To mark the July 21 launch of the Consumer Financial Protection Bureau, a new regulator with broad powers, iWatch News is publishing stories about borrower nightmares: Americans from different walks of life who borrowed money with terms they didn’t understand and couldn’t afford.
The stories build on our Debt Deception? investigation, begun in February, of how lenders are accused of exploiting gaps in existing laws to make predatory and confusing loans. Here’s a brief description of the borrowers we will profile in this installment:
Mildred Morris, a single mother with a federal job in West Virginia, was overjoyed when her high school son won a coveted spot at a famous New York performing arts college to continue his education. But to come up with an unexpected $700 dormitory fee before a college loan was ready, Morris had to put up her fully paid 2002 Pontiac Sunfire as collateral for an auto-title loan. Faced with a 300 percent interest rate, she soon fell behind in her payments and the car – worth several times the amount of the loan – was repossessed.
Embarrassed about her mounting credit card bills, retired schoolteacher Mary Linville signed up with what she thought was a debt settlement company that promised to cut her $72,000 debt in half. The firm she hired, Morgan Drexen, electronically withdrew $7,000 from Linville’s bank account but never paid a cent to Discover, Bank of America, Lowes and other major creditors. After filing for personal bankruptcy, Linville was too ashamed to be seen in public by her small town neighbors, and drove 40 miles for weekly grocery shopping.
Car dealers located near U.S. military bases sometimes target soldiers, Marines and other service members for special deals that drain their bank accounts and, in some instances, interfere with their ability to perform their duties. One dealership persuaded a Marine to buy an overpriced car by falsely promising him “free” round-trip airfare so he could visit his parents across the country. It turned out the air fare wasn’t free – it had been financed into the loan contract at 13 percent interest, according to a legal adviser to several Marine bases.
Disabled woman fights foreclosure, claims loan terms changed
After living in her Queens, N.Y., brick rowhouse for 40 years, Margaret Mosunic was approached by a mortgage broker offering her a $40,000 home equity loan so she could make repairs to a downstairs rental apartment. At the loan closing, Mosunic, who is legally blind and lives on a $738 monthly disability check, says the broker rushed her through the paperwork for a loan. It wasn’t until later that Mosunic realized she had signed her name to a $300,000 loan she couldn’t possibly afford to repay, and an 18 percent default interest rate that kicked in when she missed her first payment, she alleged in a lawsuit. The daughter of Croatian immigrants is now challenging her foreclosure in court. The bank disputes the allegations.
Navy doctor’s pension is costly collateral
It was a run of bad luck that put U.S. Navy retiree Dr. Louis Kroot in debt. A mentally ill daughter’s treatment cost thousands of dollars for hospitals from London to San Antonio. Then came bad tax advice in rolling over a retirement plan, and home damage from a broken water pump. To pay off his bills, the Kentucky doctor contacted a company that specializes in payouts to retirees willing to sign over their military pension as collateral. His payment of $94,000 worked out to be the equivalent of a loan at a 30 percent interest rate — higher than the rate charged by Kroot’s creditors.
Trapped in payday loan cycle
Patricia Bailey had a dilemma: Suffering from diabetes, depression, and an anxiety disorder, her new job’s health insurance had yet to kick in and she couldn’t afford to pay $400 a month for her medication. The Salt Lake City woman took out a payday loan to cover what she thought was a temporary cash shortage. But when the next month came around, Bailey, 64, had a car to fix so she borrowed again. Then she was laid off from her job at a call center. To stay afloat, Bailey fell into the payday loan cycle that has trapped many consumers in thousands of dollars of debt during hard economic times.
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Auto-title loans are the credit of last resort, but are terms fair to borrowers?