Thursday’s need-to-know money news

Today’s top story: 6 myths about IRAs you can’t afford to believe. Also in the news: New loan modifications from Fannie and Freddie, tax refund loans, and what the Consumer Financial Protection Bureau offers consumers.

6 Myths About IRAs You Can’t Afford to Believe
IRA mythbusting.

New Loan Modification From Fannie, Freddie: What to Know
Keeping your home out of foreclosure.

Tax Refund Loans Offer Fast Cash for Early Filers
But pay close attention to the fees.

What Is the CFPB and What Does It Offer Consumers?
And why it’s in danger.

Bureaus fined for credit score confusion

51w4H0Y7W7L._SX333_BO1,204,203,200_The Consumer Financial Protection Bureau today ordered Equifax and TransUnion to pay more than $23 million in restitution and fines for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers. Regulators said the bureaus also lured customers into expensive subscriptions when people thought they were getting free scores.

The CFPB said the bureaus were selling scores without making it clear that they weren’t the FICO scores lenders typically use in their decisions. TransUnion was selling VantageScores and Equifax sold a proprietary score. (Important to note here that VantageScores are now offered for free by many sites, including my employer NerdWallet.)

Credit scoring can be complex, and people are easily confused about the different types of scores and how they’re used by lenders. For example, many people think they have one credit score, when in fact we have many, and those scores change all the time.

People often don’t understand that the scores they’re seeing aren’t necessarily the ones used by lenders. Most lenders use some version of the FICO credit scoring formula, but FICOs come in many different versions and iterations. There are different generations of FICO scores and formulas tweaked for different industries, such as credit cards or auto loans. Furthermore, the FICOs you get from one major credit bureau will differ from the FICOs you can get from the two other bureaus.
Before VantageScore, the bureaus often sold proprietary scores that were used by few, if any, lenders. That led consumer advocates to label these proprietary scores as “FAKO” scores. VantageScores definitely aren’t FAKOs, since they’re used by 20 of the 25 largest financial institutions. But they may be used behind the scenes–for marketing or testing, rather than for deciding whether you get a loan or the interest rate you’ll get.
A VantageScores can give you a general idea of how lenders might view you as a credit risk. If you’re in the market for a major loan such as a mortgage or auto loan, however, you should consider buying the appropriate FICOs from MyFICO.com to get the clearest idea of where you stand.

President-elect Trump, save the CFPB

Ten years ago, bullies had taken over the playground. Financial service firms preyed on their customers with impunity:

—Lenders made expensive, risky mortgages to people who couldn’t afford to pay the money back.

—Credit card issuers foisted overpriced insurance and other add-on products on millions of unsuspecting customers.

—Credit bureaus ignored evidence submitted by people disputing errors in their credit reports.

—Companies sold delinquent debts to collection agencies that ran amok, violating fair debt collection laws and strong-arming people into repaying debts they didn’t even owe.

People’s complaints fell on deaf ears, since consumer protection wasn’t a priority at any agency. Huge swaths of the credit and debt industries, including credit bureaus, collection agencies and payday lenders, operated with little government oversight.

Then the Consumer Financial Protection Bureau pushed back.

In my latest for the Associated Press, why President-elect Donald Trump needs to save the Consumer Financial Protection Bureau.

Big changes afoot for credit bureaus and your scores

check-credit-report-easilyCredit bureaus will have to hold off on reporting delinquent medical bills and supply actual human beings to review disputes under an agreement announced today with New York’s attorney general.

The Wall Street Journal reported that the agreement, to be announced later today, will change how credit bureaus operate nationally. Bureaus will have to wait 180 days before reporting any medical debt on people’s credit reports. When an insurance company pays a medical bill, all references to it will have to be deleted from the individual’s reports.

This is a big deal, since the Consumer Financial Protection Bureau estimates about 43 million Americans medical collection accounts on their credit reports. One such collection can devastate an otherwise pristine credit report and cause credit scores to plunge.

