Here's why consumer regulations are useless...

Consumer Affairs has a report on a debt collector hit with fines for, of course, abusing consumers and lying. The amount of the fine? 1.3 million.

Maybe I'm just a pessimist, but I don't see how this solves anything.

By abusing consumers, making illegal threats, etc, this company likely raked in millions in extra profits. They collect 1.25 million accounts per year. A 1.3 million fine from the FTC is probably listed on their financial report as overhead, along with electricity. Is the FTC making any difference? Of course not...we know this because they allowed this fraudulent company to stay in business.

Under the proposed settlement, LTD will pay a $1.375 million civil penalty. In addition, LTD and its owners, Timothy Feldman and Leonard Pruzansky, and its top managers, John Brewster and Derrek Davis, are permanently prohibited from misrepresenting to consumers that nonpayment of a debt will result in garnishment of wages, seizure or attachment of property, or lawsuits.

They also are permanently barred from using false, deceptive, or misleading representations in connection with the collection of any debt, communicating with a consumer at any unusual time or place, including their place of employment, or harassing, oppressing, or abusing any person.

Is anyone else laughing at this "punishment"? Aren't all of these things already illegal?

Imagine...you rob a bank for 5 million dollars, so the state sues you for 2 million and permanently prohibits you from robbing any more banks.

This is why our regulations are useless...because companies are free to abuse consumers with impunity.

2007 Roth IRA coming to a close

Technically, you can still contribute to your 2007 Roth up until April of 2008. The limit for young middle-income folks like myself is $4,000. Unless you make 6 figures, you need not worry about whether or not you can contribute (or whether your maximum contribution limit is lower). More details can be found here.

If you're like me, however, your 2007 budget ends on December 31, and savings afterwards falls into the 2008 contribution. With little more than 2 months left in the year, it's a good time to evaluate your progress and see if you have reached your maximum or exceeded it (yikes, more paperwork!). If you have exceeded it, be sure not only to withdraw the excess dollar amount but also the dollar amount of the interest that your excess earned. The tax you pay will be more than your earnings! There is no penalty for withdrawing excess contributions. Of course, hold on to it and just figure it in to your 2008 contribution.

A quick glance to my investment spreadsheet tells me that I am in no danger of exceeding my limit. Hopefully next year I can increase my monthly Roth allowance.

Economists fear consumers may start spending within their means

Here's a depressing AP article about consumer borrowing habits. The Christmas shopping season is already upon us, with retailers begging you to come in and spend money you don't have. Home equity loans are dried up, leaving credit cards as the most accessible way to borrow your way into oblivion. As a result, revolving credit debt is up-up-up! That's not really what depresses me. What upsets me is that the "experts" out there, the economists, whoever they are, are completely happy with the outcome.

Now that Americans have sucked all the equity out of their home, they're diving right into higher-interest debt, with the credit card industry. It's kind of like jumping out of a pool with a couple sharks and into a pool with a dozen piranhas.

During the housing boom, when home sales were hitting records for five consecutive years and prices were soaring, many homeowners tapped the rising value of their homes to finance increased spending by taking out home equity lines of credit.

However, now that home sales are plunging and double-digit increases in housing costs are a thing of the past, home equity lines of credit have become less available. That has pushed consumers back to credit cards to finance their spending.

Hey, heaven forbid people start spending within their means. Let's increase spending even though we aren't increasing income. Let's fuel big companies by borrowing more money. Here's a question, brilliant economists: What are we supposed to do after the home equity has dried up and the credit cards are maxed out? How exactly will we still be fueling economy when we're all freaking broke and three-quarters of our paychecks are getting sucked up by interest charges?

Analysts are watching closely to see if the steepest slump in housing in 16 years could have a more serious impact on the economy through the wealth effect

I had no idea what the wealth effect was so I looked it up.

One problem, home values don't make you more or less wealthy unless you plan on selling the house and living on the street. Instead we get this "perception" of wealth by letting people take out loans.

the fear is that falling home values could cause consumers to cut back on their purchases. Since consumer spending accounts for two-thirds of total economic activity, any serious cutback in spending could lead to much slower economic growth.

