With interest rates near historically low levels, the recurring question homeowners are asking - 'Should I refinance my mortgage?' Answers will vary depending upon individual factors. A few common reasons to consider include available interest rates (potential rate relative to current loan rate), current loan (i.e., Adjustable Rate Mortgage), how long you anticipate remaining in the home, direct costs associated with refinancing (i.e., fees/closing costs), etc.
BREAK-EVEN ANALYSIS.
The most common method of assessing the potential benefits of refinancing is a break-even analysis. This is a process that estimates the amount of time it will take (through interest savings) to "break even" on the upfront costs associated with refinancing the loan. Obviously, in order to justify refinancing, the benefits need to outweigh the costs. Several [free] online calculators are available to assist you in breaking down (and simplifying) this analysis - Dinkytown, Fair Isaac, and Zillow are popular examples.
CURRENT INTEREST RATES.
Although interest rates have crept up in the past couple of weeks, interest rates are still very favorable (under 5% on 15-year mortgages). Bankrate.com is a great tool for finding current rate information. The rate available to you will depend upon your creditworthiness/credit score (a score over 740 will get you the best rate).
COSTS.
Many consumers view loan costs as fixed. If you go in with this mindset, you will wind up overpaying for your loan. Some simple tips: (1) Get a quote from your current lender, they will obviously have less "work" to do to qualify you than a company with which you've never done business; (2) Get quotes from multiple companies - you will be amazed at the variability in fees from company to company; the information you'll obtain will provide leverage in working with your ultimate "choice," and; (3) Get a quote from an online company; see #2 above. Information is power, but in this instance, the difference in fees is often amplified as online companies can typically offer lower fees because they don't have the same costs that a brick and mortar lender would have. Use this leverage to your advantage!
GOVERNMENT ASSISTANCE.
If you are in a situation where you may not meet ideal refinancing conditions as defined by a lender (owe more on the home than it is worth), you may still be able to benefit from the current interest rate environment. Pres. Obama has passed "Homeowner Affordability" initiatives to aid homeowners in refinancing unaffordable mortgages. If you are not eligible for a government-assisted refinance, you may be eligible for a loan modification. Information on the current government programs is available at:
-- Government Refinance Assistance
-- Making Home Affordable (eligibility requirements)
May 29, 2009
May 20, 2009
CREDIT C.A.R.D. REFORM
Changes to current credit card practices are imminent. On Tuesday, the Senate approved CARD (the Credit Card Accountability, Responsibility, and Disclosure bill) by a 90-5 vote; today (Wednesday), the House voted 361-64 in favor of the legislation which would alter many of the credit card practices that have commonly come under fire. President Obama has said that he'd like to sign the bill by Memorial Day to "protect consumers and to bring some commonsense rationality to our financial system."
While most consumer advocates are in favor of the legislation, some have questioned the delay in implementation (9 months for many of the changes). Others have begun theorizing about potential unintended consequences to "responsible cardholders" (those who pay their balances in full each month). To compensate for lost revenue, some have predicted a resurrection of annual fees and an end to many card reward programs.
Summary of the CARD bill.
* Some of the changes are already on track to take effect in July 2010 under the Federal Reserve regulations that were established last year. The CARD legislation would uphold the outlined Fed changes and provide additional restrictions on card policies.
- 45 day notice on rate hikes and certain contract changes (15 prior).
- Eliminates fees charged for processing payments.
- Eliminates over-the-limit fees.
- Eliminates universal default.
- End to double-cycle billing.
- Mandatory 5 year life for gift cards.
- Rates cannot be raised for the first year after an account is opened.
- Reasonable payment allocation (Apply payments to highest rates).
- Restrictions on interest rate increases of existing debt.
- Restrictions on late fees.
- Statements must go out 21 calendar days in advance of the due date.
- Tighten issuance of credit cards to those under age 21:
--> Must have a proven capacity to repay OR
--> Complete a financial literacy course OR
--> Have a cosigner.
** Unfortunately, an amendment initiated by Senator Sanders of Vermont which would have also capped credit card interest rates at 15% was defeated in the Senate (60-33).
While most consumer advocates are in favor of the legislation, some have questioned the delay in implementation (9 months for many of the changes). Others have begun theorizing about potential unintended consequences to "responsible cardholders" (those who pay their balances in full each month). To compensate for lost revenue, some have predicted a resurrection of annual fees and an end to many card reward programs.
Summary of the CARD bill.
* Some of the changes are already on track to take effect in July 2010 under the Federal Reserve regulations that were established last year. The CARD legislation would uphold the outlined Fed changes and provide additional restrictions on card policies.
- 45 day notice on rate hikes and certain contract changes (15 prior).
- Eliminates fees charged for processing payments.
- Eliminates over-the-limit fees.
- Eliminates universal default.
- End to double-cycle billing.
- Mandatory 5 year life for gift cards.
- Rates cannot be raised for the first year after an account is opened.
- Reasonable payment allocation (Apply payments to highest rates).
- Restrictions on interest rate increases of existing debt.
- Restrictions on late fees.
- Statements must go out 21 calendar days in advance of the due date.
- Tighten issuance of credit cards to those under age 21:
--> Must have a proven capacity to repay OR
--> Complete a financial literacy course OR
--> Have a cosigner.
** Unfortunately, an amendment initiated by Senator Sanders of Vermont which would have also capped credit card interest rates at 15% was defeated in the Senate (60-33).
May 14, 2009
INDEX VS ACTIVE FUND MANAGEMENT
Every day we're faced with choices -- PC or Mac? Pepsi or Coke? Boxers or Briefs? Kobe or Lebron? Active or Passive [mutual fund management]? Ok, so most of our daily decisions are not life or death, but many decisions will have a direct bearing on our overall financial well-being.
Active vs. Passive (Index) Fund Management.
Active Management.
Accompanying a typical [active] mutual fund are high costs/ maintenance fees (i.e., expense ratio). Why? You're paying a fund manager to select the investments (stocks, bonds, etc.) that will comprise the fund. Is it worth it? Ultimately, only you can decide the answer to that. In the final analysis, you will need to determine if the higher fund costs are yielding higher fund returns ...
According to Morningstar Principia, a database of over 15,000 mutual funds, the median annual fund expense was 1.42%. (In addition, more than 10,000 of these funds also levy a sales charge or "load" - a topic for another day ...)
- 42% of funds had expenses over 1.5%
- 52% of funds had expenses between .5% and 1.5%
- 6% of funds had expenses less than .5%
Passive Management.
The most common example of passive fund management is an index fund. A fund designed to track the activity/return of its underlying index (i.e., S&P 500, Nasdaq, Dow, etc.). The S&P 500, a broad market index of 500 of the largest companies in the U.S., is one of the most common types of index funds. Since the listing of those 500 companies is readily available (not stocks that would need to be 'handpicked' like an actively managed fund), you can typically purchase this type of passive management at a fraction of the cost of active management. In the listing of expenses above, index funds are going to be the prominent group with expenses under .5% ...
While most mutual fund companies are strong advocates of actively managed funds (for obvious business reasons), more and more people are moving to passive management. In fact, some fund companies actually cater specifically to index investors - most notably, Vanguard and DFA Funds.
The Winner.
Every year, Standard and Poors publishes a scorecard that declares the "winner" of the Index vs. Active Management "battle" ...
The winner? If you've done any reading in this area, you already know the answer. The winner this time around is consistently the winner [and not who most people would assume] ... PASSIVE MANAGEMENT! Over the five year market cycle from 2004 to 2008, the S&P 500 outperformed 71.9% of actively managed large cap funds, the S&P MidCap 400 outperformed 79.1% of actively managed mid cap funds and the S&P SmallCap 600 outperformed 85.5% of actively managed small cap funds! These results are similar to that of the previous five year cycle from 1999 to 2003. International stock funds? Same results - indices outperformed the majority of actively managed funds. In addition, S&P did not factor in the sales fees that "loaded funds" charge investors, which would have made the contrast even more startling. (Click here for an archive of past scorecards).
According to Princeton University's Burton Malkiel, the average actively managed mutual fund has returned 1.8% per year less than the S&P 500. 1.8% per year may not sound like a big deal, but it is a HUGE deal over time. A pretty compelling argument for passive management.
NOTE. Although index funds typically carry lower costs (and should), don't jump in without knowing what the specific costs are. While some index funds will charge as little as .1% or .2% in expenses, I am aware of a couple index funds (nothing special, just 'plain vanilla' S&P 500 funds) whose expense ratios are 1.06% and 1.50% respectively! So never assume the costs will be low merely because it is passively managed. It obviously would not make a lot of sense to pay “active management fees” for an index fund.
Active vs. Passive (Index) Fund Management.
Active Management.
Accompanying a typical [active] mutual fund are high costs/ maintenance fees (i.e., expense ratio). Why? You're paying a fund manager to select the investments (stocks, bonds, etc.) that will comprise the fund. Is it worth it? Ultimately, only you can decide the answer to that. In the final analysis, you will need to determine if the higher fund costs are yielding higher fund returns ...
According to Morningstar Principia, a database of over 15,000 mutual funds, the median annual fund expense was 1.42%. (In addition, more than 10,000 of these funds also levy a sales charge or "load" - a topic for another day ...)
- 42% of funds had expenses over 1.5%
- 52% of funds had expenses between .5% and 1.5%
- 6% of funds had expenses less than .5%
Passive Management.
The most common example of passive fund management is an index fund. A fund designed to track the activity/return of its underlying index (i.e., S&P 500, Nasdaq, Dow, etc.). The S&P 500, a broad market index of 500 of the largest companies in the U.S., is one of the most common types of index funds. Since the listing of those 500 companies is readily available (not stocks that would need to be 'handpicked' like an actively managed fund), you can typically purchase this type of passive management at a fraction of the cost of active management. In the listing of expenses above, index funds are going to be the prominent group with expenses under .5% ...
While most mutual fund companies are strong advocates of actively managed funds (for obvious business reasons), more and more people are moving to passive management. In fact, some fund companies actually cater specifically to index investors - most notably, Vanguard and DFA Funds.
The Winner.
Every year, Standard and Poors publishes a scorecard that declares the "winner" of the Index vs. Active Management "battle" ...
