Student loan default rates rise as federal scrutiny grows

Published: September 29, 2012 10:59 AM
By BLOOMBERG NEWS

Photo credit: Kevin P. Coughlin | Members of the Brentwood Class of 2012 celebrate following a graduation ceremony at Brentwood High School Saturday June 23, 2012.

More than one in 10 borrowers defaulted on their federal student loans, intensifying concern about a generation hobbled by $1 trillion in debt and the role of colleges in jacking up costs.

 

The default rate, for the first three years that students are required to make payments, was 13.4 percent, with for-profit colleges reporting the worst results, the U.S. Education Department said today.

The Education Department has revamped the way it reports student-loan defaults, which the government said had reached the highest level in 14 years. Previously, the agency reported the rate only for the first two years payments are required. Congress demanded a more comprehensive measure because of concern that colleges counsel students to defer payments to make default rates appear low.

“Default rates are the tip of the iceberg of borrower distress,” said Pauline Abernathy, vice president of The Institute for College Access & Success, a nonprofit based in Oakland, California.
The data follows complaints that commission-driven debt collectors the government hires aren’t telling students about affordable options to repay their debt, especially a plan that lets them make payments tied to their incomes. Students have borrowed $1 trillion to pay for higher education, surpassing credit-card debt.

More Disclosure
Congress is also examining the often deceptive letters that college financial-aid offices send to admitted students that play down the cost of attendance by making government loans seem like grants. Barack Obama’s administration, as well as Republicans and Democrats in Congress, are calling for more disclosure about college costs and student outcomes.

On the stump, President Obama has touted an executive order that eases the process for applying for a loan program that lets students make lower payments tied to their income -- easing their burden and making it less likely they will default.

Republican challenger Mitt Romney said that initiative encourages students to take on more debt. Romney advocates cutting education regulation and encouraging colleges to become more efficient, lowering costs partly through the use of online instruction.

The government tracks default data to protect taxpayers and keep students from attending programs that don’t prepare them for employment.

School Accountability
“We continue to be concerned about default rates and want to ensure that all borrowers have the tools to manage their debt,” U.S. Secretary of Education Arne Duncan said in a statement. “In addition to helping borrowers, we will also hold schools accountable for ensuring their students are not saddled with unmanageable student loan debt.”

Under the new three-year measure, colleges with default rates of 30 percent or more for three consecutive years risk losing eligibility for federal financial aid. Schools can also be barred from the program if the rate balloons to 40 percent in a single year. The sanctions don’t take effect until results are released in 2014.

Today’s report covers the three years through Sept. 30, 2011. For all colleges, the 13.4 percent rate exceeded the two- year rate of 9.1 percent -- the worst in 14 years -- and up from 8.8 percent a year earlier.

By the new three-year yardstick, the default rate at for- profit colleges was 22.7 percent. Based on the two-year period, they reported a 12.9 percent default rate.

Under the three-year-period, public colleges reported an 11 percent rate while private nonprofit schools had a rate of 7.5 percent.

Rate Manipulation
Some for-profit colleges encourage students to defer payments in their early years, in an effort to keep down default rates that could jeopardize their federal funding, according to a report by the Senate Committee on Health, Education, Labor and Pensions released in July.

The report accused for-profits of using the tactic to manipulate their default rates. It singled out the role of SLM Corp. (SLM), the largest U.S. student-loan company commonly known as Sallie Mae. A subsidiary, General Revenue Corp. counsels for- profit colleges on keeping down default rates. University of Phoenix, owned by Apollo Group Inc. (APOL), is a customer, according to the Congressional report.

Apollo, SLM
Apollo and Sallie Mae use loan forbearance as “a last resort,” Patricia Nash Christel, a spokeswoman for Sallie Mae, and Richard Castellano, an Apollo spokesman, said in separate e- mails.

Apollo provides financial incentives for those administering its loans to get students into repayment plans, rather than defer payments, Castellano said.

“Congress has encouraged schools to reduce default rates, and we help them achieve that goal,” Christel said.

Phoenix-based Apollo, the largest for-profit college company, fell 0.65 percent to $29.05 at the close in New York. The stock has declined 31 percent in the past year.

For-profit colleges cater to working adults and first- generation college students, Steve Gunderson, president of the Washington-based Association of Private Sector Colleges and Universities, said in a statement about the default rates. The industry has said the demographics of its students account for its schools’ higher default rates.

The new data suggest that student-loan debt may damage students’ economic prospects for many years, said Stephen Rose, a labor economist at Georgetown University.

“The more people having trouble today means that more people will have trouble in the future because they are starting out building up a larger balance, and they’re not paying them off,” Rose said in a telephone interview.

How To Opt Out Of Pre-approved Credit Card Offers

 

By IndexCreditCards.com 09/29/12 - 11:00 AM EDT

 

 

Although you may not be able to shut off the flow of direct-mail ads for credit cards entirely, you can narrow the stream.
The Fair Credit Reporting Act lets insurers and creditors send unsolicited offers based on information they learn about consumers through credit reporting bureaus. Anytime you get pre-approved credit card offers, you can bet the companies got information about your credit history to make sure you fit their target markets.

Get alerts before Link and Cramer make every trade

On the other hand, the law also gives you the right to just say no. Some consumers choose not to receive prescreened credit card offers because they want to protect their privacy, avoid the temptation to run up additional debt, or prevent thieves from stealing pre-approved applications from their mailboxes.

How to opt out of prescreened credit card offers

1. Opt out of credit card offers onlineMake your request to opt out through the consumer credit reporting industry's website, OptOutPrescreen.com. The website guides you through the process of submitting your name, address, Social Security number and date of birth.Within five business days, your name should then be removed from the lists that consumer credit reporting bureaus supply to companies wishing to make prescreened offers for credit and insurance. But don't be surprised if you continue to receive some credit card ads after you have opted out. Opting out only ends prescreened offers, not other direct-mail ads. In addition, you may continue to receive prescreened offers for several weeks after you opt out simply because some companies may have gotten your name before you submitted your request.2. How long can you opt out?You can choose to opt out from prescreened credit and insurance offers for five years or permanently, so decide how long you want to shut off the tap. If you want to opt out permanently, you must confirm your request in writing after you complete the information online. The website provides a form to print out and mail in.

