Friday, May 30, 2008

Dealing with the Debt Collector

So, you might be thinking that this is a great topic but maybe for someone else. After all, I don’t have a debt collector problem. Even if you have perfect credit, there is a high probability that you will encounter a confrontation with a debt collector at some point. This is information that everyone needs to know.

Let’s review the various scenarios:

1) You get a call or receive a letter from a debt collector and the debt is yours.

- Get the address of the debt collector and send a request to verify the debt and the amount of the debt. Chances are you would receive all of that information with the debt notice. If not, go through the process of getting it verified. You first need to make sure that everything about the debt is legit.
- If there is something that you don’t agree with about the debt, your next step is to dispute the debt.
- If the debt has been verified and the debt dispute is unsuccessful, you now have a choice to make. You can either send a cease and desist letter or start dealing with the debt collector.

REMEMBER: If the debt is a valid debt and still in the statute of limitations period (period in which a debt collector and/or creditor can file a lawsuit), you are taking a chance sending a cease and desist letter. By law, the debt collector has to stop collecting. Thus they have a choice as to whether or not their next step is to pursue legal action.

2) You get a call or receive a letter from a debt collector and the debt is not yours.

- First, make sure that an identity theft has not occurred (if it has, see below).
- Second, check and make sure that this is item is not showing up on your credit score (if it is, see below).
- Send a dispute letter to the collection agency stating that they have the wrong person. It is important to include some proof. However, never send them any information that they can turn around and use in the debt collection process.
- If that still doesn’t work and you are positive the debt is not yours, send them a cease and desist letter. If something legal comes of it, you should be able to defend yourself.

(3) You get a call or receive a letter from a debt collector, the debt is not yours, and an identity theft has occurred.

- Immediately place a fraud alert on your credit reports.
- File a police report.
- Contact the company to let them know there has been an identity theft.
- Remember in an identity theft you are guilty until you prove your innocence. Thus, you want to make every effort to prove that debt is not your debt. You attempt to do this with the debt collector and/or original creditor.
- Start working to get the information removed from your credit report.

(4) You get a call or receive a letter from a debt collector, it is not your debt, and the debt is showing up on your credit report.

- Immediately go through the process of disputing that debt with the credit reporting agency, as outlined above.
- Keep an eye on your credit report because of the likelihood of this mistake reappearing.

Tips:

- Communicate through certified mail with debt collectors – phone calls typically end up being a dead-end.
- If a debt collector harasses you and breaks the law, seek the help of an attorney. For more information, go to www.deanmalone.com.
- Stay very organized and keep good notes.
- If you are served legal papers, make sure that you take them seriously. It is important to get an attorney.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Thursday, May 29, 2008

The Debt Kid

I had an opportunity to catch up with the guy who calls himself the Debt Kid. At 24 years old, he found himself in over $300,000 of debt. I had a chance to interview him on the Prudent Money Show last July. Yesterday, I caught back up with him. If you didn’t get a chance to listen to the show, you can listen here.

I have had the opportunity to know him just by reading his blogs. As I told him yesterday, I think that God is doing some amazing things in his life through this journey to get out of $300,000 plus worth of debt.

By sharing his story through his blog, he is encouraging everyone who is in debt by relaying an important message – no matter what your situation is with debt, you can get out of it.

He is a testimony to the amazing personal transitions that occur when an individual faces a big personal challenge. It takes more than just commitment to get out of debt. It takes courage to fix the personal issues that created the debt in the first place. It is a journey of personal growth.

I would encourage you to go and check out his website and sign up for his blog.

In order to liquidate a debt of this size, it takes the following:

· Unwavering commitment
· An accountability system
· Being organized
· Courage to grow
· Most importantly, it takes being 100% surrendered to God’s will

Once again, go and support the Debt Kid by signing up for his blog. His website is www.debtkid.com.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Wednesday, May 28, 2008

Sallie Mae Error Causes Credit Scores to Drop

It is tough enough to keep your credit score accurate and in good standing. You could be doing all of the right things like making payments on time and paying more than the minimum. Of course, none of that matters when your lender reports inaccurate information to the credit reporting agency, causing your score to fall 80 to 100 points.

