Credit/Debt Recovery

Credit denials due to "terrorist" connections

I've heard a lot about this story over the last week; people are being denied credit because they share a name with someone on the terrorist watch list.

If this happens to you, I'm not sure how I could help. If you've got run-of-the mill problems with your credit report, disputes with creditors or ruthless collectors, then there are things you can do to fix the situation. Might take a month, and a few follow-up letters, but we'd probably succeed in the end.

But this thing with the terrorist watch list, this is different. For one thing, your dispute isn't really with the creditor. The creditors have been advised by the government not to extend credit or services to anyone on the list. So if your middle name is Hassan, and that's some terrorist's name, then they're not going to take a chance. It's not that they're using the list as a "consumer screener" as some "civil rights advocates" claim. They want to make loans. Obviously, they're too eager to make loans, as we're learning in the subprime market right now.

So they're not capriciously denying credit to guys named Hussein. But they know that if they should accidentally grant a mortgage loan to someone who turns up on the list, our government will freeze those accounts and sieze everything. And the bank will lose out big-time. So they're not going to take the chance.

Ultimately, you're not dealing with creditors who are reasonable and just want to make a profit. You're dealing with government officials, thugs with guns, and they're not going to go out of their way to help you.

I think all you can do is try to negotiate with the creditor and get them past their fear. Only after they are convinced the government won't crush them will they be willing to write these loans.

Fortunately, this isn't exactly a common occurrence. It's obvious what the media's real point is in giving so much coverage to credit denials of a whopping 12 people. But their hand-wringing isn't going to actually help those few people who are denied access to credit unfairly. I'm not sure what is.

Scurlock on "Good debt"; off the mark

James Scurlock, director of Maxed Out, has an excerpt of his book at Alternet. I don't completely share his views, but I think it's worth reading what he has to say.

However, I want to point out one of the flaws in his thinking.

But there is an even greater misconception at work -- a misconception that debt is not what it used to be. That there is "good" debt, for example, and "bad" debt. Tune in to Suze Orman, for example, and she will tell you that a single number, your credit score, is the key to your financial future. But while a good credit score gets you better rates on your mortgage and credit cards, it also opens up the floodgates for more "good" -- i.e., cheap -- credit to pour into your life, and this credit does not usually remain good or cheap for too long.

Scurlock doesn't understand what "good" debt is. When we talk about good debt in the debt recovery industry, we mean debt taken on to acquire something that accrues value. It has nothing to do with the debt being cheap. Re-visit this post about the MoneyGirl podcast for more perspective on what it really means when we say "good" and "bad" debt.

(I'm wondering--did Scurlock finance his film out of pocket? Or did he have to borrow or have someone else finance it? I'm sure his film, which is universally well-liked, will turn a profit. So is it "bad debt" to borrow to make your documentary?)

Scurlock goes on: "The idea that one should stay out of debt, period, is now considered unrealistic. After all, who lives without debt? The Unabomber, maybe?" Call me unrealistic, then. I say stop borrowing. And I mean "bad" debt, of course. If you're borrowing for an education, a home, a business... then be glad you live in a country with a credit system that allows you these things. Like I've said before, if your car breaks down and you can't get to work otherwise, then borrowing to repair the car (even with a credit card) is good debt. Because it keeps your earning potential intact. Not because it's cheap.

Second Life

So Coldwell Banker is selling virtual real estate in Second Life. (Virtual real estate? I think we've found a new oxymoron.)

So when will we see our first Second Life foreclosure? Are their HUD-certified housing counselors in Second Life? Will the NFCC allow a CCCS of Second Life?

I'm still trying to reconcile all the gloom and doom I'm hearing about the economy with the fact that, for well over a year now, more and more people are earning their entire income in Second Life. Reuters has a Second Life news desk.

Is this really America "before the bubble bursts"?

Age Blurring and teen income

I just read a report by Social Technologies on "Age Blurring," which can be applied both to prolonged adolescence of adults and accelerated maturation of children. The article I read dealt with the latter.

Unfortunately, the text of the report is unavailable online, though you can get more information about Social Technologies here.

Basically, the gist of the article was that kids are growing up faster and buying adult products like iPods rather than traditional toys. They're also drinking lattes, going to the spa, wearing thongs, getting anorexia, etc. I was struck by some statistics they cited:

The American "tween market of 8-to-13-year olds possesses approximately $33 billion in spending power.

and

Teens number close to 33 million, with an average disposable income of $100 per week.

$100 per week?

Listen, if you have debt problems and you're giving your teenager anything close to $100 to blow every week, go away. I mean it; I don't want to help you. Go file bankruptcy or something.

Now, if your kid works and just has $100 per week to throw away because s/he earned it, then fine. But maybe you could help them contribute some of that to a 529 plan? I mean, anything we can do to avoid future Anya Kamenetz-style whining from yuppie children of baby boomers is something we should all get behind.