Make informed decisions

It's easy to opt out of prescreened credit card offers. But before you pull the plug, do consider the upside. Sometimes prescreened solicitations let you know about offers not available to the general public and help you comparison shop for credit cards. But even if you do opt out, you can still find and apply for credit card offers online if you like and you can opt back in if you change your mind later as well.

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Challenge to deliver banking reform

Saturday, September 29, 2012

Western Daily Press

 

Financial Services Authority managing director Martin Wheatley's savage indictment of the shameless greed and complacency that spawned the Libor scandal leaves no room for misunderstanding.

Yesterday, Mr Wheatley unceremoniously dissected the interest-rate rigging scandal that led to the exit of Barclays boss Bob Diamond and delivered an eye-wateringly candid verdict.
The British public deserved absolutely nothing less. The Libor debacle was so corrosive that it undermined the very fabric of the financial system. Until the scandal broke, few of us had heard of Libor let alone understood its significance.

Now we know all too well that it is a mechanism that lies at the very heart of our global banking system. We know now that to take outrageous liberties with this critical piece of financial apparatus is to unhinge the whole system. It requires breathtaking recklessness to do such a thing – but clearly, as we now know, there were plenty of bankers, experienced ones at that, who were more than willing to play fast and loose in this way. Most of them clearly knew better but were too consumed by greed and opportunism to steer clear of temptation.

Every sane person will surely applaud Mr Wheatley's call for stiff penalties for Libor abusers, including prison terms and large fines. The system and the individuals participating in it are to be brought under the control of the FSA, Mr Wheatley's organisation. This too, seems eminently sensible and we trust that the Government will smooth the passage of these reforms into the law books.

But there are further questions that merit answers from the financiers and the politicians.
One is this: why was the FSA unable to identify the looming disaster, given that it was surely clear to the authority that Libor could not be left unregulated?

A second question is this: why did the Bank of England fail to pursue concerns? Its position as a bastion of probity in our financial system was tarnished by the banking crisis of 2088 and its aftermath. The Libor scandal damages it further.

And thirdly, perhaps the most challenging question is this: given its shaky recent record, can the FSA guarantee Libor is safe in its hands?

One thing is certain. the banking system is there for its customers, not for the bankers themselves.

Banking culture change 'will take a generation'

Stephen Hester: Banking culture change 'will take a generation'

Stephen Hester, chief executive of Royal Bank of Scotland, has admitted it will take a generation to change the culture in the banking industry.

Stephen Hester, RBS chief executive, says he believes the general public must view the industry’s current failings as a “very unedifying sight”. Photo: GETTY

By James Quinn

10:30PM BST 29 Sep 2012

 

In a remarkably candid interview, the banking veteran says he believes the general public must view the industry’s current failings as a “very unedifying sight”. He also points out that “there are criminals in any walk of life, not just banking”.
 

Coming in the week after the bank was drawn further into the Libor-fixing scandal – after court documents cited former RBS traders boasting how much money could be made from fixing the interbank rate – the interview will be seen as a further mea culpa from Mr Hester on behalf of his industry.
 

News of his comments comes ahead of what is expected to be a much-followed speech on Monday night at the London School of Economics, entitled “Rebuilding Banking”.
 

Although the bank has declined to comment on what Mr Hester will cover in his talk, it is expected he will attempt to build on those comments, as well as detail how he is pushing ahead with his plans at the bank, which is 82pc owned by the British taxpayer.
 

The interview was given to RBS Business Agenda, a magazine delivered to the bank’s corporate customers, a copy of which has been seen by The Telegraph. It contains some comments similar to those he made in an interview on BBC Radio 4’s Today programme in August, during which he famously said bankers must become “servants of the customer”.

But he added: “We need to understand that people are … saying here is an industry with a cultural problem.

 

“But culture changes over a generation, not on the turn of a sixpence.” But he stressed that industry incidents, such as the Libor scandal – for which Barclays is the only bank so far to have been fined by global regulators – are not helpful.

“I find some of the behaviour that has been exposed sad and aggravating because the vast majority of bank staff are honest people who work hard to serve their customers. Likewise, the vast majority of things that banks do are done relatively well and competently,” he said.

He also pointed out that problems in the industry tend to be the responsibility of a few: “Often reputational hits are caused by small numbers of wrongdoers who are not illustrative of the wider base of staff.”

The interview also covers his thoughts on the bank’s relationship with the Treasury and Department for Business, Innovation and Skills, as well as a robust defence of the bank’s lending policies.

In a personal admission, the banker admits he has not enjoyed his own high profile: “I was not ready for the transfer of my profile from business pages to other pages of newspapers, and that was upsetting. It’s the least attractive bit of my job.”

The comments made in the interview follow on from those Mr Hester made last week in a speech at the Bank of America Merrill Lynch banking conference. He told banking analysts and investors: “The pendulum has swung, society has a different attitude to and determination to make sure that banks behave in a different way and improve their reputation.”

His comments in part build on those of Sir Philip Hampton, the RBS chairman, who in May admitted the bank’s investors would not regain wealth “in my lifetime”.
An RBS spokesman declined to comment further.

FSA ups estimate of mis-sold swaps

FSA lifts estimate of mis-sold swaps

More than 40,000 interest rate swaps could have been mis-sold to small businesses by their lenders, according to a revised estimate of the potential scale of the scandal by the Financial Services Authority.

The FSA has been forced to up its estimate of products mis-sold to businesses across the country by about a third. Photo: PA

By Harry Wilson

 

The FSA has been forced to up its estimate of products mis-sold to businesses across the country by about a third, from 28,000, after being supplied with new information by banks.
 

