Regent Kevin Page

In the year I have written 260 twitters, I have tried to be accurate.  I have reread each and every one of these twitters and find I would change only one of them.

In my analysis of the 13 members of the Board of Regents, I graded each of them.  I stand by those grades except for Kevin Page who I gave a C-.  I was wrong.  I should have given him an “A” because I failed to fully understand all of the hard, productive, thoughtful work, total passion and sound thinking of this very smart public servant.  (The pay is less than fifty cents an hour.)

In the last several months, I have seen him assume a real leadership role in the Higher Education System.

He has learned the intricacies of how the eight institution system works and, with very limited financial support, how the system makes a valiant effort to improve the lives of all Nevadans.

Regent is a part-time job that requires full time effort, perseverance, dedication, thoughtful consideration, along with the ability and character to stand up for what is good for Nevada’s education.  Kevin has all of these attributes.

I apologize to Kevin for misjudging him.

Auto Title Loans

Auto Title Loans   When you drive by one of these lending institutions that will take the title to a car as collateral for a loan where the borrower may pay up to 300% interest, you’re happy you don’t have to borrow money under these terms.  Don’t kid yourself.  With the middle class disappearing as a formidable contributor to America’s economy, you had better take notice, start to understand the economic problems of this country and get off your butt or you may end up in the Title Loan arena.

The ads of the title loan companies seem to describe such an easy solution to the borrower’s problems, that is, without giving up possession of anything but the title to the borrower’s car, how can the borrower get hurt? 

Well, think again.  What happens if the borrower defaults?  The lender takes possession of the car.  The borrower can’t get to work, can’t take children to school and if sickness hits the borrower’s family, the family is out of luck.

You can understand the ramifications of this type of outrageously expensive loan as well as I can.  I tell you about these horrible life-destroying loan arrangements to let you know I feel that every one of these oppressive loans adversely affects each one of us.

These are some of the specific terms and conditions that a borrower faces when borrowing money from title loan companies:

1.       Title loans are designed for a person with bad credit or no credit to obtain a quick fix to a financial problem.  They are not intended to fix long-term problems.

2.       In exchange for the monies borrowed, the owner gives up free and clear title to the vehicle.  THE OWNER CAN DRIVE THE VEHICLE AS LONG AS THE PAYMENTS ARE CURRENT. 

3.       If the owner doesn’t have clear title but only owes a small amount, many lenders will pay off the loan and combine it with the other loan proceeds.

4.       MOST TITLE LOANS ARE FOR A PERIOD OF 30 DAYS AND CAN BE RENEWED SEVERAL TIMES.

5.       MOST LOANS CAN BE APPLIED FOR, OBTAINED AND COMPLETED IN LESS THAN 30 MINUTES WITHOUT A VERIFICATION OF CREDIT.  SOME LENDERS BOAST THEY CAN MAKE THE DEAL IN 15 MINUTES OR LESS.

6.       Some states have caps on the amounts that can be borrowed.  The amount borrowed is usually based upon 50% of the Kelly Blue Book resale value.

7.       ONLY ABOUT ONE THIRD OF THE STATES ALLOWS TITLE LOANS BUT WHERE STATES DO, THE PROFITS ARE OUTRAGEOUSLY HIGH.  MOST STATES HAVE NO CAPS ON INTEREST RATES. 

8.       When companies advertise low interest rates of 9.99% over the period of the loan, the actual yearly interest rate is over 120%.  The interest rate charged would make even a credit card company envious.

In Nevada, some of the lending rules are as follows:

 

1.       The lender must give the borrower a written and detailed loan agreement.

2.       NEVADA HAS NO CAP ON THE INTEREST RATE THAT IS CHARGED.  LENDERS  CAN CHARGE ANY AMOUNT THEY CHOOSE.

3.       Loans are for 30 days and can be renewed up to six times.

4.       In order to obtain the loan, the owner must  have free and clear title.

Payday Loans

Payday Loans.  What a terrible comment on America’s society when we develop a financial system where those who are struggling to pay 25% interest on their credit cards, and those who can’t afford to have a credit card, end up going to a payday loan company.

When I drive to work in the morning I see the payday loan offices open for business.  When I drive home at night the same payday loan offices are open.  Some stay open for 24 hours.  Each has a full staff on hand.  Their offices are spacious, orderly, clean and bright, first class places of business.  I will bet not one of their customers has anything that even approaches the cleanliness and spaciousness of these establishments.

