to walk away from a valuable securing a pawn shop loan than it is for them to swallow the threat of bounced check fees and possible legal problems.)
3. Eliminate the mandatory arbitration clause. The real reason these bastards insert mandatory arbitration clauses in their contracts is to neutralize the threat of class action lawsuits. They know their business model wouldn't stand up in front of a jury, and so rely on mandatory arbitration to isolate their customers from the communities from whence juries are drawn.
4. I part company with the Center for Responsible Lending on this one: Let the market set interest rates. All lenders should be required to disclose their APRs as well as the nominal interest rates on the loans. All lenders should further be required to disclose the AVERAGE amount of interest collected per dollar lent at that branch over the trailing three-year period. No signed disclosure, no collectibility on the loan.
Then the soldier still has access to the trash credit markets, but is in a position to make a more informed choice.
5. Commanders on active duty should appoint financial education NCOs. These soldiers can take a certifying course via AKO, and make approved financial education materials available to soldiers. Care should be taken to ensure that these NCOs receive training via an independent source, and are therefore hopefully less vulnerable to financial misinformation.
In practice, this may be very difficult to do, because financial professionals themselves cannot reach consensus over permanent cash value insurance policies vs. buy-term-and-invest-the-difference approaches. But there's a lot we can do, nevertheless.
Splash, out
Jason
After two years of Congressional study, the Senate approved a bill yesterday that would tighten the rules governing the marketing of life insurance and high-cost mutual funds to American military personnel.
The measure differs slightly from a companion bill approved by the House last summer, 405 to 2, and those differences must be ironed out before final enactment. But sponsors of the Senate bill said yesterday that they were confident that the two versions could be reconciled, given their broad bipartisan support.
There ain't no way this one ain't passing! The only question is how much teeth and scope will it have?
Read on:
Like the House bill, the Senate version would give state regulators clear jurisdiction over insurance sales on military bases within their borders and would require the Defense Department to report people who violate military sales rules to those licensing agencies. It would also establish a central registry for tracking the agents base to base.
Both measures abolish an archaic form of mutual fund, known as contractual plans, with sales charges that consume half of an investor’s first-year contributions. Contractual plans have virtually disappeared from the civilian market, but they continued to be promoted heavily to military personnel until about 18 months ago.
The largest seller, First Command Financial Services of Fort Worth, dropped the product in December 2004. Without admitting or denying wrongdoing, First Command paid $12 million to settle lawsuits in which federal securities regulators accused it of deceptive sales practices.
So far, so good. So what's not covered?
The Senate bill does not include House provisions that would bar military lenders from using threats, appeals to a commanding officer or involuntary garnishing of a service member’s pay. But Senator Clinton said she did not think that those differences were “deal breakers.”
No, and they shouldn't be. First of all, the use of threats in collections is already prohibited by the Fair Credit Collections Act. Second, if a servicemember owes the money, he or she owes the money. I don't see why a servicemember ought to be exempt from the due process of law that applies to everyone else. If garnishment is not an option, the creditworthiness of all servicemembers will take a hit, and legitimate creditors will be less likely to be willing to lend to servicemembers, or expect higher interest rates to compensate them for the inability to pursue judgements and subsequent garnishments.
Furthermore, such a rule would allow anyone who got in over their heads to join the military in order to avoid/delay/deter creditors, in a sort of blue-collar version of offshore asset protection planning.
These are not the kinds of people the military wants.
Third, as a commanding officer, if I have a soldier who is having debt trouble, I want to know. If the debt problems are serious, I know whether the soldier is moonlighting or why, I can counsel him on the command policy regarding moonlighting before it becomes a problem, I can refer the soldier to credit counseling - even make it mandatory - and in extreme cases I can refer the soldier to one of several relief organizations that may be able to help.
If creditors can't approach me with problems, it's not that I can't help them. It's that I can't help the soldier.
As a reserve component commander, I get very few appeals from creditors. If I get any at all, it's from AAFES, and usually on very small amounts. On active duty, it's a much bigger concern.