That is exactly what has happened to roughly 1,000,000 student loan borrowers that have loans with Sallie Mae. If you have a graduated payment loan with Sallie Mae, you could be one of those borrowers who either temporarily had or still might have a real problem with your credit score. A graduated payment loan is set-up to make the payment arrangements affordable on the front-end. As time goes on, the payment gradually gets higher.

In a May credit reporting to Equifax, Sallie Mae had a coding error that made these loans appear to be delinquent, causing credit scores to be greatly reduced. Since then, Sallie Mae has reported that they have fixed the problem. However, I wouldn’t just sit back and take that as reassurance that all is well.

If you do have a graduated payment student loan with Sallie Mae, it might be a good idea to just check your Equifax credit report and make sure that there isn’t a problem. Having a drastic drop in your scores could start a chain reaction of negative credit events. If any of your credit companies were to pull your Equifax credit score and that mistake was not corrected, they could deem you a risk and turn around and raise the interest rates on your credit cards.

If you check your credit score and this has happened and it has not been fixed, you want to immediately dispute the information with Equifax online as well as contact Sallie Mae to inquire on the status of getting that problem fixed. You can contact Sallie Mae at 1-888-2-SALLIE.

This is why it is important to really keep up with your credit scores and make sure that there is not any inaccurate reporting. Many surveys have come out concerning credit reporting errors. I have seen percentage range from 50 to 75% of credit reports have errors on them. One survey suggested that 30% of the credit reports that they examined had errors so harmful that the consumer would probably never be able to get a job.

I was talking about this yesterday. I don’t think that we stop and think about how important the credit score has become in this country. The bottom line is that the lower the credit score, the more expensive life is going to be. From interest rates on debt to the rates you pay on insurance to getting a job, they are all affected by the credit score.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tuesday, May 27, 2008

New Under the Radar Newsletter

We just sent out a new Under the Radar Newsletter. I just wanted to give you a glimpse of the material in this edition.

Below are the articles for this week. If you would like to see the original email, click here.

To sign up for the Under the Radar Newsletter, click here.
The Top 4 Articles You Need to Read
How to Deal with High Gas and Food Prices, Strategies for Investing in a Volatile Market, What God Says about HIS Money,and Credit Mistakes You Might Be Making
1. Consumer Inflation
2. Investing in a Tough Market
3. Do You Have a Stewardship Mindset?
4. Credit & Debt Blindspots
Stock Market Outlook
All New! What's New on Prudent Money Blog:
(Easy to use comments feature)
Podcasts
(Prudent Money was recognized as a featured Podcaster in the iTunes investment section - Thanks!)

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Thursday, May 22, 2008

The Market Finally Figures Out that the Price of Oil is now a Real Problem

Yesterday was a tough day for the markets. The good news for stock market investors is that it wasn’t nearly as bad as it could have been. With today’s news, I would have expected a much bigger decline. However, it was still a big down day for the stock market with the Dow Jones Industrial Average losing 227 points and the S&P 500 losing 22 points.

It comes down to the price of oil. The price of oil per barrel was up by 4.56 yesterday. This brings the price of oil to $133.54 which is a record. Of course, this presents the biggest problem of all for the consumer. It simply translates into higher prices at the pump as well as higher costs for businesses.

If the stock market did not have enough bad news to contend with today, the Fed further complicated the situation by uttering the words the stock market did not want to hear.

The notes or minutes from the last Federal Reserve Board meeting were released. The minutes stated that the Federal Reserve Board is done lowering interest rates at least for now. The shift and concern is towards inflation. The Fed stated in their notes that they would only lower interest rates in the event that we have a big economic problem. Keep in mind, they only have 2% more that they can lower.

These are big problems for the stock market. First, the stock market has depended on the Federal Reserve Board to lower interest rates. So the thought of that stopping is not real positive for the stock market. Second, higher oil prices are bad news all the way around for businesses as well as consumers and the economy.

This creates amazing uncertainty for investors. We are in unprecedented territory. My concern is that this is only the start of the problems that these markets are going to face. As I have written in the past, as investors we can’t depend on the Federal Reserve Board to bail out the stock market. Yesterday provided an illustration that the Federal Reserve Board is losing control of the situation. I cannot stress enough to make sure that you understand the risk that you taking with your investments.