GOOD! Fear? Are these experts idiots? How does it help our economy if we're all broke! People need to start paying off their debts and living within their means. Then when they have real capital they can go spend it.

FRB G.19 Release

The county tax office is in a sound proof cave

Home values are down. Many houses in my street are for sale, others for rent, and many are bank owned. They aren't selling well and prices are being slashed. Property values are just plummeting. The house down the street from me has gone up for sale 3 times this year. Another one has been sitting on the market for almost 2 years. This year and the next will be a low point in the value of my home, assuming it doesn't get worse.

But why worry about that when you can just ignore it? The county tax office has. My house has continually gone up in value in the middle of a housing crash. Whodathunkit. Its no wonder people are disputing their appraisals in record numbers. Also amusing, they have issued statements claiming a tax cut. Oh, our actual taxes in dollar amount has increased incredibly, but the tax rate has been slashed a meager .2%, and they think we're so stupid that we'll thank them for it. Yes, that sure will offset my 10% appraisal increase and ridiculously over-valued rate.

Disputing your tax appraisal is much the same in every state. You go in front of a panel of government officials, bring as much evidence as you can to prove what you feel is the real value of your property, and then try to make your case. In a few weeks you get a letter with your new (or old) appraised value. From what I hear from others who have done it, they usually lower your appraisal a tiny amount just to appease you and hope you won't appeal.

Of course unless you are a reasonably good public speaker, the whole procedure is pretty darn intimidating. I'm sure it's supposed to be.

UPDATE! Collecting unclaimed property

On September 12 I reported that I had located $300 in unclaimed money with the state comptroller. Any time a company owes an individual money, they have to turn it over to the state for safekeeping.

You can search online with just your name to find out if you have any unclaimed property by going to http://unclaimed.org/ or http://missingmoney.com/. I did a search myself and discovered a $300 paycheck from an old employer that we had, for whatever reason, not received.

In fact, this turned out to be an old paycheck that was never delivered. We found our information, printed out a form and filled it out, and mailed it in with the appropriate requested identification (copies). On Sept 28 we got a check from the state! A small 1% fee was subtracted, not at all bad considering there were expenses involved in collecting, holding, and mailing the money (although they could also have earned money on it -via interest-, but it is also possible that they are legally prohibited from doing so).

We told a family member about this and they reported having almost $3,000 in unclaimed money!

With the ridiculous state of corporations these days, this does not at all surprise me. Companies can't even communicate with other departments in their own building, yet alone perform complex tasks like locating a customer and calling them on the telephone. Check with your local state comptroller to see if you have any unclaimed money.

Food Stamps to buy junk?

I was in the store behind a woman in line with 2 kids. What I saw made me search out more information about food stamps, food stamp fraud, and shopping behavior. This family bought a couple gallons of milk with food stamps. It took quite a while, because not only did they have to fill out their little ticket and run it like a check through the machine, they had to run it as a separate transaction. You see, I don't think the government would be happy knowing they gave food stamps to this family if they knew what else they were buying.

When I sought out program requirements, I had to ask myself whether or not this particular family looked like someone who would qualify. Assuming she was married, she must have a household income of less than $1,613. The woman in front of me wearing nice clothes, sipping a Starbucks-whatever, and talking on a brand new Treo/Blackberry-type cellphone certainly didn't look like she was insolvent.

I suspect I had witnessed Food Stamp fraud.

Here's a little excerpt from a food stamp program:

Food stamp benefits...can be used in supermarket checkout lines only for the purchase of food.

What I witnessed instead was the food stamps, instead of buying food for hungry people, simply subsidized their other frivolous purchases. This family's cart (run up separately) also contained: a DVD player, several new DVDs, a case of Cola Cola, a case of beer, a few kid's toys, a cordless home telephone, and a bunch of other miscellaneous items that I didn't see.

Food stamps make it possible for such working poor families to stretch their income.

Yes it does. It is giving them free milk so they can buy $200 worth of frivolous junk. Our tax dollars hard at work.