The new figure suggests the potential cost of the swap mis-selling scandal could be substantially higher than current estimates by both banks and the regulator.
 

Barclays, HSBC and Royal Bank of Scotland have so far put aside a combined total of about £630m against the cost of compensating customers mis-sold interest rate hedging products by their investment banking arms. Lloyds Banking Group has said it does not expect the compensation costs to be “material”.

Britain’s four major banks signed up to an FSA redress programme in June. Seven smaller lenders, including the Co-op and Santander UK, have also joined the compensation scheme.

Barclays is in the process of putting together a 500-strong team to process swap mis-selling claims, while all the banks have also hired major accountancy firms to act as independent reviewers to oversee the compensation process.

Estimates of the eventual cost of swap mis-selling vary greatly, however some derivatives experts believe the scandal could end up costing the banking industry more than £10bn, potentially making it more costly than payment protection insurance mis-selling.

 

The dramatic upward revision follows more detailed information being handed to the regulator by the banks on how many interest rate swap contracts they sold to their small business customers.
There are even suggestions the scandal could get far bigger if the FSA decides to investigate fixed-rate business loans, sold by banks, that contain embedded derivative contracts that have left some customers with large break costs, which they say they were never warned about.

Experts: Don’t use home equity to pay off credit cards

 

Neil Brown
Periodically, The State’s financial columnists, Ashleigh Brooker and Neil Brown, certified financial planners in the Midlands, will offer their views on a question from a reader.

This week’s question:

Should I refinance my home and/or take out the equity to pay off my credit cards?
 

Ashleigh said…
I heard this question more often during the height of the real estate market, but not in recent years. The primary reason being, many of the same people who had equity in their homes five years ago have significantly less, if any, today. However, with today’s interest rates being at historic lows, refinancing into a lower rate and/or for a shorter term can significantly lower your borrowing costs. While refinancing your home makes sense in many cases, I am not a fan of using the equity in your home to pay off your consumer debt.

I primarily do not recommend it because it often gives the consumer a false sense of their true financial condition. Consequently, debts that have nothing to do with your home, which in many cases is a family’s biggest and only asset, are now associated with that house. Reducing the equity in your home may not seem like a big deal at the time of refinancing, but it can be a huge deal if you decide to sell your home in a weak real estate market. No buyer cares what you owe the bank. Instead, they only care about the market value of your property, and a wise buyer will not pay a penny more. Given that you only net the difference between the selling price and the debt, the more debt you have associated with the house, the less you net.

The bigger problem that I notice is that the lower monthly payments for the newly consolidated debts create the illusion of a pay raise. Unfortunately, many people return to their same financially unhealthy habits instead of applying the extra cash to other financial goals or accelerating their debt repayment. For the undisciplined consumer, it is easy to find yourself in a worse position than what initially led you to try this strategy.

Neil said…
There are a limited number of times where using a home equity line or rolling debt into a mortgage may make sense. For instance, an individual has accumulated too much credit card debt at very high rates. Transferring this debt to a home equity line of credit could prove beneficial in simply lowering your interest rate. This assumes the consumer has the discipline to not simply make the minimum payments, but to pay down this debt quickly. Making minimum payments or rolling this debt into a newly refinanced mortgage, can make that $1,000 TV cost $1,500 to $3,000 depending upon the method of transfer.

Another, albeit weak, reason to consolidate one’s credit card debt into an equity line of credit is taxes. In using an equity line of credit, which is secured by your home, you have turned nondeductible credit card interest into deductible mortgage interest. While the tax law can be complicated, the basic rule allows one to deduct the interest associated with the first $100,000 of equity debt. The negative in this is that you have now pledged your home as collateral. If you experience payment difficulties, this pledged collateral can be taken from you.

While an argument can be made to use your equity line to reduce your interest rate and your taxes, I must agree with Ashleigh in that this should be avoided by spending wisely in the first place.

Read more here: http://www.thestate.com/2012/09/30/2462316/experts-dont-use-home-equity-to.html#storylink=cpy

a serious plan for "fixing" the real estate market

Just when you think Wall Street can't possibly get any more arrogant and self-serving...

Here's a serious plan for "fixing" the real estate market.


http://www.realecontv.com/videos/real-estate/a-fix-for-the-real-estate-market-.html

No One At Home: How To Deal With Foreclosures In Your Community

To prevent homes from going into foreclosure, try to help neighbors in need.

September 28, 2012 |

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Minority neighborhoods in America have been devastated by foreclosures, with banks taking over the homes that remain vacant indefinitely. Several banks, including most recently Bank of America , have been called to task by The National Fair Housing Alliance, which has filed official complaints to the U.S. Department of Housing and Urban Development about the poor maintenance of these vacant homes.

Los Angeles realtor Chantay Bridges of Clear Choice Realty & Associates tells us in an email there are various reasons behind the neglect. For the most part, a lack of legal enforcement allows banks to be careless in black and Latino neighborhoods. “In some states, there are no laws in place to prevent the banks from not adhering to bias practices,” Bridges said. And where there are laws, they are rarely enforced. “It costs the city, tax-paying citizens and banks a considerable amount to maintain foreclosed homes. Therefore some institutions may forego maintenance in lieu of paying a fee for negligence.” In other words, for the banks it most likely doesn’t come down to race, but money.

“For some lenders it may not be a question of black versus white communities, it may be driven by, affluent versus impoverished. Poverty and wealth always plays a role,” she says. “In wealthier neighborhoods you may find more assistance in maintaining a foreclosed home such as alarms, private security companies, strong community organizations, etc. [R]egardless, it is the bank’s responsibility… to maintain the bank-owned homes. It affects property values overall.” Vacant homes also attract squatters and trespassers and can lead to increased crime.

But you can take matters into your own hands.

Bridges suggests taking a petition to the local councilperson, contacting the bank, or the realtor. “Ask for increased fines and penalties for banks that do not maintain their REO properties,” she wrote. “Contact the listing agent on the sign and find out who is responsible for the upkeep. Ask the lender to provide a foreclosure list and who is responsible for each property in your community.”