I remember hearing spokespersons for these companies advising people not to borrow unless absolutely necessary.  I assume this was an effort to get the moral and ethical monkeys off their backs.  The spokesperson went on to advise customers to pay back the loans as soon as possible – good advice, impossible to follow.

The adage that if it is a legal business it must be ok to be in that business doesn’t work with me.  Not one of us knows what we would do when times get really tough and what we would do to put food on the family’s table.  But from the view that I now have, I cannot imagine what a set of dire financial problems would compel me to work in or own such a business.

Let me give you a short description of how these loans work.

The basic loan process is simple and typically takes less than 20 minutes.  There is little requirement to get a payday loan.  Some verification of employment or income is usually involved (via pay stub and bank statements), but some lenders may even omit this.  
LENDERS DO NOT CONDUCT A FULL CREDIT CHECK, NOR ASK QUESTIONS TO DETERMINE IF A BORROWER CAN AFFORD TO REPAY THE LOAN.

The lender provides a short-term unsecured loan to be repaid at the borrower’s next pay day via a postdated check or electronic access to the borrower’s bank account.  Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash. In some cases, borrowers sign over electronic access to their bank accounts to receive and repay payday loans.

Lenders hold the checks until the next payday when loans and the finance charge must be paid in one lump sum. To pay a loan, borrowers can redeem the check by paying the loan with cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period.  But be aware, the process called “rollover” could end up costing the borrower far in excess of the original terms.  

PAYDAY LOANS RANGE FROM $100 TO $1,000, DEPENDING ON STATE LEGAL MAXIMUMS. THE AVERAGE LOAN TERM IS TWO-WEEKS.  LOANS TYPICALLY COST 400% ANNUAL INTEREST (APR) OR MORE. THE FINANCE CHARGE RANGES FROM $15 TO $30 TO BORROW $100. FOR TWO-WEEK LOANS, THESE FINANCE CHARGES RESULT IN INTEREST RATES FROM 390 TO 780% APR.  SHORTER TERM LOANS HAVE EVEN HIGHER APRS.

Payday loans are extremely expensive compared to other cash loans. A $300 cash advance on the average credit card, repaid in one month, would cost $13.99, a finance charge at an annual interest rate of almost 57%.  By comparison, a payday loan costing $17.50 per $100 for the same $300 would cost $105 if renewed one time, or 426% annual interest.

Issuers of payday loans defend higher interest rates by claiming processing costs for payday loans do not differ much from other loans, including home mortgages.  They argue that conventional interest rates for lower dollar amounts and shorter terms would not be profitable.  For example, a $100 one-week loan at a 20% APR (compounded weekly) would generate only 38 cents of interest, which would fail to match loan processing costs. 

Critics say payday lenders’ processing costs are significantly lower than costs for mortgages and other traditional loans.  Payday lenders usually examine pay stubs, whereas larger loan lenders perform full credit checks and make a detailed analysis of the borrower’s ability to pay.

Credit Cards

Don’t you love to see the television ads that pitch all sorts of new credit cards designed to make your life better and a lot more fun?

The latest flurry is the get back 1, 2, 3, 4 or even 5% on purchases you make.

I don’t have access to the financial analysis made to develop these new methods that entice you to obtain these credit cards, but my impression of these new financing methods reveals very creative thinking in order to lead you into a financial situation where you’ll be paying outrageous interest on items you bought that you couldn’t afford and you will never be able to pay for in full.

If you get a 2% discount on an item and you’re not able to pay for the item on your card for at least two months, the card company will get its 2% back after the first month when you have to pay 2% the second month on a balance that may last in perpetuity.

Think about these offers.  Analyze them and see who gets the better of the deal if you can’t pay off the credit card balance of your account the month you buy the item and the month you get your bill.

There are many forms of credit cards tailored to meet your needs and credit scores.  I will attempt to describe these today.

The “zero percent low interest credit cards” are available to those who have excellent credit.  Companies use this low percent to entice you to use their credit cards.   After a period of time (for example, 21 months) the interest rate increases to 11.99% up to 21.99%.  Sounds good until the interest rate starts to rise.  The credit card company hopes you will continue to purchase items far beyond your ability to pay for those items when you get the bill at the end of the month. 

One credit card company provides a $150 bonus when the borrower spends $1000 in the first 90 days.  What a great come on.  After six months the interest rate rises to between 10.99% and 20.99% on the unpaid balances.

“REWARD CREDIT CARDS.”  These cards give the user points to spend on travel miles.  Some cards even give you cash incentives. 

