Deceptive or misleading practices are everywhere. Their aim is to make you pay more than you should for goods and services, or make you pay for things you don’t need. Whether through misleading advertising, wrong assumptions, or outright lies, the result is the same: you may pay more than you should for what you get. Here are some common deceptive practices:
Payday loans
A payday loan is a short-term loan in which the consumer writes a check to be deposited later in exchange for cash now. Even if you need the money for bills, you’d be better off NOT getting this loan. The transaction includes a “small fee”—usually $15 or more for every $100 that you borrow. The problem arises when the loan is due. If you can’t pay off the loan, you must renew it and face additional fees. By rolling over this loan for a small fee each time, you end up paying incredibly high annual interest rates (300 to 500 percent APR). You’d pay less in credit-card late fees than what it would cost for accumulated payday loan fees.
Title loans
A title loan is a short-term, high-interest loan (200 to 300 percent APR) that uses your car as collateral. If you don’t repay the loan on time, the finance company can—and likely will—repossess your car. The finance company may try to sell your car to get the money you owe on the loan. And if they don’t get enough money from the sale, you’ll owe the title loan plus your original auto loan. Avoid title loans because they put your property at risk and charge exorbitant interest.
Credit card loss protection insurance
Credit card loss protection insurance is an unnecessary cost to the consumer. Keep in mind that federal law limits your liability for unauthorized credit charges to $50 per card, with proper notification to your card issuer. The Federal Trade Commission cautions you to avoid doing business with telephone callers who claim that:
You’re liable for more than $50 in unauthorized charges to your credit account.
You need credit card loss protection because hackers can access your credit card number and charge thousands to your account.
They’re from “the security department” and want to activate the protection feature on your credit card.
If you see an unauthorized charge on your credit card statement, don’t pay it. Contact your card issuer and follow their procedures for disputing the charge. Also, make sure not to give out your credit account numbers or other personal information over the phone or online for any service or product you didn’t request. If you have questions or want to file a complaint about a scam, contact the FTC toll-free at 1-877-382-4357 (TDD: 202-326-2502), or online at www.ftc.gov.
125 percent loan-to-value home equity loans
125 percent loan-to-value home equity loans. These loans require you to put up your home as collateral. So, if you can’t make your original mortgage payment, the mortgage lender will foreclose and sell your home. Even if the sale covers 100 percent of your home’s value, you’re stuck paying the difference up to the 125 percent home equity loan. Beware of ads like, “NO EQUITY…NO PROBLEM!”
Many other deceptive practices exist, such as high-pressure sales tactics that rush you into signing a contract before you have time to think it over. Know that if they’ll lend you the money or sell you the goods today, they’ll do it tomorrow. And remember the old axiom, “If it sounds too good to be true, it probably is too good to be true.” Remember to always read the fine print and understand what you’re getting into.
The lender may not come out and tell you everything, but by law, the contract must spell out the following: What happens if you don’t pay, how much the loan actually costs, and your rights as a consumer.