The winner? If you've done any reading in this area, you already know the answer. The winner this time around is consistently the winner [and not who most people would assume] ... PASSIVE MANAGEMENT! Over the five year market cycle from 2004 to 2008, the S&P 500 outperformed 71.9% of actively managed large cap funds, the S&P MidCap 400 outperformed 79.1% of actively managed mid cap funds and the S&P SmallCap 600 outperformed 85.5% of actively managed small cap funds! These results are similar to that of the previous five year cycle from 1999 to 2003. International stock funds? Same results - indices outperformed the majority of actively managed funds. In addition, S&P did not factor in the sales fees that "loaded funds" charge investors, which would have made the contrast even more startling. (Click here for an archive of past scorecards).
According to Princeton University's Burton Malkiel, the average actively managed mutual fund has returned 1.8% per year less than the S&P 500. 1.8% per year may not sound like a big deal, but it is a HUGE deal over time. A pretty compelling argument for passive management.
NOTE. Although index funds typically carry lower costs (and should), don't jump in without knowing what the specific costs are. While some index funds will charge as little as .1% or .2% in expenses, I am aware of a couple index funds (nothing special, just 'plain vanilla' S&P 500 funds) whose expense ratios are 1.06% and 1.50% respectively! So never assume the costs will be low merely because it is passively managed. It obviously would not make a lot of sense to pay “active management fees” for an index fund.
May 06, 2009
"MY MONEY" RESOURCES
The federal government has taken several stabs at reviving the economy in the past several months. As an educator, one move I support one hundred percent is the pooling of resources to help consumers better understand and more wisely use their money.
As consumers, we are involved in money-related activities/decisions every day. Paying bills, balancing the checkbook, shopping for loans, reviewing credit card statements, saving, investing, viewing a credit report, and simply deciding whether to use cash or to charge a purchase are some common examples of these regular activities. To aid in this daily battle, 20 government agencies (in response to the Fair & Accurate Credit Transactions Act mandate) formed a Financial Literacy & Education Commission and created a very easy to use resource with links to tools that can benefit anyone at any stage of life to manage money more effectively. Website resources include:
- Budgeting & Taxes
- Credit
- Financial Planning
- Home Ownership
- Kids
- Paying for Education
- Privacy, Fraud, & Scams
- Responding to Life Events
- Retirement Planning
- Saving & Investing
- Starting a Small Business
In addition to these "always useful" topical areas, time-sensitive resources are also provided (i.e., recent market events, foreclosure avoidance, health benefits after job loss, smart borrowing, etc.). Are you financially smart? Take the quiz to test your smarts... Do you know what our national strategy for financial literacy is? Did you know there was a national strategy??
TOOL KIT.
In addition to the online resources, you can order a free “My Money tool kit" containing information to help you choose and use credit cards, get out of debt, protect your credit record, understand Social Security benefits, insure bank deposits, and start a savings and investment plan. Simply complete the online form and they’ll send the tool kit materials at no cost or by calling toll free 1-888-MYMONEY.
CHECK IT OUT ... WWW.MYMONEY.GOV
As consumers, we are involved in money-related activities/decisions every day. Paying bills, balancing the checkbook, shopping for loans, reviewing credit card statements, saving, investing, viewing a credit report, and simply deciding whether to use cash or to charge a purchase are some common examples of these regular activities. To aid in this daily battle, 20 government agencies (in response to the Fair & Accurate Credit Transactions Act mandate) formed a Financial Literacy & Education Commission and created a very easy to use resource with links to tools that can benefit anyone at any stage of life to manage money more effectively. Website resources include:
- Budgeting & Taxes
- Credit
- Financial Planning
- Home Ownership
- Kids
- Paying for Education
- Privacy, Fraud, & Scams
- Responding to Life Events
- Retirement Planning
- Saving & Investing
- Starting a Small Business
In addition to these "always useful" topical areas, time-sensitive resources are also provided (i.e., recent market events, foreclosure avoidance, health benefits after job loss, smart borrowing, etc.). Are you financially smart? Take the quiz to test your smarts... Do you know what our national strategy for financial literacy is? Did you know there was a national strategy??
TOOL KIT.
In addition to the online resources, you can order a free “My Money tool kit" containing information to help you choose and use credit cards, get out of debt, protect your credit record, understand Social Security benefits, insure bank deposits, and start a savings and investment plan. Simply complete the online form and they’ll send the tool kit materials at no cost or by calling toll free 1-888-MYMONEY.
CHECK IT OUT ... WWW.MYMONEY.GOV
April 30, 2009
HIGH YIELD CHECKING?
You've likely heard of high yield online savings accounts. The best of these "high yield" accounts are currently only paying about 2% (according to Bankrate.com, an online resource that provides aggregate interest rate data) -- pretty tough to get excited about 2%. Ironically, one of the best [high yield] alternatives currently is an option that until recently would never even have been a remote consideration - a checking account...
These accounts, High Yield Reward Checking Accounts, are readily available through insured (e.g., FDIC, NCUA) banks and credit unions across the country and are paying upwards of 6% interest! Many of the financial institutions are small, available to local/state residents. Using a directory will help narrow the field of potential options (see list of resources that follow the tip) ... some accounts are not restrictive and are available nationwide.
Some of these accounts require certain 'activity' in order to be eligible for the higher rates - a certain number of debit transactions, direct deposit, electronic statements - these are common examples of potential requirements. The resources below will help you navigate these "hurdles." Unlike many checking accounts, most reward checking accounts don't have monthly fees or minimum balance requirements. In an economic environment where savings accounts and CDs offer paltry yields, reward checking accounts hold a viable solution!
HIGH YIELD CHECKING RESOURCES.
- Article - 'Reward Checking Pays High Yields'
- Bank Deals -- Best Rates & Deals
- Checking Finder
- High Yield Checking Deals
These accounts, High Yield Reward Checking Accounts, are readily available through insured (e.g., FDIC, NCUA) banks and credit unions across the country and are paying upwards of 6% interest! Many of the financial institutions are small, available to local/state residents. Using a directory will help narrow the field of potential options (see list of resources that follow the tip) ... some accounts are not restrictive and are available nationwide.
Some of these accounts require certain 'activity' in order to be eligible for the higher rates - a certain number of debit transactions, direct deposit, electronic statements - these are common examples of potential requirements. The resources below will help you navigate these "hurdles." Unlike many checking accounts, most reward checking accounts don't have monthly fees or minimum balance requirements. In an economic environment where savings accounts and CDs offer paltry yields, reward checking accounts hold a viable solution!
HIGH YIELD CHECKING RESOURCES.
- Article - 'Reward Checking Pays High Yields'
- Bank Deals -- Best Rates & Deals
- Checking Finder
- High Yield Checking Deals
April 22, 2009
FAIR CREDIT BILLING ACT
Several posts during the past couple of months have focused on consumer protection issues: Fair Debt Collection, Fair Credit Reporting, and Truth in Lending. Today I want to share some basic information about another important piece of consumer legislation -- The Fair Credit Billing Act.
FAIR CREDIT BILLING ACT.
This act is designed to protect consumer rights regarding billing errors on “open ended” credit accounts (such as credit cards).
Summary of FCBA provisions:
* Consumer is given 60 days after statement delivery to report a billing
error in writing. Common types of billing errors include: Unauthorized charges; charges listing wrong date or amount; charges for goods/ services that weren’t received or were defective; merchants failing to properly credit returned merchandise; charges being posted multiple times for a single purchase; mathematical errors; failure to post payment; or failure to send bill to correct address.
* If your bill contains an error, the creditor must explain (in writing) the corrections that will be made to your account and must remove any late fees, finance charges, or other charges related to the error.
* Consumer may withhold payment on disputed amount during the investigation (it can [and likely will] count against your credit limit). [Be certain to pay the portion of balance (if any) that is not being disputed].
* Consumer must be provided a statement each billing period in which more than $1 is owed.
* Consumer must be provided written notice when a new account is open detailing the right to dispute billing errors.
* Creditor must resolve a dispute within two billing cycles (not more than 90 days) after receiving your letter.
* Creditor cannot threaten your credit rating or report you as delinquent during a dispute.
* Creditor must send bill at least 14 days before payment due date.
** Although the quality of goods is obviously not a “billing error,” if you use your credit or charge card to make the purchase, you can go through the same dispute process with the card as long as the purchase was at least $50, was in your home state, within 100 miles of your current billing address, and you had made a “good faith” effort to resolve the dispute with the seller first.
** Any violations of your FCBA rights can be filed online via the Federal Trade Commission Complaint Assistant Form.
Consumer credit is such a vital thing for most consumers – the ability to have protections in place to help consumers protect the credit they work so hard to build and develop is critical. They are only helpful, however, if you are aware of them!
FAIR CREDIT BILLING ACT.
This act is designed to protect consumer rights regarding billing errors on “open ended” credit accounts (such as credit cards).
Summary of FCBA provisions:
* Consumer is given 60 days after statement delivery to report a billing
error in writing. Common types of billing errors include: Unauthorized charges; charges listing wrong date or amount; charges for goods/ services that weren’t received or were defective; merchants failing to properly credit returned merchandise; charges being posted multiple times for a single purchase; mathematical errors; failure to post payment; or failure to send bill to correct address.
* If your bill contains an error, the creditor must explain (in writing) the corrections that will be made to your account and must remove any late fees, finance charges, or other charges related to the error.
* Consumer may withhold payment on disputed amount during the investigation (it can [and likely will] count against your credit limit). [Be certain to pay the portion of balance (if any) that is not being disputed].
* Consumer must be provided a statement each billing period in which more than $1 is owed.
* Consumer must be provided written notice when a new account is open detailing the right to dispute billing errors.
* Creditor must resolve a dispute within two billing cycles (not more than 90 days) after receiving your letter.
* Creditor cannot threaten your credit rating or report you as delinquent during a dispute.
* Creditor must send bill at least 14 days before payment due date.
** Although the quality of goods is obviously not a “billing error,” if you use your credit or charge card to make the purchase, you can go through the same dispute process with the card as long as the purchase was at least $50, was in your home state, within 100 miles of your current billing address, and you had made a “good faith” effort to resolve the dispute with the seller first.
** Any violations of your FCBA rights can be filed online via the Federal Trade Commission Complaint Assistant Form.
Consumer credit is such a vital thing for most consumers – the ability to have protections in place to help consumers protect the credit they work so hard to build and develop is critical. They are only helpful, however, if you are aware of them!
April 15, 2009
TRUTH IN LENDING
Awareness is pivotal in the ability to make informed decisions as a consumer. This week I wanted to post information about one of the earliest consumer laws enacted -- The Truth in Lending Act (TILA).
