Financial products like loans, credit cards and bank accounts offer easy access to cash but come with complicated rules and serious penalties. Before entering into any loan be sure to understand all of the terms of the agreement to repay it. Pay careful attention to the interest rate and payment amount. Remember that an auto-title loan gives the borrower the right to repossess the car for nonpayment of the loan.
- Student loans
- Pay day loans
- Auto title loans
How to Get Your Free Credit Report and Why You Need It
To help prevent identity theft and ensure your ability to receive favorable loan interest rates, housing, and a job, you should get your free credit report. This brochure tells you how to obtain your three free credit reports each year from the three credit report companies, TransUnion, Equifax, and Experian. It recommends that you get one credit report from a different company every four months.
More information is available in this brochure published by Legal Aid: Get Your Free Credit Report
Here is the form to send in to the Annual Credit Report Request Service to receive your free report: Credit Report Application Form
Will your auto title loan cause problems with employment?
“Jobs in Northeast Ohio are least accessible for the people who need them most,” according to Brett Barkley, Cleveland Federal Reserve. Over the last 15 years, Cleveland has experienced a large drop in jobs located near where people live and currently ranks below average for access to employment by public transport.1 In areas of high poverty, this drop has been especially large. Jobs which have lower qualifications, such as those that only require a high school diploma or pay less than $1,250 a month, are the hardest to get to by public transportation.2
Auto title loans are making this transportation and jobs problem worse. An auto title loan is a loan where a person borrows money using the title of their car as “collateral” or security for the loan. These loans usually have very high fees and the borrower often cannot afford to pay off the loan when due. If the borrower does not pay the loan when due, the lender can repossess and sell the car to pay off the loan. Borrowers who cannot pay off the original loan are forced to take out another loan or lose their car. The new loan again includes the high fees. Each time the borrower is unable to pay off the loan, the borrower is forced to take out another loan with the same high fees, so the borrower falls deeper and deeper in debt.3
The federal Consumer Financial Protection Bureau reports one out of five people who borrow auto title loans lose their vehicle.4 The Center for Responsible Lending reported that in 2013, 135,746 auto title loans were made in the state of Ohio. So, approximately 27,000 Ohioans, in 2013 alone, may have lost their cars due to their inability to pay off an auto title loan.5
Auto title loans may seem like a quick fix in an emergency, but very seldom provide the help a person needs. Because jobs are not always accessible by public transportation, the loss of a car can also mean the loss of a job. For these reasons, auto title loans should be avoided. Not only do these loans create problems for individuals, but they can impact our entire community by undermining opportunities for employment.
By Christopher Kolezynski
What should I know about student loans?
Student loans give needed financial assistance to people who want to attend college but can’t afford it. Many colleges and universities offer many student loan options. The information in this article will help people when making important decisions about where to go to school and how to pay for it.
Choose a College Carefully. There are three different types of colleges and universities to choose from:
- Public colleges and universities (eg. Cuyahoga Community College, Cleveland State University)
- Non-profit colleges and universities (eg. Baldwin Wallace University)
- For-profit or “proprietary” schools (eg. Lincoln College of Technology)
In general, Ohio’s public universities have the cheapest tuition for Ohio residents. For example, one semester tuition at Tri-C in an associate degree program costs as little as $1,200, and one semester tuition at Cleveland State University in a bachelor’s degree program costs about $4,700. In contrast, one semester tuition at Lincoln College of Technology in an associate degree program costs as much as $13,200.
Choose a Loan Carefully: There are two basic types of student loans: federal and private. Federal loans are regulated by the U.S. Department of Education, which sets the terms and limits the interest rates. Private loans come from private lenders who set their own terms and interest rates. Before signing any loan contract, compare loan offers from different lenders because some loans are more expensive than others. Always ask lenders the following questions:
- How much money are you lending me?
- What is the interest rate?
- When will interest start to “accrue” (build up)?
- When do I have to start paying the loan back?
- How much will my monthly payments be?
- What kinds of repayment plans are available for this loan?
One advantage of federal student loans is the option for an income-based repayment (IBR) plan for borrowers who have a financial hardship. Under IBR plans, monthly payments are limited based on the borrower’s income.
Remember, student loans must be repaid, even if the student does not graduate, cannot find a job, or was unhappy with the school. Student loans are not automatically discharged in bankruptcy.
For more information on student loans, visit the U.S. Department of Education website, www.ed.gov. Another helpful website is www.studentloanborrowerassistance.org, which comes from the National Consumer Law Center.
If you have problems with federal student loans, contact the Federal Student Aid Ombudsman Group at www.ombudsman.ed.gov. If you have problems with private student loans, contact the Consumer Financial Protection Bureau’s Private Student Loan Ombudsman at www.consumerfinance.gov/complaint (click on “Student Loan”).
IMPORTANT: Avoid Scholarship Scams! Many colleges and universities have limited scholarships, or money that does not need to be paid back. Find out how to apply for scholarships on a school’s website or by contacting the financial aid office.