For some help with understanding risk, go to this link.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Wednesday, May 21, 2008

A Refresher on Financing Your Car

I have been getting a lot of questions on car financing. So, I thought I would cover some key points to know. The key to any type of consumer debt is keeping the interest rates as low as possible. Thus, I wanted to go over with you the key pieces of information that you need to know when attempting to get the best deal possible on a car loan.

1) You have to know your credit score. It is almost impossible to get the best rates without a score north of 670. I am finding more and more people who have great credit scores and are paying too high of interest rates.
2) It is important to know the going rates. You can get a good idea of the going rates by going to www.bankrate.com. The best rate that I know of is at www.penfed.org. There is more on that below.
3) You can refinance an older car. Most consumers think about refinancing a home loan to a lower rate. Most don’t think about refinancing an older car. The good news is that you do have the ability to get that interest rate lower.
4) You should never pay up-front fees when you finance a car.
5) Always take out guaranteed asset protection or GAP insurance. This is important insurance to have for your car loan. If you total your car and you owe more than the insurance company is going to pay, GAP protection picks up the difference.
6) If you are upside down in a car, it is almost impossible to get the loan refinanced.

The best car financing source that I have come across is the Pentagon Federal Credit Union. They are the credit union for the United States Pentagon. The website is www.penfed.org.

If you or anyone in your family (includes extended family) is active or has served in the US Army, US Air Force or Coast Guard, or Reserve, National Guard, or ROTC, then you can join the credit union for free. If not, you can join the National Military Family Association for $20 a year. The only downside is that you must join the credit union prior to applying. You do need a good credit score.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Friday, May 16, 2008

How To Spot Irresponsible Marketing

Sensational marketing is out of control today. Unfortunately, consumers fall for misleading marketing schemes without checking the details. Today, I want to talk about what you should look for so that you don’t become a victim of irresponsible marketing.

The job of a marketer is to create a marketing campaign that makes you take action. They need to produce something that will motivate you to want their service or product. Now there are some great marketers out there. The great marketers don’t use trickery and smoke and mirror techniques to create a false reality. They don’t have to create a false reality. They know the greatness of their marketing and they are great at communicating the message.

The great marketers come up with campaigns that force you to think differently, show you the benefits of thinking differently, and motivate you to action for a better way of life.

The irresponsible marketers create a false sense of reality. These are the companies that are giving you the good deal. It is like the person who tells you that they are “honest.” Honest people don’t have to tell other people that they’re honest.

So, here are things to look for when deciphering the marketing:

1) They are willing to send you something for free – They are going to send you their amazing life changing secrets for free just because you are a nice person. Oh wait, there is a small shipping and handling fee. Well, if I were going to send out a book it would probably cost roughly $ 1.50 when it is all said and done. I have done the research on many of these free deals. The small shipping and handling charges range from $ 6.95 to $ 9.95. Basically, they are selling you an item. Incidentally, Donald Trump is the only one that I have found that actually does send out something for free.

2) Their offer flies in the face of conventional wisdom – They promise to do something that no one else can do. The claim is so extraordinary that you even think that it is too good to be true. A good example is the commercial that offers health insurance regardless of your health. There are no underwriting questions. They take anyone. I called and checked on this one. The truth is that for 12 months they do exclude any health problems that occurred 12 months to the beginning date of the health policy.

Then there is my favorite. They don’t cover “pre-existing conditions specifically named or described as permanently excluded in any part of the contract.” Interestingly enough, throughout the terms and descriptions this special list of pre-existing conditions are referred to but never defined by anyone. No health insurance company is going to take on medical expense risk. This company is no different than any other except for their irresponsible and misleading marketing.

3) The ads that guarantee – Any guarantee, especially those that are outrageous, should be met with skepticism. My favorite guarantees are the equity indexed annuity claims that market you will make money when the market makes money and never lose money if the market loses money. If you check the fine print, the returns they market are far from the reality of what happens long-term.