Don't like late fees? Try paying your bill

Are you upset that credit card late fees are staggering and out of control? I'm not. Sure, I've carried a balance in the past. I even had some significant credit card debt. But I've never paid a late fee. Why? Because I pay my bills.

Right now, the late fee on a Discover card is $15 on balances up to $500 and $39 on balances over $500. For billing periods after Oct. 1, the late fee will be $19 on balances up to $250 and $39 on balances over $250.

I understand that late fees for these cards are pure profit for these companies and they are ridiculously high, but you only get charged when you don't pay on time. With all the buzz surrounding these fees there has to be a huge number of people paying their bills late.

That’s a real stiff penalty to pay for being as little as one day late...when consumers mail in their payment seven to 10 days in advance and they still get hit with a late fee, something is really wrong.

The problem here is that there is no way to verify when your bill arrived. Yes, I have sent letters out first class that took over a week to arrive. It is somewhat unrealistic also to believe that when you send your payment via regular mail that it will be processed on the same day that the company receives it. Though large, these companies probably have many thousands of bills arriving per worker employed to process them each day. If your bill lands in someone's box at 3PM when they have a pile of payments waiting to be processed, it makes sense that it wouldn't be posted the next day. Do I think it's right? No. Do I think consumers can protect themselves fairly easily? Yes! Direct electronic bill payments are the only way to send a secure payment and have a receipt of that payment. Your alternative is to send everything by certified/receipt request mail, which of course costs quite a bit more.

How would you describe an interest rate of 28 percent to borrow money through your credit card

Why on Earth are you borrowing cash from your credit card? Further, the rates they charge are clearly listed on each bill that arrives in the mail. If you don't like paying 28% interest to borrow cash, don't do it. It's that easy.

Rather than blame the credit card industry for their crooked ways, take control. Want to avoid late fees? Pay the bill. Want to avoid high interest charges? Don't use the credit card. Don't want to pay 30% to borrow cash? Don't borrow cash. Stop feeding the beast. The only ones who can stop this madness is us: the consumer. Otherwise we are left to the regulation of the government. Like a parent disciplining a young child, it will only behave when mommy and daddy are watching (or when they think they'll get caught). And who do you think pays for that strict regulation? Is it free? No. You pay for it. Taxes.

This one nearly killed me:

If you do not have any liquid assets, consider tapping the equity in your house, through a home equity line of credit. This really makes sense if you already have an established line of credit.

What an idiotic suggestion. You are going to eat away the equity of your home and risk losing it in order to get cash? That isn't the solution. The solution is to stop borrowing money. How many of these people facing foreclosures (and crying fowl) can't refinance or sell because the value dipped below what they borrowed? How many are because people sank their other debts into home equity loans? You have a spending problem. You have a living-outside-your-lifestyle problem. Borrowing money is only going to make things worse and extend your misery because, sooner or later, you are going to have to repay it. What makes you think your situation will be any better then? You'll just have to borrow more, and extend it further. See where this is going? See where the perpetual cycle of debt leads? Utter dependency on an industry designed purely to efficiently bring more money in than it sends out.

This is a scam, perpetuated by rampant consumerism to feed off the ignorant. There is only one way to use a credit card and if you are paying late fees and interest charges, you aren't using it correctly. Government regulation is not the answer. Consumers educating themselves and making wise financial decisions are the only things that will bring the beast down.

Are homeowners entitled to a bailout?

According to Sheila in this Fox News article, you bet taxpayers should bailout homeowners facing the possibility of not paying their bills.

Do I agree? Heck no. Here's Sheila's letter (emphasis added by me):

We were shocked to learn that our mortgage is going up nearly $500 a month. We knew that buying this house a couple of years ago would stretch our finances to the limit, but we really wanted our kids to attend this school district so we decided to bite the bullet and keep to a very strict budget in order to make this work.

We both have jobs, but there’s no way we can come up with another $500. And home prices have really come down since we bought our house, so if we have to sell, we’d probably take a loss.

I’m just sick over this. I heard that President Bush has announced a program to help people like us. What can you tell us?