The TILA is a major cornerstone of consumer credit legislation. At its heart, it is designed to guarantee accurate and meaningful disclosure of the costs of consumer credit - enabling consumers to make informed choices in the "credit marketplace." Prior to its enactment, consumers had no easy way to determine how much credit would really cost, or how to compare credit offers from various lenders. To their defense, creditors didn't have a uniform or standardized way of calculating interest or defining what additional charges would be added (which wouldn't show up in the interest rate).
Prior to TILA enactment, a survey asking families to estimate the average interest rate on their consumer debt resulted in an average response that underestimated their interest charges by 300%! An initial reaction would likely be "what a bunch of dummies." In actuality, look at this example to see how confusing things really were at that time ...
Three theoretical offers for a 3-year car loan:
1. Dealer financing with a 6% add-on rate
2. Dealer financing with a 6% discount rate
3. Credit union financing with a 10% actuarial rate
#2 was the option most consumers thought would be the best financial option. Seems logical, right? Remember that prior to the TILA, fees commonly weren't disclosed as part of the assessment of the "true cost" of a loan. In the example provided, the actual APRs ('true cost of the loan') were:
3. 10.00% APR
1. 11.08% APR
2. 13.38% APR
How easy would it have been to "dupe" (whether intentionally or not) consumers into an inferior loan because it was so simple to mask costs? It was for these types of reasons that the Truth in Lending Act was passed. Originally adopted in 1968, Truth in Lending recognizes "the right of the consumer to be informed - to be protected against fraudulent, deceitful, or grossly misleading information, advertising, labeling, or other practices, and to be given the facts he/she needs to make an informed choice." The act specifically states that...
- Creditors must provide detailed information about accounts (i.e., balance, interest rate, and fees for current accounts) and must disclose conditions and terms up front (APR, dollar amount of fees, etc).
- Creditors can't send a credit card if the consumer did not apply for it.
- Regulates how credit terms can be advertised.
- Sets card liability to no more than the first $50 of fraudulent charges.
The apparent benefits of this legislation shine through for consumers during the home buying process. How much easier is it to compare apples with apples on various offers from different lenders given the fact that they are required to disclose the APR (the true cost of the loan), not just the interest rate? It allows people to much more easily shop and compare loan costs/terms and ultimately make the best, most informed consumer decision. It’s scary to think where we’d be without this consumer protection law!
Since the original legislation became effective July 1, 1969, several amendments have been made to account for new and increasingly complex loan products (i.e., home equity loans, adjustable rate mortgages, etc.). If interested, you can view the complete TILA here.
The TILA is a major cornerstone of consumer credit legislation. At its heart, it is designed to guarantee accurate and meaningful disclosure of the costs of consumer credit - enabling consumers to make informed choices in the "credit marketplace." Prior to its enactment, consumers had no easy way to determine how much credit would really cost, or how to compare credit offers from various lenders. To their defense, creditors didn't have a uniform or standardized way of calculating interest or defining what additional charges would be added (which wouldn't show up in the interest rate).
Prior to TILA enactment, a survey asking families to estimate the average interest rate on their consumer debt resulted in an average response that underestimated their interest charges by 300%! An initial reaction would likely be "what a bunch of dummies." In actuality, look at this example to see how confusing things really were at that time ...
Three theoretical offers for a 3-year car loan:
1. Dealer financing with a 6% add-on rate
2. Dealer financing with a 6% discount rate
3. Credit union financing with a 10% actuarial rate
#2 was the option most consumers thought would be the best financial option. Seems logical, right? Remember that prior to the TILA, fees commonly weren't disclosed as part of the assessment of the "true cost" of a loan. In the example provided, the actual APRs ('true cost of the loan') were:
3. 10.00% APR
1. 11.08% APR
2. 13.38% APR
How easy would it have been to "dupe" (whether intentionally or not) consumers into an inferior loan because it was so simple to mask costs? It was for these types of reasons that the Truth in Lending Act was passed. Originally adopted in 1968, Truth in Lending recognizes "the right of the consumer to be informed - to be protected against fraudulent, deceitful, or grossly misleading information, advertising, labeling, or other practices, and to be given the facts he/she needs to make an informed choice." The act specifically states that...
- Creditors must provide detailed information about accounts (i.e., balance, interest rate, and fees for current accounts) and must disclose conditions and terms up front (APR, dollar amount of fees, etc).
- Creditors can't send a credit card if the consumer did not apply for it.
- Regulates how credit terms can be advertised.
- Sets card liability to no more than the first $50 of fraudulent charges.
The apparent benefits of this legislation shine through for consumers during the home buying process. How much easier is it to compare apples with apples on various offers from different lenders given the fact that they are required to disclose the APR (the true cost of the loan), not just the interest rate? It allows people to much more easily shop and compare loan costs/terms and ultimately make the best, most informed consumer decision. It’s scary to think where we’d be without this consumer protection law!
Since the original legislation became effective July 1, 1969, several amendments have been made to account for new and increasingly complex loan products (i.e., home equity loans, adjustable rate mortgages, etc.). If interested, you can view the complete TILA here.
April 08, 2009
'SPECIALTY' CREDIT REPORTS
Hopefully by now, the idea of getting a copy of your credit report annually for free isn’t a foreign one - hint, ALWAYS use the government sanctioned website (ANNUALCREDITREPORT.COM).
Did you also know that FACTA (the same legislation that allowed you to get the free credit reports) also enables you to obtain free "specialty reports." These are reports that relate to such issues as medical records or payments, check writing history, residential or tenant history, and insurance claims (to name a few). Specialty reports have been available to all consumers since December 1st, 2004. FTC regulations require companies that prepare reports on consumers for employment, insurance claims, rental, check writing, and medical records history, as a minimum establish a toll free telephone number for ordering the free file disclosures. Many companies also provide information for ordering the file online. As is the case with credit reports, you are eligible for one free report per year (i.e., one insurance report, one tenancy report, etc.).
Not everyone has a need to obtain each specialty report. It makes sense to order a specialty report before shopping for new insurance, opening a new checking account, and prior to renting (or after being turned down when applying for any of the following). Consumers who find errors in a specialty report have the same rights to dispute as with errors found in a credit report.
Keep in mind these are "for profit" businesses – they provide the free specialty report to be in compliance with government regulations, but other items/products on their website are "for sale." You are under no obligation to order anything to get your free specialty reports (it is the exact same thing that occurs if you have used the government site to order your free credit report(s) where they attempt to sell you a credit score and other financial products) …
Examples of available specialty reports and how to order them:
- Insurance Underwriting History - Life, Health, Disability
- Property & Auto Claims History – (C.L.U.E. Report)
- Tenancy Consumer File
o To request a copy of your Check Writing History, (800-428-9623)
o To request a copy of your Employment History, (866-312-8075)
o To request a copy of your Tenant History, (877-448-5732)
Did you also know that FACTA (the same legislation that allowed you to get the free credit reports) also enables you to obtain free "specialty reports." These are reports that relate to such issues as medical records or payments, check writing history, residential or tenant history, and insurance claims (to name a few). Specialty reports have been available to all consumers since December 1st, 2004. FTC regulations require companies that prepare reports on consumers for employment, insurance claims, rental, check writing, and medical records history, as a minimum establish a toll free telephone number for ordering the free file disclosures. Many companies also provide information for ordering the file online. As is the case with credit reports, you are eligible for one free report per year (i.e., one insurance report, one tenancy report, etc.).
Not everyone has a need to obtain each specialty report. It makes sense to order a specialty report before shopping for new insurance, opening a new checking account, and prior to renting (or after being turned down when applying for any of the following). Consumers who find errors in a specialty report have the same rights to dispute as with errors found in a credit report.
Keep in mind these are "for profit" businesses – they provide the free specialty report to be in compliance with government regulations, but other items/products on their website are "for sale." You are under no obligation to order anything to get your free specialty reports (it is the exact same thing that occurs if you have used the government site to order your free credit report(s) where they attempt to sell you a credit score and other financial products) …
Examples of available specialty reports and how to order them:
- Insurance Underwriting History - Life, Health, Disability
- Property & Auto Claims History – (C.L.U.E. Report)
- Tenancy Consumer File
o To request a copy of your Check Writing History, (800-428-9623)
o To request a copy of your Employment History, (866-312-8075)
o To request a copy of your Tenant History, (877-448-5732)
April 01, 2009
CREATING A HOME INVENTORY
It’s always interesting to see what drives people to take action... Often, catastrophic or tragic events are 'triggers' that motivate introspection (this also regularly includes a monitoring of ones personal finances). The recent flooding in Fargo got me thinking about the significance of having a home inventory ...
WHY CREATE A HOME INVENTORY?
Obviously the threat of property loss from fire, theft, etc. is very real. FBI statistics report that burglaries occur nearly every 15 seconds; in addition, in a "normal" year, there are typically 400,000+ home fires, 1,000 reported tornadoes, and $2 billion in flood damages.
Another reason to develop a home inventory is "stuff" ... Even if you aren't a pack rat, if you were to inventory your possessions, you'd quickly realize that you have a lot of stuff! This exercise may lead you to realize that your insurance (renters or homeowners) coverage is inadequate or may lead you to investigate other areas of your financial life that need to be explored.
HOW TO CREATE A HOME INVENTORY?
You'll be relieved that there are numerous tools available to assist you in the process of creating a home inventory. In addition to a general inventory, many resources do much more - i.e., provide a record keeping system to help you document what you have and a way to manage receipts and other cost information. What would you do if you were to wake up in the morning to an empty house or apartment? Would you be able to document your possessions? Just as critical, could you substantiate the costs for those items??
In addition to inventory resources that can be purchased, several free resources are available (with impressive capabilities!) - here are a few:
• Home Inventory Shareware and Freeware
• Know Your Stuff - Home Inventory
• My Stuff - Home Inventory Software
My suggestion - simply do something. Go ahead and start small; maybe start in one room or with your higher cost items. What I've learned over time is that 90% of personal finance is inertia... once momentum starts, it tends to continue rolling. Besides, Murphys Law suggests that if you take the time to create the documentation, you won't need it!
WHY CREATE A HOME INVENTORY?
Obviously the threat of property loss from fire, theft, etc. is very real. FBI statistics report that burglaries occur nearly every 15 seconds; in addition, in a "normal" year, there are typically 400,000+ home fires, 1,000 reported tornadoes, and $2 billion in flood damages.
Another reason to develop a home inventory is "stuff" ... Even if you aren't a pack rat, if you were to inventory your possessions, you'd quickly realize that you have a lot of stuff! This exercise may lead you to realize that your insurance (renters or homeowners) coverage is inadequate or may lead you to investigate other areas of your financial life that need to be explored.