4) No credit, bad credit? No Problem – Always be leery of a company that advertises the sale of an item that allows for you to pay it out over time regardless of your credit. They will be overcharging you somewhere. My favorite one is get the free computer and just pay 29.99 a week. There are no credit checks at all. They will even throw in a printer and a flat screen TV. Well the computer costs probably around $ 600. You could add another $ 300 for the “free” items. Basically, you paid a total of $ 1,554.47 for roughly $900 worth of products. You paid $ 659.48 in interest for an annualized interest rate of 57%.

Always keep one thing in mind. If it sounds too good to be true, it probably is too good to be true.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Thursday, May 15, 2008

Follow up Q and A from the Article “Why I Still Don’t Like Debit Cards”

Responses to the article “Why I Still Don’t Like Debit Cards”

Q: I just read your piece on debit cards. Do you suggest using a credit card rather than a debit or should we just use cash?

A: I think that the best way to go is with a credit card and pay off the balance each month. You have good protection on a credit card and you strengthen your credit score at the same time.

Q: I know you don’t like debit cards, but what about using it as a credit card?

A: The problem is that you can't use a debit card as a credit card. You can push the credit button. However, it will always transact as a debit card in one form or another.

Q: I have gotten myself into a lot of trouble with credit cards and now use only my debit card. I am working diligently to pay off my credit card debt through collection companies. Based on your article, I am very concerned. If I lose my checking account, I lose everything.

Would it be smart to get a prepaid credit card to handle charges such as gas, groceries, restaurants, etc. If so, is there a reputable company out there that I can do this with? I really do not want to get another credit card and get into more trouble.

A: If you don't have the luxury right now to use a credit card, the message isn't to just not use a debit card. The message is to know and understand the risk that is associated with a debit card. That comes down to really watching your bank account. Also, talk to your bank and know ahead of time the procedures that are in place in the event that money is taken out of your account.

Q: What does a credit\debit card offer that is any different than a plain debit card?

A: There are two kinds of debit cards. There is an off-line card and an on-line card. An on-line card is a debit card where the transaction is immediately deducted from your bank account. It is much like an ATM card. An off-line card works just like the debit card with one exception. Instead of debiting your account immediately, it stores the debit for processing later -- usually within 2-3 days. So there is a float associated with this type of transaction. It doesn’t come out of your account automatically.

The downside to the off-line card is additional fees charged by the bank for that type of arrangement.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Wednesday, May 14, 2008

Accelerating the Payment's a Good Thing!

Paying someone to do it for you? Not so good.

So are these equity accelerator programs worth the cost that it takes to set them up? These programs advertize that you can save big bucks in interest and shave years off of your equity loan by using their service. So is the marketing true?

If you run the numbers, the claims are true. However, with most of these programs, there are fees for services. So, the idea is great. However, it might not make sense to pay someone to do it for you. I saw a good example of such a program today that I wanted to share with you. With this program, there is an initial cost of $295 to set it up and then they charge a $5.42 service charge each month.

Basically, they are turning your loan into a bi-weekly payment plan which would ensure that you make one extra payment a year. If you are making 13 payments versus 12 payments, you will definitely pay it off earlier.

However, is this worth the cost? I had a chance to review one of these programs today and these are the numbers.

Option 1 Pay the loan out over 30 years making the monthly required payment

Monthly Payments $416.13
Total interest paid $88,805.91

Option 2 Use the equity accelerator program

Interest Saved by using their program $23,403.82
Up-front cost of $295.00 and a monthly service fee of $5.42
Make payments of $208.06 every two weeks – This will turn your 12 payments each year into 13 payments

Option 3 Do it yourself and don’t waste your money on fees

Strategy – Take a monthly payment of $416.13 and divide it by 12. That comes to $34.67. Now add that to your monthly payment of $416.13. You new monthly payment would be $450.80. Now instead of paying them $5.42 a month, pay that $5.42 a month towards your loan. Now your payment would be $456.22.

Result? This results in a savings of $24,886.39.00!! By doing it on your own and not paying this company fees, you save an additional $1,482.57 as well as not pay the up-front fee.

The moral of the story – Marketing claims that are bold and outrageous should be looked upon with skepticism. It is amazing to me that companies will market programs and charge fees for simple steps that you as a consumer can do yourself. Rule #1 should always be “Don’t buy into the marketing without seeing if you can do it for free yourself.”