They "bit the bullet" and stretched their finances to the max with a home they could not afford by signing a loan with an introductory interest rate so their angel could attend a particular school. I sympathize with the feeling; you want your kids to grow up in a good school district. The problem is that if your two jobs can't afford for you to accomplish that goal, why exactly should government (taxpayer) funds subsidize your income?

That's exactly what this is for people like Sheila. They want the government to subsidize their income so they can live in a neighborhood with a good school.

Further, should people really be given tax free debt forgiveness because they paid too much for their house and now owe more than it is worth, and have a loan payment they can no longer afford? Hey, if the government wants to get rid of the forgiven debt tax, I might take a look and stand behind it - but not when it is exclusive to people who made bad choices when buying a house.

There are some people out there who are victims of mortgage fraud. Sheila sure doesn't sound like one of them. She just bought a house in a neighborhood she wanted, regardless of the terms or cost, and now finds herself in a financial hole. The consequences of the "have it now" mentality caught up with her, and she feels like a victim.

She is a victim. Of her own irresponsibility. I sympathize, and I wish her best. My advice to Sheila? Rather than standing on the street corner of Congress with your hand out, sell your house at a loss, take out a personal loan for the difference and start paying it off, and start living a lifestyle you can actually afford. Last time I checked, accountability and responsibility were in the dictionary, so she should have no problem looking them up.

Collecting unclaimed property

States hold onto unclaimed properties on behalf of the owner. Such property includes life insurance policies, tangible goods, and unclaimed employment paychecks.

You can search online with just your name to find out if you have any unclaimed property by going to http://unclaimed.org/ or http://missingmoney.com/. I did a search myself and discovered a $300 paycheck from an old employer that we had, for whatever reason, not received. Though we have not yet gone through the process, we are going to file a claim tonight and I will post a review.

Be very wary of scams, however, as this information is public and various firms may try to charge you to claim your money. The state comptroller will charge you a small fee (my state charges 1% for up to $5,000 and 1.5% above, zero for less than $100). Some however will try to get up to 10% out of you, or charge you to do the search. Don't fall for it - the information is free and filing your own claim is easy and cheap (so far as I can tell, it can all be done online).

Acting in the best interest of consumers, each state has enacted an unclaimed property statute that protects your funds from reverting back to the company if you have lost contact with them. These laws instruct companies to turn forgotten funds over to a state official who will then make a diligent effort to find you or your heirs. Most states hold lost funds until you are found, returning them to you at no cost or for a nominal handling fee upon filing a claim form and verification of your identity.

If in doubt, call your state comptroller or visit your state's official website and search it for "unclaimed property".

Bush on the subprime market

If you haven't read/heard Bush's recent address on the subprime mortgage market, I suggest you take a look. While I'm not a Bush fan, I do like his general plan better than, say, Hilliary Clinton's. At least he doesn't just come out and say that he's going to funnel our tax money to pay people's mortgages.

Here are what I think are the highlights:

This market has seen tremendous innovation in recent years, as new lending products make credit available to more people. For the most part, this has been a positive development, and the reason why is millions of families have taken out mortgages to buy their homes

Hmm, but isn't that also why we've got this problem in the first place? There are really only 3 things that make a home (and the loan for it) more affordable and thus increasing homeownership overall.

• 1) Home prices drop
• 2) The loan price drops (lower interest rates)
• 3) The median income increases

None of these happened. The only thing left to do, then, is to extend the repayment period. That means funky loan products. The same products you, Bush, are so happy about created this problem.

This has led some homeowners to take out loans larger than they could afford based on overly-optimistic assumptions about the future performance of the housing market. Others may have been confused by the terms of their loan, or misled by irresponsible lenders. Whatever the reason they chose this kind of mortgage, some borrowers are now unable to make their monthly payments

Well, duh. The whole point of the ARM is to extend the loan period. Same with interest only. You get a low monthly payment for a period, then when you have sufficient equity to lower your LTV ratio and qualify you for a standard fixed. This is of course a nightmarish trap if you can't refinance, because your interest rate hikes to something more reflective of your risk to the lender and suddenly you can't pay the monthly dues. I'm no expert, but that's how I see it. Now instead of a 30 year loan you have a 35 year loan with a 5/25 ARM, thus allowing you to buy a house you can't afford.