HOW TO CREATE A HOME INVENTORY?
You'll be relieved that there are numerous tools available to assist you in the process of creating a home inventory. In addition to a general inventory, many resources do much more - i.e., provide a record keeping system to help you document what you have and a way to manage receipts and other cost information. What would you do if you were to wake up in the morning to an empty house or apartment? Would you be able to document your possessions? Just as critical, could you substantiate the costs for those items??
In addition to inventory resources that can be purchased, several free resources are available (with impressive capabilities!) - here are a few:
• Home Inventory Shareware and Freeware
• Know Your Stuff - Home Inventory
• My Stuff - Home Inventory Software
My suggestion - simply do something. Go ahead and start small; maybe start in one room or with your higher cost items. What I've learned over time is that 90% of personal finance is inertia... once momentum starts, it tends to continue rolling. Besides, Murphys Law suggests that if you take the time to create the documentation, you won't need it!
March 25, 2009
YOUR CREDIT -- WHAT ARE YOUR RIGHTS?
On a nearly daily basis, agencies (such as current and potential lenders, insurance companies, landlords, and employers) are viewing your credit report(s) when making decisions about you. The number of entities that rely on credit as a primary source of assessing "trust" are increasing on a regular basis. How familiar are you with your credit and your rights? The Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA) are the current legislation designed to protect you and your credit.
FAIR CREDIT REPORTING ACT.
Designed to promote accuracy, fairness, and privacy of information in the files of every consumer's credit report.
Major FCRA Provisions:
• You are entitled to a free report at any time if:
- You are unemployed and plan to seek employment within 60 days; Are currently on welfare; Are a fraud victim; Have been denied credit, employment, or insurance based on report information.
- You are entitled to one free report per year (from each bureau).
ALWAYS USE THE FREE GOV'T-AUTHORIZED SITE! http://annualcreditreport.com, NEVER freecreditreport.com.
• Outdated negative information may not be reported:
- 2 years for inquiries
- 7 years for “most” negative information
- 10 years for judgment liens and most bankruptcies
- 10 years [or more] for “positive” information
• Access to your file is limited (i.e., application considerations):
- Employment, Insurance, Credit, Landlord, etc.…
• You must be told if information in your file has been used against you:
- Denial of employment, credit, insurance
• You have a right to know what is in your file
• You have a right to dispute inaccurate information
• Inaccurate or unverifiable information must be corrected or deleted
• Forces identification of individuals inspecting your file
• Requires consumer consent for reports provided to employers
• You may seek damages if your FCRA rights have been violated
• You may limit the ‘pre-approved’ offers received for credit and insurance. You may opt out by calling toll free (1-888-5-OPTOUT). Additional information is available at the 'opt out' blog post. Maintaining the accuracy of your credit report is YOUR responsibility. The entire FCRA is available at: http://www.ftc.gov/os/statutes/031224fcra.pdf.
FAIR AND ACCURATE CREDIT TRANSACTIONS ACT.
Signed into law by Pres. Bush in December of 2003, the Fact Act [as it’s often called] was designed to ensure that all citizens are treated fairly when applying for credit. Specifically, the bill was designed to increase consumer protections against the growing problem of identity theft. FACTA also extends the current provisions (mentioned above) of the Fair Credit Reporting Act.
Major FACTA Provisions:
• Provide consumers with a free credit report every year (see above).
• Give consumers the right to see their credit scores (for a fee).
• Restrict access to consumers' sensitive health information.
• Allow consumers to place "fraud alerts" in their credit reports to prevent identity thieves from opening accounts in their names (includes special provisions to active duty military).
• Provide consumers with one-call-for-all protection by requiring credit bureaus to share consumer calls on identity theft, including requested fraud alert blocking.
• Allow consumers to block information from being given to a credit bureau and from being reported by a bureau if such information results from identity theft.
• Require creditors to take certain precautions before extending credit to consumers who have placed "fraud alerts" in their files.
• Ensure that consumers are notified if merchants are going to report negative information to the credit bureaus about them.
• Stop merchants from printing more than the last five digits of a payment card on an electronic receipt.
Consumer credit is such a vital part of 'consumer life' – the ability to have protections in place to help consumers safeguard the credit they have worked so hard to build and maintain is critical. Know Your Rights!
FAIR CREDIT REPORTING ACT.
Designed to promote accuracy, fairness, and privacy of information in the files of every consumer's credit report.
Major FCRA Provisions:
• You are entitled to a free report at any time if:
- You are unemployed and plan to seek employment within 60 days; Are currently on welfare; Are a fraud victim; Have been denied credit, employment, or insurance based on report information.
- You are entitled to one free report per year (from each bureau).
ALWAYS USE THE FREE GOV'T-AUTHORIZED SITE! http://annualcreditreport.com, NEVER freecreditreport.com.
• Outdated negative information may not be reported:
- 2 years for inquiries
- 7 years for “most” negative information
- 10 years for judgment liens and most bankruptcies
- 10 years [or more] for “positive” information
• Access to your file is limited (i.e., application considerations):
- Employment, Insurance, Credit, Landlord, etc.…
• You must be told if information in your file has been used against you:
- Denial of employment, credit, insurance
• You have a right to know what is in your file
• You have a right to dispute inaccurate information
• Inaccurate or unverifiable information must be corrected or deleted
• Forces identification of individuals inspecting your file
• Requires consumer consent for reports provided to employers
• You may seek damages if your FCRA rights have been violated
• You may limit the ‘pre-approved’ offers received for credit and insurance. You may opt out by calling toll free (1-888-5-OPTOUT). Additional information is available at the 'opt out' blog post. Maintaining the accuracy of your credit report is YOUR responsibility. The entire FCRA is available at: http://www.ftc.gov/os/statutes/031224fcra.pdf.
FAIR AND ACCURATE CREDIT TRANSACTIONS ACT.
Signed into law by Pres. Bush in December of 2003, the Fact Act [as it’s often called] was designed to ensure that all citizens are treated fairly when applying for credit. Specifically, the bill was designed to increase consumer protections against the growing problem of identity theft. FACTA also extends the current provisions (mentioned above) of the Fair Credit Reporting Act.
Major FACTA Provisions:
• Provide consumers with a free credit report every year (see above).
• Give consumers the right to see their credit scores (for a fee).
• Restrict access to consumers' sensitive health information.
• Allow consumers to place "fraud alerts" in their credit reports to prevent identity thieves from opening accounts in their names (includes special provisions to active duty military).
• Provide consumers with one-call-for-all protection by requiring credit bureaus to share consumer calls on identity theft, including requested fraud alert blocking.
• Allow consumers to block information from being given to a credit bureau and from being reported by a bureau if such information results from identity theft.
• Require creditors to take certain precautions before extending credit to consumers who have placed "fraud alerts" in their files.
• Ensure that consumers are notified if merchants are going to report negative information to the credit bureaus about them.
• Stop merchants from printing more than the last five digits of a payment card on an electronic receipt.
Consumer credit is such a vital part of 'consumer life' – the ability to have protections in place to help consumers safeguard the credit they have worked so hard to build and maintain is critical. Know Your Rights!
March 17, 2009
FAIR DEBT COLLECTION PRACTICES ACT
To follow up on last week's post regarding the statute of limitations on old debt, it seemed appropriate to write about the law governing the collection of debt - The Fair Debt Collection Practices Act (FDCPA).
The Federal Trade Commission receives more complaints about debt collectors than any other specific industry. The FDCPA establishes what collectors (the law applies to third party debt collectors, not 'in-house' collectors) can and cannot do, prohibiting certain methods of unfair and abusive debt collection practices.
* May not contact you at ‘inconvenient’ times (before 8am and after 9pm) as well as inconvenient places (i.e., employer - so long as they know your employer disapproves) unless you allow them.
* You can cease contact with a creditor by writing a “cease letter” – this will cease contact unless they are notifying you of a specific action (i.e., taking you to court).
* If you have an attorney, let them know. They are then required to contact you through the attorney.
* The debt collector may not contact third parties (families, friends, employer, etc.) except to attempt to locate you.
* Within 5 days of first contact, the collector must send a written notice indicating what is owed, name of creditor to whom you owe the money, and how to dispute the collection.
* Prohibited collection practices include: harassment (threats of violence or harm, publishing a list of non-paying consumers (except to credit bureaus), use obscenities, and repeatedly call on phone), false or misleading statements, hiding their identity, and any other “unfair” practices.
* Consumer has the right to file lawsuit against collector if FDCPA has been violated.
ADDITIONAL RESOURCES.
- Reporting FDCPA Violations (State - AG / Federal - FTC)
- Summary of Most Common 2008 FDCPA Violations
* If you have been a victim of a collector that has violated your FDCPA rights, you have the right to sue in a state or federal court within one year from the date the law was violated. The judge can require the collector to pay you for any damages (i.e., lost wages, medical bills/stress, counseling, etc.) as well as require the debt collector to pay you up to an additional $1,000 (even if you can’t prove that you suffered actual damages). You also can be reimbursed for your attorney’s fees and court costs.
NOTE. Even if a debt collector violates the FDCPA while attempting to collect a debt, a 'legitimate' debt will not go away!
The Federal Trade Commission receives more complaints about debt collectors than any other specific industry. The FDCPA establishes what collectors (the law applies to third party debt collectors, not 'in-house' collectors) can and cannot do, prohibiting certain methods of unfair and abusive debt collection practices.
* May not contact you at ‘inconvenient’ times (before 8am and after 9pm) as well as inconvenient places (i.e., employer - so long as they know your employer disapproves) unless you allow them.
* You can cease contact with a creditor by writing a “cease letter” – this will cease contact unless they are notifying you of a specific action (i.e., taking you to court).
* If you have an attorney, let them know. They are then required to contact you through the attorney.
* The debt collector may not contact third parties (families, friends, employer, etc.) except to attempt to locate you.
* Within 5 days of first contact, the collector must send a written notice indicating what is owed, name of creditor to whom you owe the money, and how to dispute the collection.
* Prohibited collection practices include: harassment (threats of violence or harm, publishing a list of non-paying consumers (except to credit bureaus), use obscenities, and repeatedly call on phone), false or misleading statements, hiding their identity, and any other “unfair” practices.
* Consumer has the right to file lawsuit against collector if FDCPA has been violated.
ADDITIONAL RESOURCES.