To prevent other homes from going into foreclosure, try to help neighbors in need. “Organize or host foreclosure-prevention workshops. Request a community-based organization to come to your neighborhood and hold a meeting. The workshops could give your quietly struggling neighbors the assistance they need,” reports Investopedia.com in the article “ Don’t Let Foreclosed Homes Ruin Your Neighborhood .”
According to the article, there are various organizations take can give you advice and be a resource to deal with this issue in your neighborhood. They include the National Housing Institute , National Vacant Properties Campaign and Neighborhood Works America .

Shocker Stat: Life Expectancy Decreases by 4 Years Among Poor Whites in U.S.

Shocker Stat: Life Expectancy Decreases by 4 Years Among Poor Whites in U.S.

 http://www.alternet.org/hot-news-views/shocker-stat-life-expectancy-decreases-4-years-among-poor-whites-us?akid=9468.1118007.6nr26f&rd=1&src=newsletter718750&t=22

 

Yesterday, the New York Times reported on an alarming new study: researchers have documented that the least educated white Americans are experiencing sharp declines in life expectancy. Between 1990 and 2008, white women without a high school diploma lost a full five years of their lives, while their male counterparts lost three years. Experts say that declines in life expectancy in developed countries are exceedingly rare, and that in the U.S., decreases on this scale "have not been seen in the U.S. since the Spanish influenza epidemic of 1918." Even during the Great Depression, which wrought economic devastation and severe psychic trauma for millions of Americans, average life expectancy was on the increase.

What are the reasons for the disturbing drop in life expectancy among poor white folks, and in particular for the unusually large magnitude of the decline? According to the Times, researchers are baffled: one expert said, “There’s this enormous issue of why . . . It’s very puzzling and we don’t have a great explanation." Undoubtedly, the increasing numbers of low-income Americans without health insurance is a major contributor factor. Researchers also say that lifestyle factors such as smoking, which has increased among low-income white women, play a role; poor folks tend to engage in more risky health behaviors than their more affluent counterparts.

I will offer an alternative hypothesis, one which is not explicitly identified in the Times article: inequality. In the U.S., the period between 1990 and 2008, which is a period that saw such steep declines in life expectancy for the least well-off white people, is also a period during which economic inequality soared. Moreover, there is a compelling body of research that suggests that inequality itself -- quite apart from low incomes, or lack of health insurance -- is associated with more negative health outcomes for those at the bottom of the heap. One of the most famous series of studies of the social determinants of health, Britain's Whitehall Studies, had as their subjects British civil servants, all of whom health insurance and (presumably) decent enough jobs. Intriguingly, these studies

found a strong association between grade levels of civil servant employment and mortality rates from a range of causes. Men in the lowest grade (messengers, doorkeepers, etc.) had a mortality rate three times higher than that of men in the highest grade (administrators).

The Whitehall studies found that while workers in the lower grades were more likely to be at risk for coronary heart disease due to factors such as higher rates of smoking, higher blood pressure, etc., even after controlling for those confounding factors, these workers still experienced significantly higher mortality rates. So what was behind such disparate health incomes among high-status and low-status workers? Researchers pointed the finger at inequality, hypothesizing that various psychosocial factors associated with inequality — such as the higher levels of stress at work and at home experienced by the lower tier workers, as well as their lower levels of self-esteem — were behind the dramatic differences in mortality rates.

I believe that inequality-related stressors are likely to be the determining factors in declining American life expectancies, as well. I’m surprised, in fact, that the Times article did not specifically identify inequality as a causal factor, because the health risks associated with economic inequality are well-established in the scientific literature. For decades, the United States has been making a series of political choices that has distributed wealth and power upwards and left working Americans not only poorer and sicker, but also feeling far more burdened and distressed, and experiencing far less security and control over their lives. The consequences of these choices have been devastating, and absent a dramatic reversal in our political course, they are likely to get even worse. Where inequality is concerned, Republicans have their foot on the accelerator, while the best the Democrats seem to be able to do is to (temporarily) put their foot on the brake.

We are on a trajectory all right, and it’s not a good one.

Pay inequality contributes to single women having more debt

South Florida Business Journal

Date: Friday, September 28, 2012, 2:18pm EDT

Enlarge Image

"In order to make ends meet, women have to stretch their paychecks much more than men, incurring credit card debt quite often,”Consolidated Credit Founder Howard Dvorkin said in a statement.

Pay inequality has been found to contribute to single women having more debt than single men, according to an examination of more than 60,000 Consolidated Credit Counseling Services client records nationwide.

 

Fort Lauderdale-based Consolidated Credit found that 70 percent of the calls it received in the last six months were from women seeking credit card help.

"In order to make ends meet, women have to stretch their paychecks much more than men, incurring credit card debt quite often,” Consolidated Credit Founder Howard Dvorkin said in a statement.

According to the Bureau of Labor Statistics, women earned 81 cents for every dollar earned by men in 2010.

Dvorkin has the following advice for women in debt:

• Negotiate salary: Before going to a job interview, women should research pay rates for the type of work they intend to do.

• Pay off one debt at a time: Women should make the minimum payments on all credit cards and put the extra cash towards one debt. To select the debt they want to tackle first, women should look at the one that has the highest interest rate.

• Invest in the market : Joining an investment club with other women could be a great start. It is inexpensive to get started, and it helps single women make better decisions about their retirement funds.

• Get credit in shape: Women should check their credit reports at least once every year and correct errors if necessary.

• Total up all monthly expenses: One of the most common problems people run into when calculating their monthly expenses is forgetting about the little things. It's important to include hair appointments, gym memberships and morning coffee costs in monthly budgets.

