Predatory Lending
and Credit
Did You Know?
Source: CFED - 2014 Assets and Opportunities Scorecard
Here’s Why...
• Credit reports may contain reporting
errors that negatively impact credit
scores
• Unknown derogatory accounts can be
reported at any time
• Predatory loans gone bad
• Most people don’t know the process of
remediation (do it yourself credit repair)
Discussion Topics:
• What types of lending practices are considered predatory and
how to avoid them
• Where to go for help to get unraveled from fraudulent lending
practices
• How to manage and maintain control of your credit
• The specific steps to take to improve your credit scores
Predatory Lending Do Not Always Appear Expensive
The Need
The Ease
The Talk
Where Predatory Lending Shows Up
• Payday Lenders
• Car Lots
• For-Profit Colleges
• Credit Cards
391.07
a 14-day, $500 payday loan with the maximum fee permitted by
statute would have an APR of 391.07%.
Source: http://www.dfi.wa.gov/consumers/education/payday_loans.htm
Your Rights as A Washington Resident
• Any payday loan obtained from a lender not licensed with the DFI, and
not repaid to the lender may not be collected by lender and the lender
may not pursue action in Washington State to collect the debt. See RCW 31.45.105.
• You have the right to change your mind about the loan within one day.
• You have the right to know all of the costs involved. You also have the
right to a payment plan.
• A payday lender may not threaten criminal prosecution as a method of
collecting a past due loan.
What do these have in common?
Yo-Yo Sales
• You negotiate a car deal and drive the car home
• Dealer calls back and says your financing didn’t go
through and that they have a different financing package
• The “new” financing is usually more expensive than what
was originally quoted
Ever experience any of this?
• The dealer threatens action to retrieve the car
• The trade in could not be returned or was already sold
• The down payment was non-refundable
• The dealer charged a rental fee, usage fee, or restocking
fee for the time the customer had the car
• The payment for taxes, title and fees could not be returned
Signs of a Bad Auto Loan
Dealer Kickbacks
Junk Fees
Yo-Yo Sales
Buy Here, Pay Here
No Option for Justice
For Profit College
Student Loans
State Attorney Generals in 14 States
supported the S. 2204 (Sept 2014)
Honorable Richard J. Durbin
Proprietary Education Oversight
Coordination Improvement Act
Arkansas, Connecticut, Illinois, Iowa,
Kentucky, Maine, Maryland, Mississippi,
Missouri, Nevada, New Mexico,
Oregon, Pennsylvania, Tennessee
http://www.nclc.org/issues/student-loans.html
Debt Collectors
• Can’t lie about the amount owed
• Can’t say that the person is an attorney
• Can’t make false threats to have you arrested
• Can’t threaten to do things that cannot legally
be done
• Can’t threaten to do things that the debt
collector has no intention of doing
Consumer Financial
Protection Bureau
http://www.consumerfinance.gov/complaint/
Your Credit
Case Study: John, Credit Score peaked at 712
680
Paid a Questionable Collection
Debt Because the Collector
was Demanding.
620
435
Closed a Paid Off Credit
Card in Good Standing.
Requested Two Other Creditors
to Reduce His Credit Limit.
Consolidated His Remaining
Credit Card Debt onto One
Card.
Started Making Installment
Payments on an old Collection
Account.
Avoid Credit Score Dropping Activity!
What Impacts Your
Scores
Impact on Credit Scores
THE RISE AND FALL OF A CREDIT SCORE
Score peaks
based on
good credit
management
Things
Happen:
• 30,60,90 day
lates
• Mortgage
Default
• Divorce
• Bankrupcty
• Collection
• Identity Theft
Recovery
Time
Score Bottoms Out
Time Progression
Recency, Frequency and Severity
Severity – 30 day late
payments are not as bad
as 90 day late payments.
Frequency – how many late payments are
recorded on the same account? How many
instances are reported on the account?
Recency – how recent was the derogatory mark
reported by the creditor? A mark reported last month
has greater impact than a mark reported last year.
Your FICO Score
10%
Payment History
10%
35%
Amount Owed
15%
Length of Credit History
30%
New Credit
Types of Credit Used
RISK SCORE REASON CODES – Summary of Factors
Account payment history too new to rate.
Amount owed on collections filed.
Amount owed on revolving accounts are too high.
Amount past due on accounts.
Derogatory public record or collection filed.
Length of time installment loans have been established.
Credit Risk Score Reason Codes are only provided on credit reports that
are published with credit scores.
RISK SCORE REASON CODES – Summary of Factors
Proportion of loan balances to loan amounts is too high.
Serious Delinquency.
Time since derogatory record or collection is too short.
Too many inquiries in the last 12 months.
Too many revolving accounts.
Too few accounts currently paid as agreed.
Credit Risk Score Reason Codes are only provided on credit reports that
are published with credit scores.
Credit Repair Myths
✓ Myth: You Don’t Have to Use Credit to Get a Good Credit Score
Fact: The credit score engines look at recent credit activity. If you want to
raise the score, you must have current activity
✓ Myth: Paying off a Debt Removes is from Your Credit Report
Fact: The account does not come off the report just because you paid it. It
will stay on as long as the statute of limitations allow.
✓
Myth: Putting a 100-word Statement on Your Credit Report will
Improve Your Score on an Account You Are Disputing
Fact: The Credit Scoring Engines do not take this into account when
calculating your score.
Fair Credit Reporting Act
http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-credit-reporting-act
Fair Credit Reporting Act
• Disclose your credit file to you upon request.
• Limit access to your information.
• Get your consent before providing your information to an
employer.
• Investigate disputed information.
• Correct or delete inaccurate information.
• Delete outdated information.
• Remove your name from marketing lists upon request.
• 1-888-5-OPT OUT
• Disclose your credit score to you upon request.
Write the Right Letters
Correction Letter
Deletion Letter
To request a correction or an update to an
account that is being reported wrong.
To request the complete removal of an
account that should not appear at all.
Addition to Credit Report Letter
Debt Validation Letter
To add positive information to your
credit report that is currently not
being reported.
For every collection agency that is
asking you to pay a debt, make a
written request for them to validate
the debt first before agreeing to
anything.
Equifax.com
Experian.com
TransUnion.com
ONLINE DISPUTE PROCESS
What to Do at Various
Stages of Credit Scores
Credit Score Range
300
410
520
630
740
850
If you are here…
300
440
460
480
500
520
If you are here…
520
540
560
580
600
620
If you are here…
620
640
660
680
700
720+
If you are here…
720
740
760
780
800
850
Do it Yourself Credit Improvement:
Review Your Credit Report
and Scores:
annualcreditreport.com
Correspond with Creditors and
the Credit Reporting Agencies
Write Dispute Letters Regarding
Unfamiliar and Incorrect Accounts
Review Your Credit Score
Risk Factor Codes
Determine Your Ability and
Method to Pay Off Your Debt
Payoff or Reduce Credit Cards
Balances to 30% of Credit Limit
Start and Keep the Good
Stuff Going