Having human beings review disputes is another significant change. Currently, humans stick a code on disputes before they’re sent to lenders, but the process is highly automated. Errors that have been removed from a report can crop up again (and again and again) when the lenders upload their data files to the bureaus. Getting problems fixed can be a frustrating process when you can’t get a human being to intervene.

The changes won’t happen overnight. The bureaus have three and a half years to roll them out.

Regulators sue for-profit college chain

DrowningCorinthian Colleges–which includes the Everest, Heald and WyoTech schools–has just been sued by the Consumer Financial Protection Bureau for what regulators call its “predatory lending scheme.”

The CFPB alleges that the for-profit college chain exaggerated students’ job prospects to get them to take out private loans to cover its schools’ high tuition costs. The bureau says Corinthian then used illegal debt collection tactics “to strong-arm students into paying back those loans while still in school.”

The Bureaus wants the courts to halt these practices and grant relief to people who have taken out more than $500 million in private student loans.

As I wrote in my Reuters column “What to do when your college shuts down,” Corinthian is in the process of closing or selling its schools as part of an agreement with the U.S. Department of Education. People who have federal student loans have a shot at getting their debt discharged when a school closes, but those with private student loans are often stuck with the debt, even if they get no value from the education.

If you or anyone you know attended a Corinthian school, getting educated about your options is key. (The CFPB posted information for current and former students here.) So is alerting the CFPB if you feel you were deceived about the value of your education or your career prospects. You can file a complaint here.

 

Should your credit card issuer have to give you free credit scores?

Zemanta Related Posts ThumbnailThe Consumer Financial Protection Bureau today called on major credit card issuers to provide free scores to their customers on their statements or online. The regulator’s idea is that low scores could tip people off to problems in their credit reports–problems they might not otherwise find, since too few people get their free credit reports each year.

Creditors use a variety of scores to evaluate and monitor their customers–scores that measure everything from the likelihood of default to the likelihood the user will stop using the card. It’s the score that measures the likelihood of default that the regulators want customers to see.

I believe you should be able to see any score that’s used to evaluate you, and that you shouldn’t have to pay for it. Getting scores from your credit card company could be a good start, assuming the companies aren’t allowed to sub in some “FAKO” score that no one actually uses.

The problem comes in the execution. Seeing their scores is likely to make a lot of people upset, and not just the folks with low scores. People with high scores usually want to know why their scores aren’t even higher. Credit card companies may not want to mess with having to explain how scores work or take the heat for a process they don’t control. (Credit scoring formulas are created by other companies, like FICO-creators Fair Isaac, and applied to data held by the credit bureaus.)

We’ll have to stay tuned to see if any major issuers bite. In the meantime, you can get free scores from sites like Credit.com and Credit Karma, although they aren’t the FICO scores most lenders use. For those, you’ll need to go to MyFico.com and pay.

New tool helps you compare financial aid offers

You’ve gotten the college acceptance letters, and their accompanying financial aid offers. But how do you really decipher how much college will really cost you? More than 1.5 million students and their families are wrestling with these issues, and the Consumer Financial Protection Bureau wants to help. The bureau just announced a tool that can help you evaluate your options. From the CFPB press release:

The beta version of the Financial Aid Comparison Shopper has more than 7,500 schools and institutions in its database, including vocational schools and community, state, and private colleges. It draws information from publicly available data provided by government statistical agencies. With the prototype, students and their families can compare the following across multiple financial aid offers:

·         Estimated monthly student loan payment after graduation;

·         Grant and scholarship offers;

·         School-specific metrics such as graduation, retention, and federal student loan default rates; and

·         Estimated debt level at graduation in relationship to the average starting salary.

The Financial Aid Comparison Shopper also includes a “Military Benefit Calculator” that can estimate education benefits for servicemembers, veterans, and their families. The calculator includes military tuition assistance and Post-9/11 GI Bill benefits.

You’ll find a link to the cost comparison tool here. Take a look, run some numbers and give the CFPB your feedback.