Dvorkin recently partnered with some investors to co-found PowerWallet, an online service to help people manage their money and plan ahead

Six Bogus Beliefs about Credit and Debt

Published: September 28, 2012

 

 

SUGAR LAND, Texas, Sept. 28, 2012 — /PRNewswire-USNewswire/ -- The following is being released by Money Management International:
1. There is an easy way to fix bad credit. No person or company can legally remove accurate items from your credit reports for a fee. The Fair Credit Reporting Act (FCRA) states that delinquent account information can remain on a consumer's credit bureau file for a seven-year timeframe that starts 180 days after the account becomes delinquent.

2. Bankruptcy discharges all debts. Debts not dischargeable in bankruptcy will generally include back taxes less than three years old, student loans, alimony, child support and debts incurred through fraud. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require a bankruptcy counseling certificate as a prerequisite for filing.

3. A collector can't call others (family, neighbors) about your debts. It may be hard to swallow; however, according to the Fair Debt Collection Practices Act (FDCPA), your collector is permitted to contact other people. They are only supposed to do this to find out where you live, what your phone number is, and where you work. Fortunately, the collector may not divulge the reason for the call to anyone other than you or your attorney. Also, if you don't tell them otherwise, they can call you at work.

4. A divorce decree matters to your creditors. Your divorce decree is an agreement between you and your spouse (not your creditors) on how your debts and assets will be divided. Since your creditors were not involved in the settlement and had no input on the results, the contracts you signed with your creditors have not changed and cannot be changed by the divorce decree. Whoever signed the original contract with the creditor will still be obligated to pay the debt after the divorce. That means you are still obligated on these debts and the creditors can report the derogatory status of these accounts on your credit bureau file.

5. Your creditors cannot change your interest rate. According to the CARD Act of 2009, credit card issuers can make key contract changes to your account terms and agreement, including rate increases, with 45 days' notice. You should also know that many creditors will now raise your interest rates if your credit score declines, even if you have paid their particular account on-time and as-agreed.

6. If your car gets repossessed, that's the end of your responsibility. After a vehicle is repossessed, the lender will most likely sell it at auction to the highest bidder and apply the proceeds of the sale to the balance owed on the car. If the sale price is not sufficient to pay the balance due, there will be a "deficiency balance" remaining. You would be legally obligated to pay this deficiency balance.

"Fortunately, making financial decisions doesn't have to be a confusing experience," said Jo Kerstetter, vice president of financial education for MMI. "Educating yourself about money is the best defense against costly mistakes."

About Money Management International Money Management International (MMI) is a nonprofit, full-service credit-counseling agency, providing confidential financial guidance, financial education, counseling and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan and repay

CONTACT: Tanisha Warner, Media Relations, +1-713-394-3202, Tanisha.Warner@MoneyManagement.org
SOURCE Money Management International

Read more here: http://www.heraldonline.com/2012/09/28/4299247/six-bogus-beliefs-about-credit.html#storylink=cpy

QE3 - Who does it really benefit?

The noble purpose of QE3 is to save the economy, right?

To put people back to work. To put America on the road to recovery...

Hogwash.

It's a scam right down to the bone.

And it's a scandal that the talking heads at MSNBS and the Wall Street Journal won't share these simple truths with you.

http://www.youtube.com/watch?feature=player_embedded&v=auc6hezs46s

BoE welcomes Libor reforms but Barclays declines to comment

Sir Mervyn King, Governor of the Bank of England, welcomed proposed reforms to Libor on Friday but Barclays, which was fined £290m for attempting to manipulate the benchmark, refused to comment.

Martin Wheatley, head of conduct at the FSA, and Sir Mervyn King, Governor of the Bank of England

< >

http://www.telegraph.co.uk/finance/libor-scandal/9573130/BoE-welcomes-Libor-reforms-but-Barclays-declines-to-comment.html

10:57AM BST 28 Sep 2012

Britain's top financial enforcer said Libor was “broken and needs a complete overhaul” following revelations that banks around the world rigged the rate that underpins loans and financial securities worth more than $300 trillion (£186 trillion).
 

Martin Wheatley, head of conduct at the Financial Services Authority, proposed major reforms to the way Libor is set, but argued that despite evidence of “shocking behaviour” by “unscrupulous traders” the current system can be “fixed”.
 

“The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust – it has torn the very fabric that our financial system is built on,” Mr Wheatley said in a speech at Mansion House following the publication of his report into the issue.

Under the proposals designed to prevent a repeat of the rigging scandal, banks will be required to provide “relevant trade data” to prove that the rates they submit accurately reflect their actual borrowing costs.

Mr Wheatley warned that bank staff guilty of attempting to manipulate Libor will face “criminal sanctions”, including jail, and that all those involved in submitting borrowing figures will have to be approved by the regulator.

 

“We can’t allow the unfettered attitude that banks enjoyed previously. Much greater rigour and transparency must be introduced to the process of submission,” he said.
Barclays had no official comment on the recommendations, while Sir Mervyn urged that the proposals be implemented without delay.

"The Bank very much welcomes the Wheatley Review's proposals to improve the functioning, governance and regulation of Libor and would want these to be implemented as soon as possible," he said.

However, he highlighted his concerns about the benchmark rate in thin trading, such as during the 2008 financial crisis when banks refused to lend to one another.

"Over the medium to long term, further thinking will be needed to meet the challenge of benchmarks based on thinly traded markets, especially when they are quote-based," he said.

Andrew Tyrie, MP for Chichester and current chairman of the Treasury Select Committee, said that the report could mark "at least the end of the beginning of the cleanup operation".

“Libor rigging was a shocking scandal. It is unlikely that such behaviour was restricted to a single bank. It has also been a catastrophe for the credibility of financial institutions more widely," he said.
“First, it has rightly stripped the BBA of responsibility for Libor – their handling of it was a disaster.
“Second, it brings Libor within the scope of regulatory oversight and criminal law. Not before time.
“Third, the review is proposing a number of technical amendments to ensure Libor can’t be rigged again."

Greg Clark, Financial Secretary to the Treasury, said Mr Wheatley’s report showed “the self-regulation of Libor” had failed. “It’s yet another example of the broken regulatory system that this Government is committed to fixing,” he said.