And that's really what this is all about: America's worst generation, the baby boomers, and their spoiled rotten children. These are the people who will be burdenin us with Social Security demands for the rest of my working life, while their teen children carry Hello Kitty MasterCards and Blackberries.

I guess we should let these brats keep spending while they can; soon enough they'll learn that college is expensive, and they won't be able to avoid debt. They might even have to live with a kitchen that's too small to hold all their china and silver candlesticks. The horror.

Speak for yourself, Ms. Britton

That's Kaye Britton, of the Home Ownership Center of Greater Cincinnati, quoted in this Reuters article saying:

"Oh Lord there is no way we can keep up with all these calls."

The article goes on to say that "the counseling industry is already overwhelmed". That, of course, is what Reuters picked out for the headline of the article: "Credit counselors overwhelmed by U.S. mortgage crisis."

Well that isn't exactly true. Just because one agency in Cincinnati can't handle the volume doesn't mean the "industry" is in trouble. There are plenty of qualified, HUD-certified credit counseling agencies out there that can handle the increased demand. And they might actually take time to "talk to the client and help them."

The good advice in the article is that people should call a reputable counselor as soon as they're in trouble. I'd further advise that you find one that doesn't claim to be so swamped with calls that they can't actually help anyone.

More on subprime mortgage meltdown

Following up on my post from a few days ago regarding the "meltdown" in subprime mortgages, I see that Business Week agrees in this article: "This is a Correction, Not a Meltdown."

That gives me pause: if Business Week says it, then there's got to be something wrong with it. Specifically, consider this statement:

In the end, all the meltdowns except the tech bust have been made up for by the upward trend line of the stock market.

Rich Nikoley's got your "upward trend" right here, where he comments on Kiyosaki's analysis of the Potemkin village that is our stock market.

Wal-Mart bank plan dies

I have to agree with Tom Blumer's take on the failure of Wal-Mart to establish their bank. If Target can do it, why shouldn't Wal-Mart?

Ultimately, the AP article Tom links to has gotten things exactly wrong; Wal-Mart entering the banking arena means more competition, not less. Target is one of the most consumer-friendly credit card companies there is, and that's how they beat big competitors like BofA and Chase. Wal-Mart just might be the same way (and if they weren't they'd lose credit-card business to better creditors).

The other big issue critics had with the "Bank of Wal-Mart" was concern over the sort of people Wal-Mart would lend to. They got to that conclusion by examining the typical Wal-Mart shoppers and deducing that they would not be ideal credit card borrowers. Horribly classist, of course, and dead wrong.

Common sense re: the mortgage industry

Found via Reason's Hit & Run blog, this post by Tim Cavanaugh on the LATimes web site is a refreshing bit of common sense amidst the flood of gloom and doom we've been hearing about mortgage lending and the recent subprime meltdown.

Give it a read, please.

Counter-intuitive truth

A few weeks ago in this post, I bloggged about how economics can be counter-intuitive. This was to refute the notion that creditors should only charge prime +1 if they really cared about consumers. It may sound like a good idea, but in fact it would be disastrous, resulting in nobody getting credit because the business of lending would become too risky for the rewards offered.

Here's an article in the Christian Science Monitor about other aspects of economics that are counter-intuitive. Not entirely on-topic for this blog, but a good lesson in interpreting statistics, which we do deal with a lot.

CASPIAN confronts Amex

CASPIAN (Consumers Against Supermarket Privacy Invasion And Numbering) recently met with American Express to discuss the creditor's plans to track people through the use of RFID chips.

RFID's been a big issue in privacy circles over the past few years; the big fear is that everyone will have a chip implanted so that their movements might be tracked. That might sound paranoid, but considering how many people carry credit cards, the idea of a RFID "implanted" in your wallet or purse isn't so far-fetched.

Two things that strike me about this: 1.) Amex was almost certainly planning to track for the purposes of commerce: how many people go to which stores, whether or not they use their Amex card in that store, etc. This is not quite the same as the Government tracking our movements or putting locator chips in our cars like they've talked about in Britain. 2.) When confronted about this, Amex has promised to include a notice and consent before giving any consumer a RFID-enabled card, and they'll offer a chip-free version to custromers who request it.

Compare that to some RFID scheme the government might initiate; they're surely not going to ask for your consent before doing it, and they aren't going to let you out of the program just because you object.

You can find out more about RFID issues at CASPIAN's site: http://www.nocards.org/. Also, check out Sypchips, the book about all of this:http://www.spychips.com/.

Ultimately, I think we should reject this technology. Even if it seems harmless, we shouldn't be compliant about privacy issues. Even if it's just your credit card company doing market research for now, someday soon it'll be a tool for government agencies to track our movements. Let's not go down that road. If your creditor starts issuing RFID-enabled cards, let them know you don't like it and request a chipless card.