Beware! Some companies claim to offer “scholarships,” but they are actually trying to steal your cash, credit card number, or bank account number. Ways to protect yourself are:
- Never give your credit card or bank account number to “hold” a scholarship “” this is a scam! Real scholarships do not ask for credit card or bank account numbers.
- Real scholarships are free. If you have to pay money to apply, the scholarship is a scam.
- If someone calls and says you were “selected” for a scholarship, but you never applied for any scholarship, this is a scam! Hang up the phone and do not provide any personal financial information.
 Cuyahoga Community College, Tuition & Payment Schedule for 2013-2014 Academic Year, available at http://www.tri-c.edu/payingforcollege/Pages/TuitionPaymentSchedule.aspx. The cost is about $1,200 for Cuyahoga County residents and about $1,500 for other Ohio residents.
 Cleveland State University, Tuition and Fees 2013-2014, available at http://www.csuohio.edu/treasury-services/tuition-and-fees.
 Lincoln College of Technology, Net Price Calculator, available at http://www.lincolnedu.com/net-price-calculator.
This article was written by Legal Aid Managing Attorney Julie Robie and appeared in The Alert: Volume 29, Issue 3. Click here to read the full issue.
What should I know about pre-paid debit cards?
People are swiping more at the checkout line, and they are not using a traditional credit or debit card. Millions of consumers are now using prepaid debit cards to make payments. Prepaid cards are debit cards without a bank account attached. Cards provide instant benefits to customers including access to a wide array of ATM networks, faster payment, and less of a need to carry cash.
The speedy growth in the prepaid debit card market is due to several needs. First, nearly 30 percent of Ohioans are under-banked. This means either they have no bank account or they have an account but use check cashers and fringe lenders. These cards fill some of that void. Second, cards reduce costs to employers and government agencies. It is cheaper and quicker to use a debit card than to produce a paper check. Ohio has moved to cards (if direct deposit is not used) for unemployment and food assistance. Social Security, if not direct deposited, is now also provided on debit cards. Nevertheless, there are some costs to the consumer. Consumer advocates have rightful concerns about the fees on these cards and how much the user knows about them. Some cards charge for basic services like monthly access and ATM fees. Additional fees include overdraft, replacement, paper statements, customer service calls, and load fees. A major concern is that some cards have a point-of-sale transaction fee, meaning a charge “per” swipe. The overall concern is that fees will add up and reduce the overall benefit of the card.
Perhaps the largest challenge for clients entering the field of prepaid debit cards is the abundance of choices. There are hundreds of different cards with different fee structures. Greater openness is needed so that customers can compare cards to each other. A nonprofit research group, CFSI, designed a disclosure box that is an excellent way for customers to understand the costs of a card and compare it to others (see below).
Some advice for card shopping includes:
- Stay away from celebrity-branded cards, which often have higher fees;
- Avoid cards with overdraft fees and lines of credit;
- Determine what functions are of interest to identify the best card; and
- Direct deposit into a bank account is almost always the best option.
This FAQ was written by David Rothstein of Policy Matters Ohio and the New America Foundation, and appeared as a story in Volume 28, Issue 3 of “The Alert” – a newsletter for seniors published by Legal Aid. Click here to read the full issue.
What should I know about payday loans?
In June 2008, consumer advocates celebrated when former Governor Strickland signed the Short- Term Loan Act. The Act capped annual interest rates on payday loans at 28%. It also provided for several other protections on the use of payday loans. Consumers had another victory in November 2008. Ohio voters upheld this new law by a landslide vote. However, these victories were short-lived. The payday loan industry quickly came up with ways to get around the new law and continues to operate in a predatory way. Today, four years after the Short-Term Loan Act passed, payday lenders continue to avoid the law.
Payday loans in Ohio are usually small, short-term loans where the borrower gives a personal check to the lender payable in two to four weeks, or allows the lender to electronically debit the borrower”s checking account at some point in the next few weeks. Since many borrowers do not have the funds to pay off the loan when it is due, they take out new loans to cover their earlier ones. They now owe even more fees and interest. This process traps borrowers in a cycle of debt that they can spend years trying to escape. Under the 1995 law that created payday loans in Ohio, lenders could charge an annual percentage rate (APR) of up to 391%. The 2008 law was supposed to address the worst terms of payday loans. It capped the APR at 28% and limited borrowers to four loans per year. Each loan had to last at least 31 days.
When the Short-Term Loan Act became law, many payday lenders predicted that following the new law would put them out of business. As a result, lenders did not change their loans to fit the new rules. Instead, the lenders found ways to get around the Short-Term Loan Act. They either got licenses to offer loans under the Ohio Small Loan Act or the Ohio Mortgage Loan Act. Neither of these acts was meant to regulate short-term loans like payday loans. These two laws allow for fees and loan terms that are specifically not allowed under the Short-Term Loan Act. For example, under the Small Loan Act, APRs for payday loans can reach as high as 423%. Using the Mortgage Loan Act pokies online for payday loans can result in APRs as high as 680%.