Matthew Fell, director for competitive markets at the Confederation of British Industry lobby group, said: "Bringing Libor under an independent regulator will take away the notion that this was a system run by banks for the benefit of banks.

"Focusing it on the most liquid trades will drastically reduce the scope for any manipulation, particularly at times of market stress."

Mr Wheatley also recommended that responsibility for Libor is stripped from the British Bankers’ Association (BBA) and given to the new Financial Conduct Authority, which he will become chief executive of when it comes into operation next year.

The BBA has been heavily criticised for its oversight of Libor and in a statement on Friday the trade body said it agreed with the need for “greater regulatory oversight”.

"The BBA ... believe today's report is an essential step. The BBA has strongly stated the need for greater regulatory oversight of LIBOR, and tougher sanctions for those who try to manipulate it. The BBA Council has indicated it would support any recommendation that responsibility for Libor should be passed to a new sponsor.

"The absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators," it said.


The report on Libor was ordered by George Osborne and followed a public and political outcry prompted by Barclays’ admission in June it had attempted to rig the rate.
Singapore court documents uncovered by Bloomberg this week claimed to show senior RBS executives were not just aware Libor was being rigged, but appeared to condone it.
In one internal message, an RBS trader boasted of operating a Libor “cartel” and said it was “amazing” how much money rigging the rate could make.

Worst Banking Scandals Plaguing UK Today

Worst Banking Scandals Plaguing UK Today

Posted by Rachel S. with 0 Comments

Image source: ThePioneerWoman.com

Bankers want us to believe they’re reforming and doing better, but until they clean up the messes they’ve created, how can trust be rebuilt? Collectively, our banks have done billions of pounds of damage to us as consumers, tosmall and mid-sized businesses critical to our economic recovery and to the world at large. The Independent Commission on Banking has promised reforms, but if the banks aren’t committed to real change, nothing will get better.
And if our banks really want to restore our trust in them, they won’t try to move forward without tending to the festering wounds of these five very active banking scandals:

Image source: Guardian.co.uk

#1 PPI Scandal
Lloyds’ retail chief Alison Brittain has been quick to call PPI mis-selling a “legacy issue” that’s part of Lloyd’s past. She told Daily Mail, “We don’t sell PPI any more and so it is not about what is happening now.” With only half of the £10bn PPI provision paid out and complaints about PPI claims bungling to FSA and FOS sky-rocketing, it’s clearly a part of the bank’s present and future. Consumer advocate Which? thinks the £10bn pot is inadequate and banks have greatly underestimated the amount of redress that will be due.

Image source: Scoop.it

#2 Libor Rate Rigging Scandal
Banks and their rogue traders rigged the key Libor interest rate to seem more stable and to benefit certain investments. While the damage in the UK may not be financially extensive, it’s a huge blow to our position in the world market as a trusted financial centre which will impact our economy and us as a result. Barclays has already paid £290m in fines to the yanks and more banks will follow. This is good for no one.

Image source: Buzz.Money.CNN.com

#3 Rate Swap Mis-Selling Scandal
With our economy in crisis, the plague of mis-selling complex and unnecessarily costly hedging products alongside business loans has hampered our recovery, cost us jobs and contributed to the financial malaise engulfing the UK. Banks mis-sold this product to small and mid-sized business owners knowing the damage it could cause and are now stinting on redress efforts that could rebuild our economy and create jobs. The impact of this scandal will be in the hundreds of millions of pounds, but the impact on people lives – people who lost their livelihoods – is both terrible and incalculable.

Image source: Liberapedia.wikia.com

#4 Money Laundering Scandal
It may seem like no big deal that Standard Chartered and HSBC were laundering money for groups the US has sanctioned – such as drug dealers, rogue nations and terror groups, but it’s huge.

Image source: FreeDebtAdvice-uk.com

#5 Interest Only Mortgages Scandal
This scandal is brewing and about to hit and will complete the Pentateuch of UK banking scandals of the last decade. Recently installed Barclays’ chief Antony Jenkins predicted interest only mortgages will be the next big banking scandal. Borrowers were allowed (even encouraged) to buy homes with mortgages that offered them no hope of equity and balloon payments they were little likely to manage. As with all of these scandals, no one but the banks will profit.

Audit shows Spain banks need $76.3B

 

2012-09-28T12:03:30Z2012-09-28T14:11:01ZAudit shows Spain banks need $76.3BThe Associated PressThe Associated Press

18 hours ago • Associated Press

 

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Audit shows Spain banks need $76.3B

Alvaro Barrientos

A woman leaves the doorway of a Basque Bank, closed during a general strike in the Basque Country and Navarra Province, against austerity measures by the Spanish Government, in San Sebastian, northern Spain, Wednesday, Sept. 26, 2012. (AP Photo/Alvaro Barrientos)

The Bank of Spain said Friday an independent audit of the country's troubled banks shows they would need an extra (EURO)59.3 billion ($76.3 billion) to cover for further economic shocks.

The stress tests' findings, released by consultants Oliver Wyman, will help the country decide how much money it will tap from a (EURO)100 billion European loan facility offered back in June to prop up its financial sector.

Spain's banks have been struggling under the weight of toxic assets stemming from the collapse of the country's property market in 2008. Saddled with these bad loans and failed building projects, the country's banks have been reluctant to loan out more money to businesses and households, stunting the economy. The European loan facility is to be used to cover these bad loans and shortfalls, thereby freeing up the banks to do business again.

The Bank of Spain's figure does not include the impact of ongoing banking mergers or taxation. Including those two elements, the shortfall drops to (EURO)53.7 billion.

Bank of Spain deputy governor Fernando Restoy said some 400 auditors went through the books of 14 lenders _ about 90 percent of the Spanish banking system _ analyzing their capital cushions under adverse scenarios.