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tuesday, May 13, 2008

Higher Standards?

Email #1

Bank of America allowed someone to take out a credit card in my name signing themselves on as an 'authorized user'. I knew nothing of the card. BOA filed a lawsuit against me, and then withdrew it when they knew they would lose the case. They sold the file to 3 different debt collectors, which also withdrew when sent the court documents. Bob, I disputed this with the credit bureaus, but, they returned with an answer also adding another $2,000 to the debt. They have defamed my name and assassinated my character in the credit world. God Bless You Bob!!!

Well, how is that for yet another Bank of America story and a good example why it is so important to stay on top of your identity and guard it. Unfortunately, Bank of America keeps coming across the radar in the Ask Bob section.

Email #2:

My husband and I got behind on a Bank of America credit card several years ago. We then set up a payment plan (auto withdraw from our checking account) every month for two years and we made the payments on time every month. However, they said we were late every month and had dinged our credit each and every month for two years. We recently checked my husband’s credit score (not so good) which is how we found out about the mistake, and realized they had put late payments on his credit. We have proof that the payments were made via bank statements. What we need now is a credit dispute letter. Please let us know if you can help us.

Email #3:

From June 2006 to October 2007, I had payments taken electronically taken out of my account to pay off a Bank of America credit card. I paid them $226.50 every two weeks for about a year or more. I received a statement in the mail from a debt collector saying I still owe Bank of America credit card $310.36. I paid off this debt with the other creditor last October. How can I prove that I paid off this debt? I have tried to call the debt collector who represents Bank of America credit card, but they could not find me in their system. How is that even possible? Help me!

Email #4:

Unfortunately, I ran into a problem with a credit card at Bank of America and it went into collections. The Bank of America collections department now calls me 15 to 20 times a day. They are calling my friends and telling them that I defaulted on my account. They are rude and harass me when I answer the phone. How can I get this to stop?

Email #5:

I defaulted on a credit card with Bank of America. I owe them $2,000. My parents have a bank account at Bank of America in which I am the trustee. Bank of America went into my parents’ bank account and withdrew the $2,000. Now, checks have bounced and my parents have a problem. They are overseas missionaries. I have no idea what to do.

These are emails that I have received through Ask Bob concerning Bank of America and how they are treating their customers. I wonder what standards they are referring to with their slogan, “Higher Standards.”

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Monday, May 12, 2008

Should the Government Bail-out Troubled Homeowners? – What is Your Opinion?

Well our politicians are diligently trying to make voters believe that they are working to fix the foreclosure problem in America. There is a version of a bill making its way through the system right now.

Now, let’s assume that Congress is going to pass something that will actually help homeowners and help bail them out. Thus far everything that they have done has been somewhat of a joke. It has been all headline and little substance.

Let’s pretend that they are really going to do something that can bail out people in mass quantity. Do you think that is the right thing to do?

One argument says no! The taxpayers shouldn’t have to pay for a person’s decision to sign off on a loan that they knew going into it would be a problem some day and or a house they couldn’t afford. What about the people who have already gone through foreclosure?

One argument says yes! If the government doesn’t do something, this is going to hurt everyone. The consequences will be way too tough on the economy.

My opinion?

First, there is a subset of people involved in this problem that were dealt with fraudulently in the process of obtaining a loan. Although they still signed the dotted line and should have known what they were signing, they were treated in an unethical/fraudulent manner.

This problem has to work itself out without Congress intervention. It is the healthiest thing long-term for our country. Congress just makes a problem bigger in the future by continuing to try and intervene. The taxpayer in either case is going to get hit for this problem. The unintended consequences of this type of intervention could end up being as bad as letting the problem fix itself over time.

The best course of action for our future is to let this problem correct itself. Regardless, it is going to probably be a long time before any type of bill gets passed. By then, the problem will already be way past the point of intervention having a positive effect. We are currently experiencing the highest amount of mortgage resets. The problem will start to diminish towards the end of the year.

The problem is already here and facing millions of Americans. The Titanic is heading for the iceberg. The saddest part of the whole story is that our politicians let this happen on their watch. You could see this problem coming from a mile away. No, it is not hindsight. Loans that are written on 105% of the home, at interest rates that are going to adjust, low initial payments, no documentation closes, etc. have a high probability of crashing.