- Reporting FDCPA Violations (State - AG / Federal - FTC)
- Summary of Most Common 2008 FDCPA Violations
* If you have been a victim of a collector that has violated your FDCPA rights, you have the right to sue in a state or federal court within one year from the date the law was violated. The judge can require the collector to pay you for any damages (i.e., lost wages, medical bills/stress, counseling, etc.) as well as require the debt collector to pay you up to an additional $1,000 (even if you can’t prove that you suffered actual damages). You also can be reimbursed for your attorney’s fees and court costs.
NOTE. Even if a debt collector violates the FDCPA while attempting to collect a debt, a 'legitimate' debt will not go away!
March 11, 2009
STATUTE OF LIMITATIONS ON DEBT
A subject of great concern to many people with damaged credit is the issue of time limits (i.e., statute of limitations). In other words, how long will negative information impact me … The statute of limitations begins to run when you have done something contrary to the terms of your agreement for which you can be sued (typically a failure to pay the bill). There are two primary areas to cover to properly address this: (1) Debt collection-related issues and (2) Credit reporting-related issues. The statute of limitations gives creditors a certain period of time (3-6 years in most states – see chart) to sue you over a debt. The impact on your credit is an entirely different thing. Many people believe [incorrectly] that when the statute runs out that the item will be removed from one’s credit report. THIS IS NOT THE CASE. These are two separate issues…
COLLECTION OF DEBTS.
Collections. Creditors or third-party collection agencies can legally demand or request payment on a debt (via letters and phone calls) forever, as long as the debt remains unpaid. An “expired” debt (one which has passed its statute of limitations) doesn’t go away simply because time has passed. You can ask them to cease communication (see the Fair Debt Collection Practices Act) which should end the routine demands from that source [unless/until they file a lawsuit] – this remedy, however, only impacts collectors (not the original creditor).
Lawsuits. When a person is seriously delinquent (late) on a debt, there is a possibility of the creditor filing a lawsuit. The time limit for them to do so is referred to as the statute of limitations (SOL), a period set by individual states. This time period starts when you become delinquent. The relevant statute is the one for the state in which you resided at the time of the delinquency (if the creditor is based in another state, however, they can choose which state to file in – typically the one with the longer SOL). The expiration of the SOL covering a debt WILL NOT necessarily prevent a lawsuit from being filed, but it does provide you an absolute defense for having the suit dismissed. If you are sued and you do not document that the SOL has expired (or you simply don't show up!), you will lose the lawsuit and a judgment will be placed against you!
Judgments. If a lawsuit has already been filed and won by a creditor, there is separate SOL for enforcing (collecting) the judgment. Here is a chart with the judgment enforcement time limits for each state.
• There is no SOL or other time limit for lawsuits or other enforcement action on defaulted federal student loans.
CREDIT REPORTING.
The credit reporting time limit is the max amount of time credit bureaus can report delinquent debts (as well as other components of your financial history) on your credit report. For most types of accounts, it's seven years from the date of delinquency. Bankruptcies and tax liens are exceptions to this. The time limits are dictated by the Federal Fair Credit Reporting Act and do not influence the statute of limitations for collecting a debt.
Reporting of Collection Accounts. The date of delinquency IS NOT reset when an account is sold to a collection agency. The date of delinquency still refers to the original delinquency with the original creditor, regardless of when the collection agency began working the debt. Collection agencies may try, but they cannot legitimately "reset the clock."
THE RE-AGING MYTH…
Contrary to popular belief, making payments (including partial payments) on bad debts DOES NOT impact the time allowed for companies to list information on your credit report. The exception to this is tax liens and federal student loans. All other types of items should expire on a “known” schedule (based on the allowances outlined in the Fair Credit Reporting Act). The report time is based on the original dates, regardless of when or whether they are paid.
There historically has been a great deal of confusion over the starting point (exactly when the clock (typically 7 years) begins ticking), which often is misinterpreted as the date of the last activity on the account. This obviously would result in the possibility of "re-setting the clock" on an old, bad debt by making a payment on it. The issue was clarified in 1996 amendments to the Fair Credit Reporting Act (FCRA), which set a specific starting date linked to the original delinquency date (see FCRA Section 605(c)(1)).
NOTE. Credit cards are generally considered Open Accounts. Auto loans and other installment agreements are typically treated as Written Contracts. Remember that if there has already been a lawsuit resulting in a judgment, that judgment has a separate Statute Of Limitations, which you can find here. You will want to check with your own state (and/or consult with an attorney) to find out how they treat these issues specifically – some states will vary in their definitions. For example, a credit card is an open account in most states, but is a written contract in others …
COLLECTION OF DEBTS.
Collections. Creditors or third-party collection agencies can legally demand or request payment on a debt (via letters and phone calls) forever, as long as the debt remains unpaid. An “expired” debt (one which has passed its statute of limitations) doesn’t go away simply because time has passed. You can ask them to cease communication (see the Fair Debt Collection Practices Act) which should end the routine demands from that source [unless/until they file a lawsuit] – this remedy, however, only impacts collectors (not the original creditor).
Lawsuits. When a person is seriously delinquent (late) on a debt, there is a possibility of the creditor filing a lawsuit. The time limit for them to do so is referred to as the statute of limitations (SOL), a period set by individual states. This time period starts when you become delinquent. The relevant statute is the one for the state in which you resided at the time of the delinquency (if the creditor is based in another state, however, they can choose which state to file in – typically the one with the longer SOL). The expiration of the SOL covering a debt WILL NOT necessarily prevent a lawsuit from being filed, but it does provide you an absolute defense for having the suit dismissed. If you are sued and you do not document that the SOL has expired (or you simply don't show up!), you will lose the lawsuit and a judgment will be placed against you!
Judgments. If a lawsuit has already been filed and won by a creditor, there is separate SOL for enforcing (collecting) the judgment. Here is a chart with the judgment enforcement time limits for each state.
• There is no SOL or other time limit for lawsuits or other enforcement action on defaulted federal student loans.
CREDIT REPORTING.
The credit reporting time limit is the max amount of time credit bureaus can report delinquent debts (as well as other components of your financial history) on your credit report. For most types of accounts, it's seven years from the date of delinquency. Bankruptcies and tax liens are exceptions to this. The time limits are dictated by the Federal Fair Credit Reporting Act and do not influence the statute of limitations for collecting a debt.
Reporting of Collection Accounts. The date of delinquency IS NOT reset when an account is sold to a collection agency. The date of delinquency still refers to the original delinquency with the original creditor, regardless of when the collection agency began working the debt. Collection agencies may try, but they cannot legitimately "reset the clock."
THE RE-AGING MYTH…
Contrary to popular belief, making payments (including partial payments) on bad debts DOES NOT impact the time allowed for companies to list information on your credit report. The exception to this is tax liens and federal student loans. All other types of items should expire on a “known” schedule (based on the allowances outlined in the Fair Credit Reporting Act). The report time is based on the original dates, regardless of when or whether they are paid.
There historically has been a great deal of confusion over the starting point (exactly when the clock (typically 7 years) begins ticking), which often is misinterpreted as the date of the last activity on the account. This obviously would result in the possibility of "re-setting the clock" on an old, bad debt by making a payment on it. The issue was clarified in 1996 amendments to the Fair Credit Reporting Act (FCRA), which set a specific starting date linked to the original delinquency date (see FCRA Section 605(c)(1)).
NOTE. Credit cards are generally considered Open Accounts. Auto loans and other installment agreements are typically treated as Written Contracts. Remember that if there has already been a lawsuit resulting in a judgment, that judgment has a separate Statute Of Limitations, which you can find here. You will want to check with your own state (and/or consult with an attorney) to find out how they treat these issues specifically – some states will vary in their definitions. For example, a credit card is an open account in most states, but is a written contract in others …
March 04, 2009
"SUITABLE" INVESTMENTS... ?
The return of the stock market [or lack thereof] during the past 15 months has many people second-guessing their investment choices (as well as the 'suitability' of financial advice received). Unfortunately, many people are unaware that not all financial professionals are required to work in your best interests...
FIDUCIARY VS. SUITABILITY STANDARD.
A fiduciary relationship is one bound by law to place the interests of its beneficiary (client) first (before its own interests). You would think that anyone offering financial advise to clients would have a fiduciary responsibility ... this is not the case, however. Brokers (sometimes called "registered representatives," "wealth managers," etc.) are not fiduciaries even though they may be perceived as such.
A Registered Investment Advisor, subject to the Investment Advisers Act, has a fiduciary responsibility. The "legal" standards of advising for a fiduciary vs. non-fiduciary relationship are very different. A non-fiduciary (such as a broker) is only required to follow a "suitability" standard. In English, this means that a broker can place personal interests ahead of its clients. It isn't difficult to provide 'suitable advice' to someone, even when that advice isn't the best advice. The relationship between the broker and its broker-dealer come before the interests of the broker's clients. On the other end of the spectrum, a fiduciary must follow a "trust" standard (generally considered the highest legal standard), placing the interest of clients ahead of its own, providing its "best advice" to a client.
A simple illustration can highlight this distinction. Two different investments might be equally suitable for a given client, but one might compensate the financial professional to a greater extent. An investment adviser relationship would require such a disclosure while broker rules would not.
Doug Shulman, vice chairman of the Financial Industry Regulatory Authority, is well aware of the challenge facing investors. “As investors turn to financial professionals to help them manage their assets, they often do not know the difference between insurance and securities products, or fiduciary duties versus suitability obligations. They just want someone they can trust to help them put their money to work so they can meet their financial and life goals.”
The parameters of an investment adviser’s fiduciary duty will depend on the scope of the advisory relationship, but generally include:
• Place the interests of clients first at all times.
• Have a reasonable basis for its investment advice.
• Investment decisions consistent with agreed upon client objectives.
• Treat clients fairly.
• Full disclosure regarding conflicts of interest.
• Respect the confidentiality of client information.
Obviously every investor wants to know the person they work with is working "for them." To that end, there are things you should know ...
- Are they legally obligated to work in your best interests at all time?
- Do they disclose all potential conflicts of interest?
- In what ways do they receive compensation?
- What are their credentials (and what does that mean)?
- Has any disciplinary action been taken against them (broker check)?
- How can I decide?
FIDUCIARY VS. SUITABILITY STANDARD.
A fiduciary relationship is one bound by law to place the interests of its beneficiary (client) first (before its own interests). You would think that anyone offering financial advise to clients would have a fiduciary responsibility ... this is not the case, however. Brokers (sometimes called "registered representatives," "wealth managers," etc.) are not fiduciaries even though they may be perceived as such.