"We wanted (the tests) to be the toughest ever," Restoy told reporters at a news conference.
Jean-Claude Juncker, head of the eurozone group of countries, said he was "comforted" by the results, saying the (EURO)100 billion earmarked to help Spanish lenders "should be more than adequate" for their capital needs.

The agreed aid "should ensure that the recapitalisation process of banks can proceed efficiently and in accordance with previously agreed timelines," Juncker said in a statement.
While European stock and bond markets were closed, the euro edged up _ to $1.2875 from $1.2860 before the release of the stress test results.

The European Commission said the tests were "a major step in implementing the financial-assistance program and toward strengthening the viability of and confidence in the Spanish banking sector."
It said in a statement that recapitalization of a first group of banks is scheduled to occur by November, following approval by Spanish and European authorities.

Restoy said the lenders needing to shore up their capital will have to tell the government whether they need public aid or intend to raise their own funds.
___
Hatton contributed from Lisbon

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UK’s Financial Services Authority details overhaul of LIBOR following rate-setting scandal

CARL COURT/AFP/GETTY IMAGES - Martin Wheatley, Managing Director of the FSA and Chief Executive-designate of the Financial Conduct Authority, delivers a speech Sept. 28 that sets out the findings of his report into the structure and governance of the London Interbank Offered Rate.

By Associated Press, Published: September 28AP

LONDON — Britain’s financial regulator on Friday laid out a 10-point plan to overhaul the handling of a key global interest rate that has been the subject of a scandal involving major banks across multiple countries.

Barclays bank agreed in June to pay a $453 million fine to U.S. and British agencies after admitting it had submitted false information for the London Interbank Offered Rate, or LIBOR, which is used to price trillions of dollars in financial contracts, including mortgages. Other firms are being probed in the scandal, which has undermined public trust in banks and damaged the reputations of British financial regulators.

The new plan proposes that bankers convicted of manipulating the rate face criminal penalties and that a new agency take over management of LIBOR. It also calls for tougher controls on banks involved in the rate’s calculation.

“Although the current system is broken, it is not beyond repair,” said Martin Wheatley, managing director of the Financial Services Authority, the main regulator, as he announced recommendations from the review of LIBOR ordered by the British government.

The FSA said Friday that the rate-fixing scandal was an industry-wide problem which tore “the very fabric that our financial system is built on”.

The British Bankers’ Association, a trade group, sets the LIBOR every morning after about a dozen international banks submit estimates of what it costs them to borrow. Regulators in the U.S., Britain, Switzerland and other countries allege some banks, including Barclays, purposefully submitted fake numbers to have the LIBOR set at a rate that better suited them.

Wheatley recommended that the handling of LIBOR be stripped from the British Bankers’ Association, which “clearly failed” in administering the rate

He accused the BBA of being careless in policing LIBOR, putting too much trust in a system lacking “the right level of checks and balances.” Wheatley said he is setting up an independent panel to lead the appointment process for a new group to run Libor, inviting other groups to apply to take over the role and that he wants the new managing body to draw up a code of conduct and carry out regular audits.

The BBA said the review was an “essential step” toward reforming Libor and signaled it would accept Wheatley’s recommendation to hand oversight to a new administrator.

Wheatley also proposed that banks submitting rates be subject to formal approval. More banks should be encouraged to submit rates to make the LIBOR benchmark more representative, while the publication of individual submissions should be held back for three months to help prevent manipulation, he said.

He proposed that the FSA continue to be the main regulator.

Britain’s Treasury expressed support for the “comprehensive and practical recommendations” laid out in the review, while Bank of England governor Mervyn King called for a swift implementation of the proposals.

So far, Barclays is the only bank which has been identified as submitting false reports of the rates it expected to pay to borrow from other banks, although several other banks — including Citigroup Inc., Royal Bank of Scotland and JPMorgan Chase & Co. — are known to be under investigation.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t expect stronger growth, some say, until deleveraging is complete

Is Debt Overhang What's Preventing a Strong Recovery?

Don’t expect stronger growth, some say, until deleveraging is complete

By Chris Gay

September 27, 2012 RSS Feed Print

The Great Recession has revived interest in the late British economist John Maynard Keynes, but there's an American economist of Keynes's era that investors might want to read up on. Most people remember Irving Fisher, if at all, for his spectacularly mistimed declaration that stock prices had "reached a permanently high plateau." It was days before Black Tuesday.

Economists, however, know Fisher for his "debt-deflation theory" of recessions, which holds that high debt levels help cause—and prolong—a downturn. If Fisher was right, America's still-high personal and corporate debt levels could explain today's sluggish recovery: Households and businesses are too busy paying down debt to boost spending and investment, and until debt levels reach some moderate level, you shouldn't expect a strong recovery or a sustained rally in stock prices.

[See Is Fed Money Fake? Investors Make It Real.]

"In simple terms, but accurate terms, [excessive debt] is the underlying problem now with the U.S. recovery," says Nariman Behravesh, chief economist for business-information provider IHS Global Insight.

So how far are we into the deleveraging process, and how far do we need to go? The short answer: partway, but moving in the right direction. McKinsey reported in January that all levels of private-sector debt (borrowing by households, financial firms, and non-financial firms) had since the end of 2008 fallen from $8 trillion to $6.1 trillion, or 40 percent of GDP—the same ratio as in 2000. Some of that has been forced, as when homeowners enter foreclosure. Household debt had fallen from about 125 percent of GDP to around 110 percent.

The critical ratio of household debt-servicing costs to after-tax income fell from 14 percent five years ago to 11 percent in the first quarter, according to Federal Reserve data. Economists say that is a significant improvement, even if it does partly reflect refinancing at lower rates, reduced borrowing and write-offs of mortgage and credit-card debt.

Credit-tracking agency Equifax reports that outstanding consumer credit-card debt shrank a year-on-year 1 percent in August in the U.S. cities that are recovering most slowly, even as it rose slightly nationwide.