These were loans written for more than just people with bad credit making this much bigger than the advertised “sub-prime” problem.

What is your opinion?

Thursday, May 08, 2008

How to Avoid Being Scammed

Recent Ask Bob Question:

I received a grant check for $4950 in the mail. The letter stated that I did not have to pay it back. I would have to only pay a 10% commission fee which is $495.

There was no phone number listed on the check. The letter stated that I would have to go to their website to find out how to send the 10% commission.

I was instructed to purchase a Green Dot Card for the amount of the commission of $495. This is like a cash card. Once the agent receives the card, the cash will be easily obtainable.

Their website: www.AwardChecks.com
The Agent name is: Al Synder

The letter also stated after I send the 10% commission, I would receive a second check for $4950 the next day via overnight air mail. They did say that I had to have this 10% commission taken care of by 5 business days or the deal is off. That's would be a grand total of $9900 free money.

Usually when something sounds too good to be true it usually is. There may be someone else this has happened to. It is a hurtful thing for someone to get caught up in something like this. Please share with your radio listeners.

This is a scam that many people fall for. It starts with an individual receiving a check that states some grant money has been reserved in their name. The check that is sent by the scammer is a legitimate check from a legitimate bank. Unfortunately, the individual will quickly learn that the check was either a counterfeit check or the account was closed. It is at that point that the $495 is long gone and the individual never received any grant money.

The scammer wants that Green Dot card, which is essentially a cash card, in his possession before that 5 day period so that he can get the money and invalidate the check.

So, how do you know when you are about to be scammed?

There are 4 rules to avoid being scammed:

1) Never give information to anyone who initiates the conversation. If someone calls you, shows up at your house, sends you a letter, and requests updated or new information, don’t give it to them.

2) Only give information when you initiate the conversation. If you call the card company, you know that you are calling your credit card company. You can have confidence if you initiated the call or went to the place of business.

3) If contacted through email with a request to update information, always refuse. Legitimate companies don’t require customers to update information through email.

4) Finally and most importantly, if it sounds too good to be true, it is too good to be true.

Follow those 4 rules, and you will greatly reduce your chances of being scammed.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Wednesday, May 07, 2008

Why I Still Don’t Like Debit Cards

I realize that debit cards are the new checkbook. You also cannot go to a bank without a debit card being presented to you. They are quick and easy to use. The problem is the liability that you might not know about when using your debit card.

As you know, identity theft is the fastest rising crime in America. With new technology, identity thieves are finding that stealing money and identities is becoming much easier.

A popular method of identity theft is a process called cloning. Basically, the identity thief clones the information from your credit card, creates a duplicate card, and then transfers the cloned information to the duplicate card. The card looks just like the original card and works just as well.

Thieves will use a device called a skimmer to steal the information. This device can be used in one of two ways. First, the thieves can attach the skimmer to a credit card processing machine. These devices are very small and can be easily attached. Once the device is attached, it steals information every time someone uses the credit card processor to make a purchase.

For an ATM machine, they attach the skimmer as well as a tiny video camera. The tiny video camera captures a video of the soon to be identity theft victim entering in their Personal Identification Number. Now the thief has the information off of the card as well as the PIN.

Second, anytime that you give someone a credit or debit card for payment, they can easily take that card and run it through a skimmer of their own while no one is looking. It is pretty easy to steal this information.

How easy is it to get into the cloning business? Unfortunately it also is pretty easy. You can actually buy this equipment over the internet. A skimmer costs around $300 to $500 and the card duplicating equipment costs around $8,000 to $10,000.

So, this is where debit cards come into the picture. Identity thieves really want the ATM cards. That is fast cash. This is also the greatest liability for a consumer. If money is stolen out of your bank account, by law you have 60 days to report this discovery to the bank. If you report it to the bank within 2 business days, you are limited to losses no greater than $50. If you report it to the bank after the first 2 business days following discovery and before 60 days as noted above, then you are limited to losses no greater than $500.

If you don’t get the report in before that 60 day time period, then you are potentially out the entire amount of money that was stolen.