For example the cardholder can earn 50,000 bonus points after spending $3000 in the first three months.  Sounds wonderful but think of how this compels you to spend $3000 you don’t have over the next three months.  There are also yearly fees for the credit cards.  Some card providers waive the fee for the first year but after that you are in for the duration. 

All the cards that have interest rates between 11% and 20% can only be obtained by those who have excellent credit.  Wow, what a deal.  For those who don’t have good credit, the interest rates charged go through the roof.

There is a multitude of other cards designed for you to join programs and spend your money.  But after all the prizes and incentives are gone, the one fact remaining is an interest rate on goods purchased that you couldn’t afford that can be as high as 30%.

Car Loans & Interest Paid

Do you remember the days of “add-on” interest?  As I recall, this is the way it worked.

If you borrowed $5000 on a car when you bought it, and you happened to ask the interest rate you were going to pay (remember that most buyers did not ask this question, but only lumped the entire cost of the car into “what will my monthly payment be?”), you were told it was 10%.

The problem with only the 10% interest concept is that the 10% was added on at the time of sale based upon the gross price of the car, not the average amount of debt you would have in the car loan over its payment period.

Let me give you an example of how “add on interest” worked.  If the car cost $5000 and you were going to pay for the car over three years, the interest of 10% per year was added on at the initial time of purchase.

10% times three years is 30% - 30% of $5000 for the car is $1500.  You add $5000 cost to $1500 interest ($6500) and then divide that into 36 payments.  Each payment is $180.55.  This is not interest at 10%, it is interest at 15%.

If you were paying 10% on the declining balance rather than 10% on the initial cost, your monthly payment would be $159.72 or really 10%.

The difference between what you pay and what the lender receives from add-on-interest is $749.88. 

In 1955 I bought a new car.  I was 17 years old.  I looked at the purchase price, asked the dealer what my monthly payment would be and when I knew I could make the payment I bought the car.

A year later, while sitting thinking about the deal, the light went on.  I told my father what an idiot I had been for not understanding the real interest cost and he simply said, “I wondered how long it would take you to figure it out.  Let that be a lesson on how to handle your money.”

Take a look at your own loans of every kind and see what the cost of those loans is by the time you add interest, fees and costs.

The TV Ad - 125% Interest

Before I go into the myriad of ways credit cards snare and hold you financially imprisoned for the rest of your life, I have to point out one lender’s ad that literally made my jaw drop.

A very attractive young woman appears on your screen to tell you that she represents a lending institution that will lend you about $2,000 with no questions asked other than your name and how they can locate you.

She goes on to say that you can have the money immediately and you will be required to pay the loan in one year.

To this statement she adds something like this:

“I know the money is expensive but you can always pay it back faster than you originally thought if you want to.”

Across the bottom of the screen, in small letters, which you can read and understand if you are careful, are words to the effect that the annual interest rate is over 125%.  That is one hundred and twenty five percent.  If you borrow $2500 and keep it a year, you have to pay the lender about $5500.

If you need money badly enough to agree to pay 125% yearly interest, what are the chances you will be able to pay the $5500 at the end of the year?

If you pay $1000, the lender will be happy to extend the $4500 remaining balance for another year at 125% interest.

You don’t have to be a graduate of the Harvard School of Business to know where this leads.

Forgetting the morality of charging 125% interest on a loan, how can the laws of this country allow such parasites to live off the problems that poor people have?

We need to take a long, long look at what some lending institutions can do to literally take the life’s blood of a borrower.

The Credit Trap continues...

Here is a simple math problem.  An item normally sells for $125.  But because of the time of year, possibly Christmas, the store is willing to sell it to you for $100.  You don’t have the $100 and you don’t know when you will have it.  But with a discount like this, how can you go wrong when you have acquired a $25 equity in the item for nothing?

For the next year your cash requirements eat up all your income.  The only reason you have been able to purchase the $125 item for $100 is because you have a credit card.  How can you have been wrong in what you have done?

But lo and behold the interest rate on your card is 25%.  Assuming you make all the monthly payments on time and pay the entire balance each and every month, the 25% interest rate won’t be charged to you.  If you don’t pay the entire balance every month, you will begin to accrue interest and fees of at least 25%, that is $25 on the $100 you originally borrowed.

I could go on for pages making this little story more horrible.  But you get the point.

After making no payment on the principal for two years, the item that originally cost you $100 has now cost you $150 and you don’t know how you will ever pay the $150.  And as sure as hell, the item you bought for the $100 has now worn out and you need to buy a new one for another $100, which you also don’t have.  You’re in a race that you can never win.  

You’re in real trouble – real trouble for a long time – maybe the rest of your working life.