The matter of abusive military lending is more likely to be addressed, she said, in negotiations over the House and Senate versions of Defense Department authorization bills. The Senate version, unlike the House bill, would limit the interest rate on loans to service members to 36 percent — effectively ending military access to “payday loans,” which are very short-term loans with finance charges that can run up triple-digit annual interest rates.
No, it will definitely NOT end military access to "payday loans," for the simple reason that it is very difficult to lend at interest rates above 100% APR and still manage to lose money.
Well, I suppose the retards that run these shops could manage it, but that's not really my concern. Consider:
1. The average payday loan borrower has to cough up $800 to repay a loan of $325.
2. The average payday loan is recycled, or flipped, eight times by the same lender. That's (1.36 x loan amount)^8!!!!!!
I support the policy recommendations of the Center for Responsible Lending:
1. Set a minimum repayment period of 90 days, with no prepayment penalty.
2. Eliminate the use of the personal check as collateral. (This would be bad for payday lenders, but good for pawn brokers, as it would drive business their way. Which is cool because I love pawn shops, and bought my first real fiddle at one. Plus, it's much easier for soldiers to walk away from a valuable securing a pawn shop loan than it is for them to swallow the threat of bounced check fees and possible legal problems.)
3. Eliminate the mandatory arbitration clause. The real reason these bastards insert mandatory arbitration clauses in their contracts is to neutralize the threat of class action lawsuits. They know their business model wouldn't stand up in front of a jury, and so rely on mandatory arbitration to isolate their customers from the communities from whence juries are drawn.
4. I part company with the Center for Responsible Lending on this one: Let the market set interest rates. All lenders should be required to disclose their APRs as well as the nominal interest rates on the loans. All lenders should further be required to disclose the AVERAGE amount of interest collected per dollar lent at that branch over the trailing three-year period. No signed disclosure, no collectibility on the loan.
Then the soldier still has access to the trash credit markets, but is in a position to make a more informed choice.
5. Commanders on active duty should appoint financial education NCOs. These soldiers can take a certifying course via AKO, and make approved financial education materials available to soldiers. Care should be taken to ensure that these NCOs receive training via an independent source, and are therefore hopefully less vulnerable to financial misinformation.
In practice, this may be very difficult to do, because financial professionals themselves cannot reach consensus over permanent cash value insurance policies vs. buy-term-and-invest-the-difference approaches. But there's a lot we can do, nevertheless.
Splash, out
Jason
Wednesday, July 19, 2006
Why you shouldn't get financial advice from a magazine
Don't bother with the article.
Read the comments.
Yes, they're largely written by annuity salespeople with a vested interest in the product. They're also right.
Ms. Bremmer is clueless. She doesn't grasp the concept of annuities as a risk management tool (as opposed to an investment), and doesn't grasp that 401ks and 403bs are NOT "alternatives" to annuities. You can put an annuity within one! As a matter of fact, much if not most of the assets within 403bs especially are annuities.
Naturally, she's written for the New York Times.
Oh, and a couple of books.
More people ought to be buying annuities, not fewer!
What an embarrassment!
Splash, out
Jason
Tuesday, July 18, 2006
All Selected Reserve Members Soon Eligible for TRICARE Benefits
Every member of the selected reserve will now have the option to purchase their health coverage
from TRICARE. Health coverage for selected reserve members who want TRS and complete all the required steps begins Oct. 1, 2006. The new TRS program eligibility determination period runs from July 1 through Sept. 25. Selected reserve members must work with their service personnel offices to determine which one of three TRS tiers they qualify for.
Servicemembers can review TRS program eligibility requirements at www.defenselink.mil/ra/ .
For additional information about the TRS benefit for members of the selected reserve visit http://www.tricare.osd.mil/reserve/reserveselect/index.cfm.
Friday, July 14, 2006
Old professions: Going after PayDay lenders
From a speech by USMC Major General Mike Lehnert, commander of Marine Corps Bases (West)
With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers. Pay day lenders take advantage that California has some of the weakest laws in the country. In North Carolina, pay day lenders are limited to 36% annual percentage rates of interest. Here in San Diego we regularly see rates of 460% and I have seen rates as high as 920% being charged legally against our service members. Service members go into a cycle of debt. Ultimately because we expect our Marines to be financially responsible, their ability to reenlist, compete for good jobs and keep a security clearance is effected.