In addition, there is a big burden a proof for this type of identity theft. If the bank wants to investigate, your account could be tied up for a period of days and maybe even weeks. As a result, you wouldn’t have access to that stolen money which could cause checks to bounce and financial hardship.

Now let’s compare that to the credit card. In an identity theft scenario, the maximum liability per instance is $ 50. Most credit card companies don’t even charge that amount. In addition, you have an unlimited amount of time to report the incident.

Do you ever wonder why banks push debit cards? The banking industry made over $17.5 billion in fees from overdrafts due to debit card mistakes.

Cloning is responsible for over 1 billion dollars of losses a year.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tuesday, May 06, 2008

Does your Advisor have a Questionable Past?

When interviewing a financial advisor, there are two steps that most fail to make. First is to get a few names and numbers of clients to call and ask questions. Of course, this isn’t always fool-proof. An advisor is always going to hand you names and numbers of raving fans.

Second is to check up on an advisor’s past. Wouldn’t you like to know if there was any questionable conduct or even criminal activity?

The Financial Industry Regulatory Authority just sent out their quarterly report to the financial advisory community highlighting disciplinary action taken this past quarter against a handful of financial advisors.

Here are a few cases:

FINRA settled a case with an advisor who took it upon himself to just sign some transfer forms for a client. He was fined $5,000 and suspended for 6 months.
Another advisor signed a payroll form for a client so that his monthly investment would increase by $200. He was suspended 90 days and fined $5,000.
An advisor was caught cheating on a qualifications exam. He was fined $5,000 and then suspended in all capacities for 2 years.
Forgery - $5,000 fine and a 2 month suspension.
An advisor was charged with two counts of felony perjury and two counts of felony commercial burglary. The advisor pled guilty to one felony commercial burglary charge with the other charges being dismissed. He was fined $2,500 and suspended for 3 months.

Now does this simply amaze you? If you forge documents and commit felonies, you are suspended for a maximum of 3 to 6 months. In fact, the guy who committed the felony had a lesser fine than the other two who had ethics issues.

The point being is that these people will be allowed back into the business after serving their suspension. Would you want to be working with someone who has had ethic charges in their background?

Let’s face it. There is a lot of trust that goes into a client/advisor relationship.

Fortunately, regulators require investment advisors and brokers to be licensed and regulated and to properly disclose all information to the public.

Registered representatives have to disclose all of the information about customer complaints, regulatory problems, legal problems, etc. thirty days following their occurrence. All of this information can be found at this site.

Now fee based advisors are required to file a Form ADV with the SEC. A Form ADV should be available at the time of your initial meeting. It can also be found on this site. The Form ADV tells you everything that you need to know from regulatory problems to fees that are charged.

As you can tell above, an advisor can get a small suspension following some very questionable behavior. Since trust is such a big issue, it makes more sense to work with someone that hasn’t had these issues in their past or feel very confident that these issues will not occur again.

These are some of the questions that FINRA recommends you ask:
- What experience do you have, especially with people in my circumstances?
- Where did you go to school? What is your recent employment history?
- What licenses do you hold? Are you registered with the SEC, a state, or FINRA?
- Are the firm, the clearing firm, and any other related companies that will do business with me members of SIPC?
- What products and services do you offer?
- Can you only recommend a limited number of products or services to me? If so, why?
- How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
- Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
- For registered investment advisers, will you send me a copy of both parts of your Form ADV?

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Friday, May 02, 2008

Credit Card Companies are Raising Rates, Regardless of Your Credit

With mounting losses from mortgage loan loss, credit card companies are looking to offset that money by raising credit card holders’ fees and interest rates. Some of the credit card companies that have started raising rates are Washington Mutual, Discover Card, and Bank of America (which shouldn’t be a surprise).

In many cases, they are doing this to customers that have good credit scores and pay on time. This isn’t something that they are doing just to people who are late with their payments.

Can they get away with doing this? There is a clause in the credit card agreement that a cardholder agrees to upon signing on the dotted line. It is called the universal default clause. This clause states that a card company can raise your rates at any time that they feel you are a risk. So, you could be paying on time and doing everything right and still get your rates increased because you missed a payment with another card company.