"Historical precedent suggests that U.S. households could be as much as halfway through the deleveraging process," wrote McKinsey. "If we define household deleveraging to sustainable levels as a return to the pre-bubble trend for the ratio of household debt to disposable income, then at the current pace of debt reduction, U.S. households would complete their deleveraging by mid-2013."

Then, of course, there are other shoes to fall, like deleveraging among our trading partners and by our own federal government, whose debt naturally rises in a downturn. But let's not get ahead of ourselves.

Why is private-sector debt so important to begin with? Two main reasons: One is that it amplifies the adverse effects of financial shocks and market extremes that are bound to occur in capitalist economies from time to time. As Fisher put it in the 1933 paper that introduced the debt-deflation idea: "… over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money."

[See Will Rising Rates Upend Your Bond Fund?]

The second reason is the one that concerns us now: Heavy debt burdens hinder recovery, for reasons related to what economics knows as "the paradox of thrift"—saving more may be good for individual households in the long run but bad for the larger economy in the short run.

Fisher's theory has a modern-day incarnation in the "balance-sheet recession," a term popularized by economist Richard Koo of the Nomura Research Institute.

Here's how Koo says it works: Imagine a household that has income of $1,000 and a savings rate of 10 percent. It spends $900 and deposits $100 in a savings account. Normally, the bank would turn around and lend that $100 to a borrower who spends it, bringing aggregate spending to $1,000. In a private sector that is focused on reducing debt, however, there are no borrowers for the $100, even at negligible interest rates.

Read the rest of article here...

Ignoring Credit Card Debt Claims Can be a Costly Mistake

Ignoring Credit Card Debt Claims Can be a Costly Mistake

George Doyle/Stockbyte/Thinkstock

U.S.consumers are $18.7 billion dollars behind on their credit card debt. Increasingly, banks are taking delinquent borrowers to court, suing them for payment.
Often, these borrowers never show up in court to contest the charges. This can be a big mistake, especially because the documents submitted to the court frequently include costly errors.

Failure to Act Has Consequences

When a debtor fails to contest credit card charges or show up in court, the bank or collection agency wins the case by default. The bank or credit cared company can garnish your wages or freeze your bank account.

Costly Mistakes Are Common

Often, banks sell bad credit card loans to collection companies. The debt buyers are supposed to get the documentation that came with the original loan, but this doesn’t always happen. As a result, lenders are churning out lawsuits that rely on false documents, incomplete records and generic witness testimony.
In some cases, the consumer owes no debt at all. In other cases, the amount of debt has been inflated with mistaken fees and interest costs.

JPMorgan Chase

JPMorgan Chase came under investigation in 2012 after a whistleblower charged that the financial giant routinely pressured employees to verify debts that couldn’t be proven.
According to an article in American Banker, “Nearly half of the files… sampled were missing proofs of judgment or other essential information. … Nearly a quarter of the files misstated how much the borrower owed.”

How to Respond to a Lawsuit

If you think that you are being pursued for an inaccurate debt, take these steps.

• Demand to see written proof that you actually owe the debt. Under the Fair Debt Collection Practices Act, debt collectors must provide you with this proof.
• Read the documents closely to verify the details, including personal information like the name and social security number associated with the debt. If you think that you are being unjustly pursued for the debt of another person, reply in writing – and keep copies.

Always file a formal written response with the court to the debt collector’s claim. Failure to do so will be interpreted as an admission that you actually owe this amount.
If you find errors, contact the consumer complaint division of your local attorney general’s office. Also, contact the federal Consumer Financial Protection Bureau.

A Consumer Lawyer Can Help

The law surrounding credit card debt can be complicated, and the facts of each case are unique. This article provides a brief, general introduction to the topic. Visit Lawyers.com for more information on consumer debt and to locate an attorney in your area who can answer your questions.

Calculate the best way to pay off credit card debt

Calculate the best way to pay off credit card debt

(MoneyWatch) The average American household now has about $6,700 in credit card debt. And while the last six months saw a slight decrease in those obligations, it didn't make up for 2011, when people piled on an additional $46.7 billion in debt.

If you are one of those average Americans looking for a way out of the debt cycle, check out these credit card calculators from CardHub.
Calculators that tell you how long it will take to pay off your debts have been around almost as long as there have been spreadsheets and computers. What is new is that CardHub, a provider of credit card information, links your debt situation with credit card offers that may be able to help you climb out of the hole.

Use your credit card for auto rental insurance
Why credit cards are the safest way to pay onlineThe best credit cards for travel

Consider that average American, for example. Plug $6,700 -- the typical household credit card debt -- into the Payoff calculator and indicate an average rate on your existing card of 20 percent. If you want to pay it off in 12 months, you'll need to pay $621 a month, for a total of $754 in interest charges.

CardHub's calculator also recommends a number of credit cards you could switch to -- The Slate Card, from JPMorgan Chase (JPM), for example, has a zero percent introductory rate that would save you $754 in annual interest. The MidFlorida card has a similar intro rate, but its 1 percent transfer fee means you'd save a little less -- $687.

CardHub offers several calculators. They're all free, of course -- check them out today if you need to find a way to save money or pay off your credit cards more quickly.

British regulator outlines overhaul of scandal-hit rate-setting mechanism

British regulator outlines overhaul of scandal-hit rate-setting mechanism
By Associated Press, Published: September 27AP

LONDON — A British regulator has outlined wholesale reforms to a key international rate-setting mechanism whose manipulation by Barclays bank was exposed in a scandal which erupted several months ago.

Financial Services Authority managing director Martin Wheatley says the London Interbank Offered Rate will undergo a complete overhaul.

Barclays chief Bob Diamond resigned after it was revealed his bank was fiddling with the rate, a key market index which influences the costs of a huge range of financial instruments.

Wheatley said in prepared remarks released Friday the rate-fixing scandal was an industry-wide problem which tore “the very fabric that our financial system is built on.”

He accused the British Bankers’ Association, which oversaw the process, of having clearly failed and said he was inviting other groups to take over the process.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.