Payday lending under the Small Loan Act and Mortgage Loan Act is happening all around the state. The Ohio Department of Commerce 2010 Annual Report shows the most recent breakdown of license numbers. There were 510 Small Loan Act licensees and 1,555 Mortgage Loan Act registrants in Ohio in 2010. Those numbers are up from 50 Small Loan Act licensees and 1,175 Mortgage Loan Act registrants in 2008. On the other hand, there were zero Short-Term Loan Act registrants in 2010. This means that all the payday lenders currently operating in Ohio are doing business under other laws and can charge higher interest and fees. No payday lenders are operating under the new Short-Term Loan Act. The law specifically designed to protect consumers from abusive terms is not being used. These are troubling numbers for consumers in need of a small, short-term loan with fair terms.
As of right now, there are no new laws being considered in the Ohio General Assembly that would close these loopholes and solve the problems with the 2008 law. The payday loan industry has avoided the Short-Term Loan Act for four years, and it does not look like this problem will be resolved soon. As a result, it is important for consumers to remain cautious about payday loan stores and, where possible, borrow from places other than payday lenders.
This FAQ was written by Katherine Hollingsworth, Esq. and appeared as a story in Volume 28, Issue 2 of “The Alert” – a newsletter for seniors published by Legal Aid. Click here to read the full issue.
I want to save more money for emergencies. How do I start?
Saving money is hard. If it were easy, we all would have plenty for retirement and at least three months of income socked away in emergency savings accounts. The worst thing people do when it comes to saving is not start at all.
More than 25 percent of Clevelanders are “under-banked” meaning if they have a checking account they don’t have anything in savings or use high-cost non-bank services. More than half of all American families don’t have enough reserves in their savings accounts to pay $1,000 for an emergency.
For every message we hear about saving, there are ten about how to spend. Cleveland Saves, a project of NHS of Greater Cleveland, is all about the message of saving by setting goals, planning, and starting small. One type of savings account that families should strive to set-up and keep separate from spending accounts is an emergency savings account. An emergency account is the best way to avoid borrowing and increasing debt if something unplanned occurs such as a car repair, health issue, or home repair.
Cleveland Saves works with Savers at all income levels. Some of the best practices to save money are…
- Split your paycheck, some into checking (about 90 percent) and the rest into savings. Your HR department can help you do this easily with direct deposit.
- Reduce your eating out budget, especially lunches. Food budgets are one area that we have a lot of control over.
- Watch spending on credit cards and other loans since paying interest takes away from earning interest.
- If you get a tax refund, be sure to purchase U.S. Savings Bonds or split your tax refund into a savings account.
- Leverage community resources that are near or entirely free such as public libraries, free tax preparation, playgrounds, and museums.
Sign-up for Cleveland Saves now. Go to www.clevelandsaves.org and you will be enrolled in minutes. Remember that saving is a habit. If you start small and think big, the habit of saving will help you during times in your life you earn less, and will be passed on to your children. Have more questions? Contact one of our financial capability counselors at 216.458.HOME.
This article was written by David Rothstein from Neighborhood Housing Services of Greater Cleveland and appeared in The Alert: Volume 30, Issue 1. Click here to read the full issue.
I feel trapped by payday loans. How can I escape the cycle?
A payday loan is a short term, high interest loan designed to cover your expenses until your next payday. Payday lenders increase their profits by making loans with very high interest rates, but borrowers often cannot afford to pay them back. As a result, borrowers get trapped in a cycle of borrowing more each pay period and paying more fees to cover the original loan. Payday loans seem like an easy solution for unexpected emergencies like a hospital bill or car repair, but usually end up costing more than you expect.
Below are some steps that you can take to get out of the payday lending cycle.
- Consider taking out a small loan with an affordable annual percentage rate (APR) from a credit union to help you get out of debt with the payday loan company. Always compare options from different lenders and find out about the terms of any loan before you commit to it. If you have trouble making your payments, contact your credit union right away to ask for more time or a payment plan.
- Contact your local consumer credit counseling service for help working out a debt repayment plan with payday lenders.
- If payday lenders are electronically withdrawing money from your bank account, tell the lender in writing they are no longer authorized to withdraw money from your account. Also, send a letter to your bank to let them know that automatic withdrawals by the payday lender are no longer authorized. Include a copy of the letter you sent the payday lender. Be sure you date and sign the letters, as well as keep copies.
Some ways to avoid getting stuck in a payday loan cycle in the future include creating a budget and sticking to it. Also, begin saving just a small amount each month. See the article in this issue of The Alert called “Cleveland Saves” for helpful ideas about how to start saving. Additional information about payday lending problems and solutions is available on the Federal Trade Commission website at www.consumer.ftc.gov/articles/0097-payday-loans.
This article was written by Legal Aid volunteer Iva Jeras and appeared in The Alert: Volume 30, Issue 1. Click here to read the full issue.