Recently, the Democratic-led Congress started to get aggressive with the credit card industry about this clause, putting pressure on the industry to change. Of course, the credit card industry responded. Credit card companies came out stating that they do not use these clauses. Some just changed the wording in their contract to state that they have the right to change the terms and conditions of your contract due to “weakening economic conditions.” That sounds like a universal default agreement to me.

So, what steps should you take as a cardholder?

1) Pay very close attention to your credit card statements. As I wrote about yesterday, complacency in this environment will hurt you. Pay close attention to what is happening with your account.
2) Be very diligent to make sure that you pay on time. With some credit card companies making the penalty rates higher for missing a payment, you certainly have to be careful. Some credit card companies are even changing the rules on how you can end up with penalty rates. It might become much easier to fall into that trap.
3) If your rates go up and you have good credit, move your account. It goes without saying – with good credit, don’t put up with a credit card company that practices this irresponsibility. Move your account somewhere else.
4) If it happens to you, don’t protest because it is not fair. It is human nature to protest because it is not fair. It isn’t fair. However, you agreed to it when you signed the dotted line. They can change it and there is nothing a cardholder can do about it.

Today, it has never been more important to pay attention. This is becoming a tough environment and companies are doing whatever they have to do to stay in business.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Thursday, May 01, 2008

Are You Complacent With Spending? If So, Why?

I was standing in line today picking up some lunch and a thought dawned on me. Why do we spend the money to eat out? If you think about it, the money really starts to add up. I looked around the restaurant and wondered to myself if eating out was becoming a stretch as gas and food prices go higher. I wondered if the people who just spent $7 or $8 on lunch really have that discretionary income sitting around. Will there be plenty of money at the end of the month to pay for that meal that was just charged to Visa or will that lunch accumulate in debt? Then I wondered if the patrons of that restaurant even knew the answer to that last question.

Sure, people are worried about these high prices of items that we depend on each day. At the same time, I wonder if Americans just think that these prices are temporary and will go back down as quickly as they rose. What if they don’t go back down anytime soon? What if a year from now we are at the same level of prices or higher?

I see all of these problems in real estate, in the credit markets, in the job markets, and in rising food and gas prices. Then I look out and it seems like people are just pretending that they are either not there or they will be going away shortly. If you look at consumers’ spending habits, they have changed a little. You see less people in one of the thousand local Starbucks. You see less people in restaurants. However, the cutback in consumption is not on par with people’s actions.

If you told me a year ago, that gas prices would be this high and that the cost of food had risen significantly, I would predict that consumers would have really cut back.

Maybe you are in a situation where you have plenty of monthly income that you need and these rise in prices are not a big deal. For the rest of us, these rising prices are taking a bite out of the monthly budget. For those who have not made changes in their spending habits, at what point do you decide to really cut back? At what point do you decide to be more proactive with your spending versus being complacent? At what point does it not make sense to not eat out anymore and start bringing a lunch to work?

I had to ask myself these same questions. When prices were lower and times were good, we had the luxury (if there is such a thing) of being complacent. I think that we are reaching a critical point in this country where we all have to take different actions as consumers. Most important, we need to take different actions with our spending as stewards of our God-given assets.

There are steps to end complacency and be proactive about high prices and economic struggles. I would encourage you to consider implementing some of these suggestions.

First, know where you are spending your money. Sit down and really start tracking your spending. If you are married, start doing this planning with your spouse. It is crucial.

Second, start living as if these high prices are going to be with us for a long time. In the event that they are, it will be much easier to adjust now rather than being forced to adjust down the road.

Third, start planning out how you spend money on gas and food. Follow what is on sale. Shop at grocery stores where you know you are getting the best deal. Most importantly, plan out your meals in order to help save money when buying groceries.

Start planning out your trips in the car so that you are not doing a great deal of unnecessary driving.

There are a lot of ways to fight higher prices. Unfortunately, it all takes effort and planning, which won’t take place if you are complacent.

If you have not made drastic adjustments to your spending, ask yourself why not? Have things just not gotten bad enough yet? You never want to wait for things to get bad. You want to prepare ahead of time so that you are ready in the event that things do get worse with higher prices. It makes more sense to be prepared for that type of scenario today versus scrambling to prepare when it might be a little too late.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.