A Registered Investment Advisor, subject to the Investment Advisers Act, has a fiduciary responsibility. The "legal" standards of advising for a fiduciary vs. non-fiduciary relationship are very different. A non-fiduciary (such as a broker) is only required to follow a "suitability" standard. In English, this means that a broker can place personal interests ahead of its clients. It isn't difficult to provide 'suitable advice' to someone, even when that advice isn't the best advice. The relationship between the broker and its broker-dealer come before the interests of the broker's clients. On the other end of the spectrum, a fiduciary must follow a "trust" standard (generally considered the highest legal standard), placing the interest of clients ahead of its own, providing its "best advice" to a client.
A simple illustration can highlight this distinction. Two different investments might be equally suitable for a given client, but one might compensate the financial professional to a greater extent. An investment adviser relationship would require such a disclosure while broker rules would not.
Doug Shulman, vice chairman of the Financial Industry Regulatory Authority, is well aware of the challenge facing investors. “As investors turn to financial professionals to help them manage their assets, they often do not know the difference between insurance and securities products, or fiduciary duties versus suitability obligations. They just want someone they can trust to help them put their money to work so they can meet their financial and life goals.”
The parameters of an investment adviser’s fiduciary duty will depend on the scope of the advisory relationship, but generally include:
• Place the interests of clients first at all times.
• Have a reasonable basis for its investment advice.
• Investment decisions consistent with agreed upon client objectives.
• Treat clients fairly.
• Full disclosure regarding conflicts of interest.
• Respect the confidentiality of client information.
Obviously every investor wants to know the person they work with is working "for them." To that end, there are things you should know ...
- Are they legally obligated to work in your best interests at all time?
- Do they disclose all potential conflicts of interest?
- In what ways do they receive compensation?
- What are their credentials (and what does that mean)?
- Has any disciplinary action been taken against them (broker check)?
- How can I decide?
February 23, 2009
STAYING RATIONAL DURING AN EMOTIONAL TIME
This past week I read a great article put forth by Davis Advisors. Although I will only share snippets from the article, the entire article is available at their website. The article shares wisdom from some of the greatest investors of the past century (Warren Buffett, Benjamin Graham, Peter Lynch...). It is a worthwhile, thought-provoking read.
Avoid Self-Destructive Investor Behavior.
Emotions tend to wreak havoc on investment returns (particularly in challenging times like these). Check out the following chart ...
It is mind boggling to see the impact that emotions (namely fear and greed) play in investor returns - market timing, abandoning one's investment plan, chasing the 'new' or 'hot' thing [at the wrong time] can truly cripple one's financial game plan.
Understand that Crises are Inevitable.
Stock investors throughout history have always encountered crises and uncertainty, yet the market has continued to grow over the long term.
-- 1970s - Stagflation, rising energy, market decline of 44% in 2 years.
-- 1980s - Black Monday (22% market decline in one day).
-- 1990s - Savings & loan crisis, Asian financial crises.
-- 2000s - Bursting of tech bubble, 9/11, credit/real estate crisis.
In spite of challenges, the market has shown itself to be resilient; the long-term stock market trend has always been positive. Keeping this in mind may keep you from overreacting emotionally to market events and uncertainty.
Be Patient.
Patience is one of the most common attributes among great investors. Investing shouldn't be viewed as a short-term prospect ... Between 1928 and 2007, stocks returned positive returns in 59 of 80 one year periods (74% of the time). When looking at longer periods of time (5 years - see chart below), stocks delivered positive returns 93% of the time (71 out of 76 five year periods). Historically, stocks have rewarded patient, long-term investors.
Disregard Short-Term Forecasts and Predictions.
During challenging times, the media often becomes a focal point of attention. There is nothing wrong with watching CNBC or other financial programs or prognosticators (I'm guilty too). What does history teach us? Don't waste your time and energy focusing on things that are unpredictable and uncontrollable (i.e., When is the market going to bottom?). Instead, focus attention on things you can control - your asset allocation, evaluating your tolerance for risk, etc. The chart below is a clear example of just how difficult forecasting the future is even for "the pros" (who got it wrong about 2 times out of 3 in this example).
The results tracked the average interest rate forecast from the Wall Street Journal Survey of Economists from December 1982 - June 2008 compared to what interest rates actually did ...
The past year has been difficult for ALL investors. Avoid compounding the problem by making emotional/irrational investment decisions.
Avoid Self-Destructive Investor Behavior.
Emotions tend to wreak havoc on investment returns (particularly in challenging times like these). Check out the following chart ...
It is mind boggling to see the impact that emotions (namely fear and greed) play in investor returns - market timing, abandoning one's investment plan, chasing the 'new' or 'hot' thing [at the wrong time] can truly cripple one's financial game plan.
Understand that Crises are Inevitable.
Stock investors throughout history have always encountered crises and uncertainty, yet the market has continued to grow over the long term.
-- 1970s - Stagflation, rising energy, market decline of 44% in 2 years.
-- 1980s - Black Monday (22% market decline in one day).
-- 1990s - Savings & loan crisis, Asian financial crises.
-- 2000s - Bursting of tech bubble, 9/11, credit/real estate crisis.
In spite of challenges, the market has shown itself to be resilient; the long-term stock market trend has always been positive. Keeping this in mind may keep you from overreacting emotionally to market events and uncertainty.
Be Patient.
Patience is one of the most common attributes among great investors. Investing shouldn't be viewed as a short-term prospect ... Between 1928 and 2007, stocks returned positive returns in 59 of 80 one year periods (74% of the time). When looking at longer periods of time (5 years - see chart below), stocks delivered positive returns 93% of the time (71 out of 76 five year periods). Historically, stocks have rewarded patient, long-term investors.
Disregard Short-Term Forecasts and Predictions.
During challenging times, the media often becomes a focal point of attention. There is nothing wrong with watching CNBC or other financial programs or prognosticators (I'm guilty too). What does history teach us? Don't waste your time and energy focusing on things that are unpredictable and uncontrollable (i.e., When is the market going to bottom?). Instead, focus attention on things you can control - your asset allocation, evaluating your tolerance for risk, etc. The chart below is a clear example of just how difficult forecasting the future is even for "the pros" (who got it wrong about 2 times out of 3 in this example).
The results tracked the average interest rate forecast from the Wall Street Journal Survey of Economists from December 1982 - June 2008 compared to what interest rates actually did ...
The past year has been difficult for ALL investors. Avoid compounding the problem by making emotional/irrational investment decisions.
February 16, 2009
FLEXIBLE SPENDING ACCOUNTS
All of us are aware of the commonly discussed financial tools available to improve one's financial standing - saving/spending plan, Roth IRAs (and other tax-advantaged investment accounts), insurance, etc. Another very powerful financial tool available to most (yet unused by many) is a Flexible Spending Account. A Flexible Spending Account (FSA) is a program (available through one's employer) that offers tax advantages and allows employees to pay for [eligible] out-of-pocket health care and dependent care expenses with pre-tax dollars. Using pre-tax dollars provides an immediate benefit on those expenses that equals the taxes you would otherwise have paid on that money. In plain english -- a no-brainer!
Each year, employers provide an "open" period where you can elect to participate in an FSA (as well as make modifications to your other cafeteria plan benefits). If you miss this window, a "qualifying life event" is needed to avoid waiting until next year to enroll. Birth, adoption, and change in marital status are examples of common qualifying events.
The amount you choose to contribute on an annual basis is withdrawn from your paycheck in equal installments each pay period. Most employer plans offer two different flexible spending accounts - one for qualified medical/dental expenses, and one for dependent care expenses. You can opt to participate in one without participating in the other; you cannot, however, move unused money from one type of FSA to another.
It is important to give some thought to determining how much money you plan to contribute, because if you don't use the money you will lose it! For example, if you have $100/month contributed to the FSA ($1200 for the year) and have $1,000 of submitted [allowable] expenses, you will lose the unused $200. You do have a 2 1/2 month 'extension' (until March 15) at the end of the calendar year to submit claims toward the prior calendar year, not just a 12-month window.
FSA for Health Care Expenses.
The FSA to cover medical expenses not covered by insurance is the most commonly utilized plan. As you incur medical expenses not covered by your insurance, you submit an invoice* with proof of payment to the plan administrator who will then issue payment. Any medical expense the IRS considers deductible (that is not reimbursed through your insurance) can be reimbursed through the FSA. Examples include co-pays, deductibles, braces, prescriptions, lasic surgery ... IRS Publication 502 provides an exhaustive list of allowable (and non allowable) medical and dental expenses. Your employer may edit this broad list, so make sure you check in advance to ensure your desired expenses will be covered. Unlike dependent care FSAs, there is no IRS cap on medical FSA contribution limits. The annual cap will vary by employer.
FSA for Dependent Care Expenses.
The dependent care FSA is federally capped at $5,000 per year. While married spouses can each elect to have this amount deducted from their paycheck and applied to expenses, at tax time all withdrawals in excess of $5,000 are taxed. While medical FSAs almost always favor the taxpayer, dependent care FSAs can be more complicated. They involve examining trade offs between pre-tax deductions and tax credits. Enhancements to child tax credits in recent years have made them more attractive than dependent care FSAs for many taxpayers.
*Many employer FSAs now provide debit cards which allow for an electronic transfer of pre-tax dollars from an employee account when paying for qualified expenses. Employees can use their medical and dependent care funds by using their card at the point of service. The traditional paper process is eliminated, as are worries of lost receipts or expenses you'd otherwise forget. A nice improvement.
ADDITIONAL RESOURCES.
- FSA Facts
- Health Savings Accounts & Medical Savings Accounts
- IRS Publication 969 (Tax-Favored Health Plans)
- Review this calculator to estimate your potential annual tax savings.
Each year, employers provide an "open" period where you can elect to participate in an FSA (as well as make modifications to your other cafeteria plan benefits). If you miss this window, a "qualifying life event" is needed to avoid waiting until next year to enroll. Birth, adoption, and change in marital status are examples of common qualifying events.
The amount you choose to contribute on an annual basis is withdrawn from your paycheck in equal installments each pay period. Most employer plans offer two different flexible spending accounts - one for qualified medical/dental expenses, and one for dependent care expenses. You can opt to participate in one without participating in the other; you cannot, however, move unused money from one type of FSA to another.
It is important to give some thought to determining how much money you plan to contribute, because if you don't use the money you will lose it! For example, if you have $100/month contributed to the FSA ($1200 for the year) and have $1,000 of submitted [allowable] expenses, you will lose the unused $200. You do have a 2 1/2 month 'extension' (until March 15) at the end of the calendar year to submit claims toward the prior calendar year, not just a 12-month window.
FSA for Health Care Expenses.
The FSA to cover medical expenses not covered by insurance is the most commonly utilized plan. As you incur medical expenses not covered by your insurance, you submit an invoice* with proof of payment to the plan administrator who will then issue payment. Any medical expense the IRS considers deductible (that is not reimbursed through your insurance) can be reimbursed through the FSA. Examples include co-pays, deductibles, braces, prescriptions, lasic surgery ... IRS Publication 502 provides an exhaustive list of allowable (and non allowable) medical and dental expenses. Your employer may edit this broad list, so make sure you check in advance to ensure your desired expenses will be covered. Unlike dependent care FSAs, there is no IRS cap on medical FSA contribution limits. The annual cap will vary by employer.
FSA for Dependent Care Expenses.
The dependent care FSA is federally capped at $5,000 per year. While married spouses can each elect to have this amount deducted from their paycheck and applied to expenses, at tax time all withdrawals in excess of $5,000 are taxed. While medical FSAs almost always favor the taxpayer, dependent care FSAs can be more complicated. They involve examining trade offs between pre-tax deductions and tax credits. Enhancements to child tax credits in recent years have made them more attractive than dependent care FSAs for many taxpayers.
*Many employer FSAs now provide debit cards which allow for an electronic transfer of pre-tax dollars from an employee account when paying for qualified expenses. Employees can use their medical and dependent care funds by using their card at the point of service. The traditional paper process is eliminated, as are worries of lost receipts or expenses you'd otherwise forget. A nice improvement.
ADDITIONAL RESOURCES.
- FSA Facts
- Health Savings Accounts & Medical Savings Accounts
- IRS Publication 969 (Tax-Favored Health Plans)
- Review this calculator to estimate your potential annual tax savings.
February 09, 2009
FREE TAX ASSISTANCE
IT IS TAX TIME…
Numerous resources are available to assist the majority of taxpayers with free tax preparation assistance as well as free electronic filing of tax forms. Trained community volunteers are now available through the VITA (Volunteer Income Tax Assistance) Program or the Tax Counseling for the Elderly Program. These free programs are a tremendous boon to consumers as they provide an avenue to avoid tax preparation fees as well as costly refund anticipation loans.
In addition to free assistance in preparing tax returns, most sites also provide free electronic tax filing (e-file). E-filing will enable you to receive your refund more quickly and also offers options for directly depositing the refund into checking, savings, IRAs, and other types of accounts.
Check dates and times of service availability in advance. Some services will not be offered 8-5 Monday through Friday as locations are staffed by volunteers. Many offices, however, will offer some evening and weekend hours.
VITA.
The VITA Program offers free tax help to low- to moderate-income (generally, $42,000 and below) people needing assistance in preparing their own tax returns. VITA sites are generally located at community centers, libraries, schools, and other convenient/accessible locations. To locate the nearest VITA site, call: 1-800-829-1040.
VITA FOR MILITARY PERSONNEL & FAMILIES.
The military also has a strong VITA Program. Marines, airmen, soldiers, sailors, guardsmen, and their families receive free tax preparation assistance at offices within their installations. These sites provide free tax information, tax preparation, and assistance to military members and their families. The primary distinction with this and other VITA sites is the ability to work with individuals that are trained and equipped to address military-specific tax issues.
TAX COUNSELING FOR THE ELDERLY.
The Tax Counseling for the Elderly (TCE) Program provides free tax help to people aged 60 and older. In conjunction with the IRS-sponsored TCE Program, AARP offers their Tax-Aide counseling program at more than 7,000 sites nationwide during the filing season (February 1 – April 15). Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to those ages 60 and older. For more information on TCE call 1-800-829-1040. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit the AARP Tax-Aide website.
Documents you will need to bring with you …
-- Proof of identification
-- Social Security cards for all parties
-- Birth dates for all parties
-- Wage and earning statements for all income (i.e., W-2s)
-- Interest and dividend statements (Forms 1099)
-- A copy of last year’s Federal and State tax returns (when possible)
-- Bank account and routing numbers (for direct deposit)
-- Day care info (amount paid, provider tax identifying number)
ADDITIONAL TAX RESOURCES.
-- Current Tax Info (deductions, exemptions, tax brackets, etc.)
-- Do I Have To File? (typically worthwhile even if you don’t “have to”)
-- Education Tax Benefits
-- Federal Tax Forms
-- Free File Online Tax Preparation Sites
-- State Tax Forms
-- Understanding Taxes (interactive IRS tutorial)
Numerous resources are available to assist the majority of taxpayers with free tax preparation assistance as well as free electronic filing of tax forms. Trained community volunteers are now available through the VITA (Volunteer Income Tax Assistance) Program or the Tax Counseling for the Elderly Program. These free programs are a tremendous boon to consumers as they provide an avenue to avoid tax preparation fees as well as costly refund anticipation loans.
In addition to free assistance in preparing tax returns, most sites also provide free electronic tax filing (e-file). E-filing will enable you to receive your refund more quickly and also offers options for directly depositing the refund into checking, savings, IRAs, and other types of accounts.
Check dates and times of service availability in advance. Some services will not be offered 8-5 Monday through Friday as locations are staffed by volunteers. Many offices, however, will offer some evening and weekend hours.
VITA.
The VITA Program offers free tax help to low- to moderate-income (generally, $42,000 and below) people needing assistance in preparing their own tax returns. VITA sites are generally located at community centers, libraries, schools, and other convenient/accessible locations. To locate the nearest VITA site, call: 1-800-829-1040.
VITA FOR MILITARY PERSONNEL & FAMILIES.
The military also has a strong VITA Program. Marines, airmen, soldiers, sailors, guardsmen, and their families receive free tax preparation assistance at offices within their installations. These sites provide free tax information, tax preparation, and assistance to military members and their families. The primary distinction with this and other VITA sites is the ability to work with individuals that are trained and equipped to address military-specific tax issues.
TAX COUNSELING FOR THE ELDERLY.
The Tax Counseling for the Elderly (TCE) Program provides free tax help to people aged 60 and older. In conjunction with the IRS-sponsored TCE Program, AARP offers their Tax-Aide counseling program at more than 7,000 sites nationwide during the filing season (February 1 – April 15). Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to those ages 60 and older. For more information on TCE call 1-800-829-1040. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit the AARP Tax-Aide website.
Documents you will need to bring with you …
-- Proof of identification
-- Social Security cards for all parties
-- Birth dates for all parties
-- Wage and earning statements for all income (i.e., W-2s)
-- Interest and dividend statements (Forms 1099)
-- A copy of last year’s Federal and State tax returns (when possible)
-- Bank account and routing numbers (for direct deposit)
-- Day care info (amount paid, provider tax identifying number)
ADDITIONAL TAX RESOURCES.
-- Current Tax Info (deductions, exemptions, tax brackets, etc.)
-- Do I Have To File? (typically worthwhile even if you don’t “have to”)
-- Education Tax Benefits
-- Federal Tax Forms
-- Free File Online Tax Preparation Sites
-- State Tax Forms
-- Understanding Taxes (interactive IRS tutorial)
February 02, 2009
AFFINITY FRAUD
It seems that in the past few months an inordinate amount of financial scams have been uncovered. You’ve likely seen the media buzz surrounding the Bernie Madoff allegations of swindling $50 billion from investors. To me, there is a common thread that appears to be at the heart of many of these exposed financial ‘schemes.’ Many people expect greed and/or ignorance to be at the heart of a financial scam. Granted, these factors have their place. I’m not going to pretend that greed doesn’t play a role for an individual lured by someone like Nicholas Cosmo (recently arrested) and his promises of annual returns as high as 80%! I do believe that there is another lesson we can learn, however … the very real risks of affinity fraud.
The SEC defines affinity fraud as “investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, elderly, or professional groups.” These types of scams work by exploiting the trust and friendship shared by groups of people who share a common bond. No group is immune from being a target. The Wall Street Journal and ABC News (Different Worlds, One Scam) both have carried recent news stories about the phenomenon.
AVOIDING AFFINITY FRAUD.
As every investor has learned in the past year (if it wasn’t learned or realized prior), investing ALWAYS involves some degree of risk. The objective is to eliminate unnecessary risks by asking questions and gathering facts about any investment prior to purchasing it. The SEC (http://www.sec.gov/investor/pubs/affinity.htm) outlines a list of things ‘to do’ to minimize the risks of falling prey to these types of affinity scams …
CHECK OUT EVERYTHING. No matter how trustworthy the person seems who brings the investment opportunity to your attention. Never make an investment based solely upon the recommendation of a member of a group (i.e., professional organization, social, church, ethnicity) to which you belong. Investigate the investment opportunity thoroughly and check the truth of what you are told; the person telling you about the investment may also have been fooled into believing it is legitimate (when it is not).
AVOID THE PROMISE OF SPECTACULAR PROFITS/“GUARANTEED” RETURNS. Your parents were right when they told you that if ‘it seems too good to be true, it probably is.’ Be leery of any investment that is said to have no risks. The greater the potential return, the greater the risk of loss. Any promise of a quick profit with little or no risk is a classic warning sign.
OFFER IS NOT IN WRITING. You have good cause to be skeptical of any opportunity that is not in writing. Any opportunity you are told to be hush-hush about should also raise your suspicions.
TIME-SENSITIVE OFFERS. Be on the lookout for opportunities that are “once-in-a-lifetime” (particularly when the recommendation is based on “inside” information). Avoid situations where there is pressure to rush into buying before you have the chance to think avoid/investigate the opportunity. If the offer will “go away” tomorrow if you don’t buy in today, you should probably walk away.
E-MAIL/INTERNET TARGETING. More and more frequently, scams are being perpetrated over the Internet, targeting groups through e-mail spam. If your “can’t miss” investment comes via e-mail, forward it to the SEC enforcement team (enforcement@sec.gov) and delete it.
If you have been targeted [or victimized] by an affinity fraud scheme, contact:
- The SEC Complaint Center
- Your State’s Securities Administrator
The SEC defines affinity fraud as “investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, elderly, or professional groups.” These types of scams work by exploiting the trust and friendship shared by groups of people who share a common bond. No group is immune from being a target. The Wall Street Journal and ABC News (Different Worlds, One Scam) both have carried recent news stories about the phenomenon.
AVOIDING AFFINITY FRAUD.
As every investor has learned in the past year (if it wasn’t learned or realized prior), investing ALWAYS involves some degree of risk. The objective is to eliminate unnecessary risks by asking questions and gathering facts about any investment prior to purchasing it. The SEC (http://www.sec.gov/investor/pubs/affinity.htm) outlines a list of things ‘to do’ to minimize the risks of falling prey to these types of affinity scams …
CHECK OUT EVERYTHING. No matter how trustworthy the person seems who brings the investment opportunity to your attention. Never make an investment based solely upon the recommendation of a member of a group (i.e., professional organization, social, church, ethnicity) to which you belong. Investigate the investment opportunity thoroughly and check the truth of what you are told; the person telling you about the investment may also have been fooled into believing it is legitimate (when it is not).
AVOID THE PROMISE OF SPECTACULAR PROFITS/“GUARANTEED” RETURNS. Your parents were right when they told you that if ‘it seems too good to be true, it probably is.’ Be leery of any investment that is said to have no risks. The greater the potential return, the greater the risk of loss. Any promise of a quick profit with little or no risk is a classic warning sign.
OFFER IS NOT IN WRITING. You have good cause to be skeptical of any opportunity that is not in writing. Any opportunity you are told to be hush-hush about should also raise your suspicions.
TIME-SENSITIVE OFFERS. Be on the lookout for opportunities that are “once-in-a-lifetime” (particularly when the recommendation is based on “inside” information). Avoid situations where there is pressure to rush into buying before you have the chance to think avoid/investigate the opportunity. If the offer will “go away” tomorrow if you don’t buy in today, you should probably walk away.
E-MAIL/INTERNET TARGETING. More and more frequently, scams are being perpetrated over the Internet, targeting groups through e-mail spam. If your “can’t miss” investment comes via e-mail, forward it to the SEC enforcement team (enforcement@sec.gov) and delete it.
If you have been targeted [or victimized] by an affinity fraud scheme, contact:
- The SEC Complaint Center
- Your State’s Securities Administrator
January 26, 2009
FREE PLANNING ASSISTANCE
FREE FINANCIAL PLANNING ASSISTANCE
Kiplinger's Personal Finance & NAPFA
(FRIDAY, JANUARY 30)
For the eighth time, Kiplinger’s Personal Finance Magazine is working with the NAPFA (National Association of Personal Financial Advisors) Consumer Education Foundation to provide free, objective financial planning advice for consumers. The beginning of the New Year is a great time to get your financial checkup.
NAPFA (http://napfa.org) is the leading professional organization for fee-only financial advisors. Regardless of your current stage of life, this is a great opportunity to jumpstart your financial plan (follow through on your New Years resolution!) and address questions you may have about retirement savings, estate planning, taxes, insurance, college savings, etc. Last year, more than 12,000 people received assistance. Typically, fee only planners charge an hourly rate of $100 to $250.
Make sure you have relevant documents on hand to make the most of your time. If your question(s) are too complex to be addressed on the spot, you may be directed to the NAPFA site to find a planner in your area. A planner can aid you in making rational [rather than emotional] financial decisions. The services are available to anyone.
Where do you go to get the free assistance?
*CALL – 888-919-2345
*LIVE ONLINE DISCUSSION – http://www.kiplinger.com/links/jumpstart
*AVAILABILITY – 1/30/09 - (9:00am – 6:00pm EST)
Kiplinger's Personal Finance & NAPFA
(FRIDAY, JANUARY 30)
For the eighth time, Kiplinger’s Personal Finance Magazine is working with the NAPFA (National Association of Personal Financial Advisors) Consumer Education Foundation to provide free, objective financial planning advice for consumers. The beginning of the New Year is a great time to get your financial checkup.
NAPFA (http://napfa.org) is the leading professional organization for fee-only financial advisors. Regardless of your current stage of life, this is a great opportunity to jumpstart your financial plan (follow through on your New Years resolution!) and address questions you may have about retirement savings, estate planning, taxes, insurance, college savings, etc. Last year, more than 12,000 people received assistance. Typically, fee only planners charge an hourly rate of $100 to $250.
Make sure you have relevant documents on hand to make the most of your time. If your question(s) are too complex to be addressed on the spot, you may be directed to the NAPFA site to find a planner in your area. A planner can aid you in making rational [rather than emotional] financial decisions. The services are available to anyone.
Where do you go to get the free assistance?
*CALL – 888-919-2345
*LIVE ONLINE DISCUSSION – http://www.kiplinger.com/links/jumpstart
*AVAILABILITY – 1/30/09 - (9:00am – 6:00pm EST)
January 22, 2009
DISPUTING CREDIT REPORTING ERRORS
Errors on a credit report are about as common as spots on a dalmatian. Information on your credit report (accurate or not) will impact your ability to obtain credit, insurance, and possibly your job. Unfortunately, many consumers are unaware of how to remedy these mistakes…
Begin by obtaining a current copy of your credit reports (Experian, Equifax, and TransUnion are the three primary credit reporting agencies). Make certain to avoid the gimmick “free credit report” websites (these places typically provide you with one report and then stick you with costly fees for a credit monitoring service of questionable value). Always use the government -sanctioned website to get your free reports: www.annualcreditreport.com. You are entitled to one free report per agency every 12 months.
Before going on, let’s be certain we are clear on some important points:
-- Errors are mistakes (inaccurate information) on your report, NOT merely negative information. You have a legal right to have wrong information corrected. If information is accurate and verifiable, it will remain on your report as part of your “credit history” for the allowable duration (typically 7 years; there are exceptions – inquiries, some instances of bankruptcy, tax liens, etc.). This information [if negative] will be removed after the expiration time window; if it has not been removed (and should have), it can be disputed and removed.
-- It is CRITICAL to understand that the vast majority of “credit repair” agencies are scams! Most will do nothing for you that you can’t do on your own (legally) at no cost. Companies seeking a fee prior to rendering any services are a good tip-off to the rip-off.
While there are multiple methods of initiating a dispute – mail, online, and phone – the most convenient and efficient means is online.
ONLINE DISPUTE PROCESS.
- Locate the “report number.” This can be referred to by different names. It is the number on the top center of your report. This number provides the reporting agency with a ‘snapshot’ of the report you are viewing.
- Dispute the errors directly to the agency whose report you are reviewing:
o Equifax (www.equifax.com/online-credit-dispute)
o Experian (www.experian.com/disputes)
o TransUnion (annualcreditreport.transunion.com/entry/disputeonline)
- Specify the information you believe is inaccurate (i.e., current account shown as delinquent, account shown that consumer never opened, information from someone else’s report …) and enter any additional information that further explains the problem. (You can submit multiple errors in the same dispute). Know that it is not your responsibility to prove they are wrong; it is their job to prove they are right.
After your dispute is submitted, the credit reporting agency will contact the provider of the data asking them to verify the information. They will typically have 30 days (can be up to 45) to verify the accuracy of the information in question. If the information is unable to be verified [or if they do not respond in this timeframe], it will be removed from your report. If they are able to verify the information, you will be notified of that and will want to contact the company directly to seek closure (the credit report will provide contact information to do so). If the dispute is initiated online, you will be notified (typically within 3-5 days of the outcome) by e-mail and you can immediately view the results. You will also receive an updated credit report that reflects all changes made. If requested, the credit reporting agency must send notices of any corrections to anyone who received your report in the past 6 months. You can also have a corrected copy of your report sent to anyone who received a copy during the past 2 years for employment purposes.
What if that does not resolve the problem?
If you disagree with the results of the investigation, you have the right to add a 100-word statement to your report that explains your side of the story. This consumer statement gives you an opportunity to explain why a negative item is listed on your report. Creditors and potential lenders may review this information and take it into consideration when making credit decisions. It will remain on your report until you request that it be removed. Some credit reporting agencies will provide assistance [if desired] in drafting your statement.
While it is in the best interests of the credit reporting agencies to ensure the information they maintain is accurate, mistakes/errors are common. Ultimately, it is YOUR RESPONSIBILITY to ensure that the information in your credit report is accurate!
January 12, 2009
ARCHIVED TIPS (2008)
With the beginning of a new year, it seems like an opportune time to review the financial tips from the past year... As I have done in the past, I have provided a topical/organized archive of tips. The hot links will allow you to easily review prior tips. You can also view archived tips (by date) on the blog site or at:
--> 2006 Tips
--> 2007 Tips
BUDGETING.
- Cures for a Lean Purse (05/2008)
- [Free] Online Financial Management Resources (11/2008)
- Save More Each Month (09/2008)
CREDIT/DEBIT CARDS.
- Closing Unused Credit Card Accounts (12/2008)
- Credit Card Update (12/2008)
- Credit Cardholders' Bill of Rights (10/2008)
- Debit Card Realities (06/2008)
- New Rules for Card Companies (12/2008)
- Proposed Credit Card Changes (05/2008)
- Schumer's Box (08/2008)
- The Best Credit Card Reward Programs (12/2008)
CREDIT MANAGEMENT.
- Credit-Based Insurance Scoring (11/2008)
- Credit/Security Freeze (09/2008)
- "Free Credit" Services (07/2008)
FINANCIAL EDUCATION.
- Cash Course (01/2008)
- Financial Illiteracy Persists (04/2008)
FINANCIAL PLANNING.
- 401(k) and Other Investment Fees (12/2008)
- Building Wealth (04/2008)
- Coping With Market Volatility (01/2008)
- Deal or No Deal (03/2008)
- Free Planning Assistance (01/2008)
- Index vs. Active Fund Investing (04/2008)
- Is Your Money Safe (09/2008)
- Market Anniversary... Increase in Cyberscams (10/2008)
- No More Free Lunch... (09/2008)
- Portfolio X-Ray (03/2008)
- Responding to a Turbulent Market (12/2008)
- [Still] The Best High Yield Savings Accounts (08/2008)
OTHER.
- Financial Pitfalls - Overconfidence (06/2008)
- Financial Resolutions (01/2008)
- Gift Cards (11/2008)
- "Opt Out" (07/2008)
STUDENT RESOURCES.
- July 1 -- Rate Change (06/2008)
- Project on Student Debt (07/2008)
- Rewarding Those Who Serve (09/2008)
- Student Loan Borrower Assistance (10/2008)
- Student Loan Comparison - Resources (02/2008)
- Student Loan Update (05/2008)
TAXES.
- Economic Stimulus Package (03/2008)
- Economic Stimulus - Payment Schedule (04/2008)
- Free Tax Assistance (01/2008)
- Rebate Snafu (07/2008)
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