Let me be clear. Pay day lenders are not providing our Marines with a service. They are parasites, bottom feeders and scumbags. One of them sent me a note recently telling me that he was a member of an honorable profession and that I should back off. He told me that a pay day lending institution had been found in the ruins of Pompey after Mount Vesuvius erupted. I responded to him that archeologists also found a whore house and that antiquity did not bequeath virtue. It is a shameful practice.
Read the comments.
Yes, they're largely written by annuity salespeople with a vested interest in the product. They're also right.
Ms. Bremmer is clueless. She doesn't grasp the concept of annuities as a risk management tool (as opposed to an investment), and doesn't grasp that 401ks and 403bs are NOT "alternatives" to annuities. You can put an annuity within one! As a matter of fact, much if not most of the assets within 403bs especially are annuities.
Naturally, she's written for the New York Times.
Oh, and a couple of books.
More people ought to be buying annuities, not fewer!
What an embarrassment!
Splash, out
Jason
Every member of the selected reserve will now have the option to purchase their health coverage
from TRICARE. Health coverage for selected reserve members who want TRS and complete all the required steps begins Oct. 1, 2006. The new TRS program eligibility determination period runs from July 1 through Sept. 25. Selected reserve members must work with their service personnel offices to determine which one of three TRS tiers they qualify for.
Servicemembers can review TRS program eligibility requirements at www.defenselink.mil/ra/ .
For additional information about the TRS benefit for members of the selected reserve visit http://www.tricare.osd.mil/reserve/reserveselect/index.cfm.
from TRICARE. Health coverage for selected reserve members who want TRS and complete all the required steps begins Oct. 1, 2006. The new TRS program eligibility determination period runs from July 1 through Sept. 25. Selected reserve members must work with their service personnel offices to determine which one of three TRS tiers they qualify for.
Servicemembers can review TRS program eligibility requirements at www.defenselink.mil/ra/ .
For additional information about the TRS benefit for members of the selected reserve visit http://www.tricare.osd.mil/reserve/reserveselect/index.cfm.
Friday, July 14, 2006
Old professions: Going after PayDay lenders
From a speech by USMC Major General Mike Lehnert, commander of Marine Corps Bases (West)
With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers. Pay day lenders take advantage that California has some of the weakest laws in the country. In North Carolina, pay day lenders are limited to 36% annual percentage rates of interest. Here in San Diego we regularly see rates of 460% and I have seen rates as high as 920% being charged legally against our service members. Service members go into a cycle of debt. Ultimately because we expect our Marines to be financially responsible, their ability to reenlist, compete for good jobs and keep a security clearance is effected.
Let me be clear. Pay day lenders are not providing our Marines with a service. They are parasites, bottom feeders and scumbags. One of them sent me a note recently telling me that he was a member of an honorable profession and that I should back off. He told me that a pay day lending institution had been found in the ruins of Pompey after Mount Vesuvius erupted. I responded to him that archeologists also found a whore house and that antiquity did not bequeath virtue. It is a shameful practice.
With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers. Pay day lenders take advantage that California has some of the weakest laws in the country. In North Carolina, pay day lenders are limited to 36% annual percentage rates of interest. Here in San Diego we regularly see rates of 460% and I have seen rates as high as 920% being charged legally against our service members. Service members go into a cycle of debt. Ultimately because we expect our Marines to be financially responsible, their ability to reenlist, compete for good jobs and keep a security clearance is effected.
Let me be clear. Pay day lenders are not providing our Marines with a service. They are parasites, bottom feeders and scumbags. One of them sent me a note recently telling me that he was a member of an honorable profession and that I should back off. He told me that a pay day lending institution had been found in the ruins of Pompey after Mount Vesuvius erupted. I responded to him that archeologists also found a whore house and that antiquity did not bequeath virtue. It is a shameful practice.