You simply can't get more people into homes without either increasing their income or lowering the cost of the house. The math doesn't work. Instead you just encourage people who can't really afford homes to go into perpetual debt just to get one.

the government has got a role to play -- but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem. It's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders, or a little help from their government

I agree, but that is the root of the problem: people bought more house than they could logistically afford by using all these stupid loan products. They can negotiate with their lender but it all comes down to this: you owe X dollars, how are you going to pay it back? If you owe more than you can realistically pay back in, say, 30 years with some interest tacked on, you can't afford to stay in your house. Period. There is no room for negotiation, the only thing a lender can do is forgive some of the debt or extend the payback period.

Neither of these looks like a good solution. The first one means we're giving money to people who bought more house than they could afford. How is that fair to everyone else paying their mortgages in full? The second one means that they will be paying even MORE for the house AND will probably NEVER own the thing. Changing the tax code to help them even more sounds like welfare.

This administration will soon issue regulations that require mortgage brokers to fully disclose their fees and closing costs. We're pursuing wrongdoing and fraud in the mortgage industry through the Department of Housing and Urban Development, the Department of Justice, the Federal Trade Commission, and other agencies.

Well good! But the disclosures are already there on the mortgage contract. People who don't understand the terms or the contracts they are signing should hire a lawyer to explain it to them. If they can't afford a lawyer (who would probably charge a few hundred bucks for such a task) how can they afford a home?

So here's a glimpse into his plan, apparently.

Sixteen months ago I sent Congress an FHA modernization bill that would help more homeowners qualify for this insurance by lowering down-payment requirements, by increasing loan limits and providing more flexibility in pricing. These reforms would allow the FHA to reach families that need help, those with low incomes and less-than-perfect credit records or little savings...Congress hasn't acted this year. It would be a good task for Congress to come and get FHA modernization done so that we can help these people refinance their homes, so more people can stay in their homes

Am I reading this right? You made a bunch of reforms that sunk people into loans they can't afford so the solution is to make more reforms to keep them in those homes? If they have bad credit, low incomes, and no savings, they should rent! Build up savings, improve your credit, make more money, then buy a house you can afford. Don't game the system just so someone can have a house without putting in any actual effort to get it.

Homeownership is a splendid goal...when you've earned it.

$3,000 state voucher to buy a new car

Representatives of the state of Texas feel that the way to curb pollution is to get older cars off the roads. This isn't a bad idea, but I'm not so sure about the way they are doing it. I've discovered other states, Vermont specifically, have offered this as well.

Here's how the program works. Say you are a family of 4 with a pre-1996 vehicle. If your annual income is less than $41k, you qualify. You can take your old car to a dealership where you can get a $3,000 voucher towards the purchase of a new or 3 year old used vehicle. The dealers get no money for your trade, which is given to a salvage yard at no cost, and there is no indication that the dealer offers any trade in value other than the state sponsored voucher.

You can then use that voucher to purchase a 2004 and up car or light truck.

Here's the problem. The cheapest 2004 vehicle in the state of Texas (from autotrader.com) is $4,500 plus TT&L (remember this is a dealer, so you will likely be paying many fees on top of the asking price). A small number of cars in this year range are below $10k. Most are above. The maximum you can buy is a $25k vehicle. The very idea that a family of 4 making less than $41k a year should go out and buy a brand new car is absurd, but at least they allow used.

Regardless, it is more than likely that the family is going to have to take out a loan to get this new vehicle. I find it incredible that the state is encouraging people with low incomes to go out and buy brand new cars by dangling a check for $3,000 in front of them. If they are driving a pre-1996 vehicle, isn't it safe to assume that they can't afford a new car to begin with? Is $3k going to make any difference? Is the state of Texas encouraging debt? Will the state of Texas help them if their car is repossessed because they can't make the payments?

In reality, the people who will most likely take advantage of this is people who were already planning to trade in their clunker for a newer vehicle, or were planning to. Thus, we have a state funded car purchase - the funds for this program were collected by raising vehicle registration rates.