What is a credit freeze?
A credit freeze is an action taken by a consumer to freeze activity on their accounts. Under a credit freeze, no one can take out any new credit in a consumer's name and no one can receive a credit report of the consumer without his or her specific authorization.
What is predatory lending?
Predatory lending refers to lending that preys on those most vulnerable by providing credit but with steep costs. Predatory lending is marked by larger penalties for late payments, penalties for pre-payment, a repayment plan under which periodic payments cause the loan balance to rise instead of drop, and clauses that allow lenders to accelerate the amount of debt.
The Center for Responsible Lending (responsiblelending.org) has identified what it calls "eight signs" of predatory lending. They are:
1. Excessive fees
2. Prepayment penalties
3. Inflated interest rates from brokers
4. Steering and targeting
5. Adjustable interest rates that explode
6. Promises to fix problems with future refinancing
7. Not counting taxes and insurance
8. Repeated refinances that drain your resources.
What are payday loans?
Payday loans are high-interest, short-term loans in which the repayment period is generally conceived to arise on an individual's work payday, thus inspiring the name "payday loans." Unfortunately, payday loans are best known for the high interest rates charged on such loans. In payday loans, individuals promise to write a check in order to obtain immediate cash. For example, an individual agrees to write a $420 check in order to obtain $350. But, if the individual does not pay back the $420 in a timely fashion, then the interest rates often skyrocket and the individual falls further into spiraling debt. Many states have begun to regulate such payday loans. Some loans that often bear closer scrutiny are rent-to-own purchases, auto title loans, and income tax refund loans.
What are home equity loans?
Home equity loans are those in which a borrower uses equity in his or her home as collateral for a loan. Often consumers take out home equity loans to pay for college, make major renovations to a house or otherwise need a quick and sizeable infusion of cash to pay for expenses. The danger with a home equity loan is that—if unpaid—it could drive someone closer to foreclosure. In fact, the Federal Deposit Insurance Company (FDIC) has an online publication entitled "Putting Your Home on the Loan Line is a Risky Business."
What is a reverse mortgage?
A reverse mortgage, sometimes called a lifetime mortgage, is one in which the lender pays the homeowner the value of the equity in the home as a lump sum or regular payments, reducing the equity in the home. The obligation to repay the loan is deferred until the death of the homeowner or the home is sold. When the house is sold or the borrower moves, the borrower must repay the loan plus the accrued interest. Rarely do the reverse mortgages exceed the value of the home. Most reverse mortgages are age-dependent, requiring the homeowner to be at least 62 years of age. These loans—much like home equity loans—represent a difficult decision-making process and should not be entered into lightly.
DEBT COLLECTORS AND THE LAW
What is the Fair Debt Collections Practices Act?
The primary federal law regulating debt collectors is the Fair Debt Collections Practices Act. This law imposes obligations and standards of conduct upon those who collect debts. This 1977 law amended the Consumer Credit Protection Act to prohibit certain conduct by "debt collectors." The U.S. Congress noted the purpose of the law in its findings: "There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy."