Credit/Debt Recovery

Avoid Refund Anticipation Loans

I filed my taxes early this year, so I had almost forgotten tax time was heating up. Then I got a press release about RALs, or "Refund Anticipation Loans," which some of the big tax preparers offer.

It's tempting to some taxpayers to grab the quick money a RAL offers, and I know a lot of people have plans for their tax refunds and need the cash right away, but RALs are kind of silly. If you e-file, you'll get your tax refund in less than two weeks (I got mine this year in 11 days). Why borrow and pay fees when you'll get the full refund in another 10-14 days?

I'm told that people who take out Refund Anticipation Loans typically pay 19% interest. That's a very expensive, very short term loan. Why bother?

Schumer staffer pleas guilty in credit report fraud case

When I first blogged in October about the fraudulent acquisition of Maryland Lt. Govenor Michael Steele's credit report, I expected it would inevitably become a big story in the WORM (worn-out reactionary media).

Never happened. Why? The only place to read about this case (which is a BIG DEAL, make no mistake about it) is in right-wing blogs. They all point to Democratic party hypocrisy: (link)

I don't care about the Democrats. It's the media I don't get. How can they continue to ignore this story? ID Theft is still the fastest-growing crime in America; we talk about it all the time. But here we have a perfect, high-profile example of how easy it is to commit identity theft, and no one with access to a printing press or a television camera is talking about it.

Prosper.com's first month

A few weeks ago, I blogged about Prosper.com, a new lending/borrowing outlet that combines social engineering sites, online auction houses, and traditional lending to allow individual consumers to lend to and borrow from each other.

After a month in operation, things seem to be going well: SavageNumber.com offers some loan statististics to give us an idea of what interest rates borrowers with various credit grades are getting. You'll notice the "Successful loan count" seems low; that's because there aren't enough lenders on Prosper yet. With time, I think there will be enough people taking advantage of the service to fund all of the loans--come on, where else can you earn 27% interest on your money?

Yeah, the 27% range comes from offering loans to "HR" borrowers--High Risk. But so far, all of the HR borrowers have made their first payment (which actually isn't due until tomorrow), which is far better than anyone expected. We're talking about credit scores under 540; statistically 1 in 6 should have been late with his/her first payment, and it turns out that all of them (almost 60 total borrowers) made his/her first payment early. That's encouraging.

New credit score will be no better?

Michelle Singletary's column today about the new Vantage score scheme from the credit bureaus echoes what I've been saying; if the underlying data is bad, the score will be meaningless.

Rather than creating a new credit scoring system, the bureaus should focus on fixing a problem that troubles many consumers and consumer advocates. Here's the problem: If any of your credit reports has incorrect information, is missing critical information or if some data aren't even being reported to one of the agencies, this can reduce your score no matter what the scoring formula.

In her column, she also exposes the particularly nefarious creditor practice of not reporting the credit limit of an account; read her column to understand how this harms consumers.

"Worst data breach notice bill ever"

Ed Meirzwinski of U.S. PIRG (Public Interest Research Group) has a blog where made this post about HR 3997, the "worst data breach notice bill ever."

HR 3997 would weaken our ability to protect ourselves from ID theft be pre-empting state security freeze laws. It also would likely result in no notification of consumers when our data is breached.

What's really telling, though, is that the bill wouldn't regulate data brokers; it makes one suspect the entire legislation was co-authored by that industry.

I mostly agree with Ed and US PIRG on this; I don't think excessive government regulation of the data industry is the answer, though. Transparency is. Create a standard that guarantees we'll all find out every time our data is compromised, and the class-action lawsuits against negligent data managers will get them to shape up. (Of course it won't be long before opportunist scumbag lawyers abuse that potential for class action... I'm glad I'm not in congress and having to debate this stuff.)

New credit score from the bureaus

The three major credit bureas have announced that they are teaming up to offer "VantageScores" to consumers.

The idea will be to make the score consistent between the three bureaus. This has to be a huge blow to Fair, Isaac, though I don't imagine lenders will abandon FICO scores for VantageScores right away; the bureaus will first have to demonstrate that their new score is as predictive as the FICO score. Plus, there's a huge entrenched lending and mortgage industry that has used FICO scores for ages; I'm not sure how quick they'll be to jump ship for the new shiny thing right away.

As for consumers, I'm curious about what effect this will have on scores. Currently, your FICO score might vary considerably between the three credit reports. If those three scores are brought closer into alignment, will the net effect be to the consumer's benefit?

I don't think so. Why? Equifax.

They're notorious for doing shoddy work and putting together inaccurate and outdated reports. Why should the typical messy Equifax report affect the far more accurate Experian score?

"Health Affairs" analyzes medical bankruptcy claims

The Health Affairs policy journal recently analyzed the Harvard study that last year claimed over half of all bankruptcies resulted from medical debts.

Health Affairs determined that in fact just 17 percent of bankruptcies had medical bills as a contributing factor:

David Himmelstein and colleagues recently contended that medical problems contribute to 54.5 percent of personal bankruptcies and threaten the solvency of solidly middle-class Americans. They propose comprehensive national health insurance as a solution. A reexamination of their data suggests that medical bills are a contributing factor in just 17 percent of personal bankruptcies and that those affected tend to have incomes closer to poverty level than to middle class. Moreover, for national health insurance to have an impact, it would have to define "medical" expenses in a much broader way than is now typical of either private or government-funded plans.

It was pretty clear from the get-go that the Harvard study had serious problems. I was looking at it from the bankruptcy side, where it seemed to me Elizabeth Warren was playing loose with the statistics to support her anti-BAPCPA agenda. Health Affairs sees David Himmelstein doing the same to support his national health insurance agenda. Either way, this Harvard study is discredited.

Don't tear up credit card applications--shred them

Cockeyed.com offers this cautionary tale about Chase Mastercard approving a credit card application that had been torn into at least 16 pieces and taped back together.

Even worse, he had the card mailed to a different address, and used his cell phone number on the application.

If this scares you into buying a shredder, good. However, I think there may have been some things on the credit card application that a dumpster-diving meth addict wouldn't have known; SSN, for instance. Still even if it's not quite as easy as Rob Cockerham makes it look, Identity Theft is still becoming more common, and credit card companies are still refusing to take it seriously.

Sure, they put out web sites and press releases: they want us to know how to protect ourselves. But they certainly aren't interested in making it any harder to get new credit. When it comes to preventing ID theft, the onus is on us, the consumers.

So check out Cockeyed.com, get yourself a shredder, and opt out of pre-approved credit offers by calling 1-888-5-OPTOUT (1-888-567-8688) now!

Dead-on post from Uncommon Sense

Richard Nikoley, who has graced my comments section from time to time, posted this on his blog a few days ago.

It's an agrument against price controls in the debt settlement market, and he couldn't be more right. Further proof that the Uniform Debt Management Services Act is a terrible idea. When I discussed the UDMSA recently, I said the authors of the legislation didn't understand the industry they were attempting to regulate. As Richard's blog post reveals, they don't even understand basic economics.

17 million iBill customers compromised...

...and, no, not all of them bought porn.

Here's the story at Wired News. iBill was compromised by hackers, or an insider sold information to some scammers, but this is terrible.

I'm furious about this for three reasons: (1) I briefly played this online game a few years ago, and they used iBill for their subscription service. So I'm one of the victims of this scam; my personal email address and who knows what else has been compromised. (2) Everyone who has covered this story, including Wired News and BoingBoing, has focused on the fact that iBill handled financial transactions for pornography sites. But I and thousands of people who played Horizons never bought pornography online. (3) I was stupid to use an email address I cared about when I subscribed to that game. Apparently, there is zero room for error with this kind of thing; the one email account I have thus-far kept spam-free is shot.

I'm not a lawsuit kind of person, but this screams class action.