Predatory Lending Series: Cash for Gold

This article is the third in a series of posts about predatory lending, or “get cash now” programs.

by Lisa Cunningham, Director of Communications

After the spending frenzy which accompanies the holiday season ends, the first thing most people start thinking about is how to get extra money to pay their extra bills. For many low- to middle-income or cash-strapped consumers, impending income tax returns provide that solution.

Tax preparation firms have picked up on that desperate need for cash and introduced the refund anticipation loan (RAL) to meet that need. A RAL is a short-term consumer loan which is secured by a taxpayer’s expected tax refund. While most firms don’t promote these loans until after New Year’s, a few push their “get cash now” message during the holidays.

Here’s how RAL’s work: you pay a tax preparation company to pay your returns. The company, which has already partnered with a bank to make the loans, arranges for you to secure a 7 to 14-day loan based on your expected refund. Sounds easy enough, right?

It is, but RALs come with a very high cost, several hundred dollars, in most cases. The fees, as well as the amount of the loan, are deducted from your anticipated refund. In 2008, American taxpayers paid more than $800 million in fees in order to get their money through RALs, according to the Consumer Federation of America and the National Consumer Law Center.

Earlier this year, consumer complaints about outrageous fees prompted the Internal Revenue Service to announce plans to examine RALs and other tax-time financial products.

If you’re thinking about applying for a RAL, consider this: by having your tax refund deposited into your checking account via direct deposit, you’ll receive all your money in about two weeks. Without direct deposit, you’ll still receive all your money in six to eight weeks.

Need money sooner? No problem. File your taxes early, by the end of January or early February. The IRS is able to process these returns sooner, as many taxpayers put off filing until spring.

And, to avoid refund anticipation altogether, consider adjusting withholdings. Simply visit your company’s human resources department for help in revising your W-9. That way, you’ll keep more money in your pocket during the year, the way it was meant to be.

Have you ever received a refund anticipation loan? What was your experience? Please share it with us in the comments below. And for more relevant articles just like this one, remember to subscribe to our blog.

Predatory Lending Series: Cash for Gold

This article is the second in a series of posts about predatory lending, or “get cash now” programs.

by Lisa Cunningham, Director of Communications

Companies which offer cash for gold are not predatory lenders in the traditional sense, as you simply choose to sell your gold jewelry, not take a loan on it. However, because this solution is geared toward people who need a quick fix — those groups which we outlined in our introduction to this series — we will include it in our report on predatory lending programs.

Television ads for these companies have sprung up en masse since the recession began. Nearly all promise to give top dollar value for your gold. But do they deliver on that promise?

Here’s how it works: you contact the company, usually online. You send your jewelry to the company, which supposedly does its due diligence in determining how much gold the jewelry actually contains. The company makes you an offer based on the value of the gold, and you either accept or deny their offer. If you accept, the company keeps the jewelry and sends you a check; some companies will even process your payment electronically. If you deny, they mail your jewelry back, free of charge.

But is this a legitimate, “get cash now” option, or is it a scam? It depends on who you ask. Several news reports have been done and blogs have been written about people who received abysmal offers for their gold from these companies, only to have it doubled, or tripled, when they took it to a jeweler.

The best course of action here is to do your due diligence. Research the company via Google and see what others have said. Also, check the Better Business Bureau website for recent complaints.

But the quickest way to find out what your gold jewelry is worth? Visit a local, reputable jeweler for a professional appraisal.

What has been your experience in trading your gold for cash? We’d love to hear about it in the comments below. Also, be sure to subscribe to our blog for regular, safety-related tips and updates.

Next in our predatory lending series: tax refund anticipation loans.

Predatory Lending Series: Auto Title Loans

This article is the first in a series of posts about predatory lending, or “get cash now” programs.

by Lisa Cunningham, Director of Communications

Have you seen the annoying commercials for a particularly well-known, national auto title loan company — the one where the person is holding a wad of cash and dancing to the company’s jingle?

The person is dancing because he walked in, handed over the title to his vehicle and walked out with cash. But if that person can’t repay the money when it’s due, the dancing will stop and in the worst case scenario, he’ll be walking…because his vehicle will have been repossessed.

Of all the predatory lending practices, title pawns are perhaps the most prolific — and the most dangerous. Getting one is easy: you simply walk into the store or sign up online. All you need is your car title, proof that you own your vehicle free and clear. The company will research the value of your car and make you a loan for a portion of the car’s worth, all in as little as 24 hours.

There’s no credit check, which makes it an ideal solution for someone needing just enough money to get by until payday. Even better, you can take the keys and your car and drive on your merry way until the bill comes due.

But here’s where you might want to pump the brakes. Most title pawn companies charge up to 300% on these loans. At the end of the term of the loan, usually one or two months, you must pay it all back, including interest.

But what if you can’t pay?

You can extend the terms of the loan, allowing you to pay at a later date. But in order to do this, you agree to pay added interest, on top of the principal. In time, your debt could be considerably more than the original loan. If you can’t pay, the lender will repossess your vehicle and sell it at a huge profit.

Is this legal?

Absolutely. Unfair, maybe, but not illegal. Right now, there is no federal regulation against title pawns. However, 16 states (Georgia is not among them) have capped the interest rate for these loans, especially for members of the armed forces.

That means the onus is on you, the consumer, to avoid title loans if at all possible. If you must utilize this option, read all the fine print before signing any documents, and always get everything in writing! Also, try to pay back the loan in full when it is due, to prevent larger debt or repossession of your vehicle. We want you to keep smiling and dancing, until you get to the other side of your temporary cash crunch!

Have you ever had a car title pawn nightmare? If so, please share it with our readers in the comments below. And for more regular, timely, safety-related tips and updates designed to keep you and your loved ones safe this holiday season, subscribe to our blog.

Up next in our predatory lending series: cash for gold.