Protecting Seniors from Financial Exploitation

Transcription

1 Fair Housing Legal Support Center & Clinic Protecting Seniors from Financial Exploitation

2 What makes seniors vulnerable to financial abuse? Senior citizens (those aged 65 and older) are particularly vulnerable to financial exploitation. Seniors with substantial assets can become victims of unscrupulous fraudsters seeking to strip the financial resources they have accumulated over a lifetime of work and savings. Even those seniors with less than adequate means generally have some fixed income and can be prey for dishonest or deceptive lending schemes that take advantage of unfamiliar banking technology or unsuitable and confusing financial products. In either case, fraudsters regard seniors as easy pickings. Also, many seniors do not want to burden their children or others close to them about their financial affairs. They have spent their lives looking out for others and do not want to appear vulnerable to those around them. Therefore, many seniors do not seek advice before committing their resources to schemes that may not be in their best interest. Many financial exploiters gain the trust of seniors because they share a common race or ethnicity, speak the same language, belong to the same religion, or otherwise take advantage of common interests that cause the senior to give them special trust. The impact of financial exploitation of seniors can be especially devastating because seniors have less opportunity to recover, both in time and in employment options. A senior s best defense against such exploitation is knowledge of the threat and what steps can be taken to avoid it. This booklet was prepared (1) to help seniors become more aware of the danger these threats can pose to their financial well-being; (2) to arm seniors with knowledge to help recognize the signs of financial predators and their deceptive acts, frauds, and scams; and (3) to inform seniors of resources available to assist them if they believe they are being victimized by financial predators. This booklet does not cover mortgage lending or reverse mortgages. 2 Protecting Seniors from Financial Exploitation

3 What is financial exploitation of seniors? Financial exploitation of seniors covers any of the following: Using coercion, undue influence, or deception to convince someone to sign a power of attorney, deed, will, bank access, or other legal document. Using deception, trickery, dishonest statements, or false pretext to induce someone to enter into a financial transaction that is financially detrimental to the victim and financially beneficial to the fraudster. Using deception or false statements to induce someone to send money or reveal credit-card or other banking information. Misusing a position of trust for personal financial gain. Inappropriately using legitimate financial products and tools to the detriment of a senior. What is predatory lending? There is no single, specific definition of predatory leading. Rather, it is a type of financial exploitation involving the loan of money through financial products, practices, pricing, and loan terms that are purposefully advantageous to the lender and disadvantageous to the borrower. Seniors are vulnerable to products that are packaged, accessed, and administered in unfamiliar ways or with unfamiliar technology. Any of the following lending practices or combinations may be indications of predatory lending: Unfair or abusive loan repayment terms. Actions or processes that hinder a borrower s ability to repay the loan. Excessively high interest rates. A disregard for the borrower s ability to repay a loan. Fair Housing Legal Support Center & Clinic 3

4 What is predatory lending? (Continued) Excessive pre-payment penalties that are intended to keep borrowers from terminating high-interest payments. Mandatory arbitration clauses. Deceptive or coercive actions to include provisions that the borrower didn t ask for, need, or want. These can include: Unnecessary life insurance policies. High-cost homeowners insurance or a requirement to purchase excessive coverage. Targeting vulnerable groups, such as minorities, non-english speakers, the poor, and the elderly, to take advantage of a borrower s lack of financial knowledge. Preying on vulnerable people in dire need of immediate cash to pay unexpected or emergency bills, people who have lost their jobs, and people with poor credit. The consequences of predatory lending can be particularly detrimental to seniors and create severe financial hardship for entire families. These can include: A nearly unbreakable cycle of debt or an unmanageable debt burden, Ruined credit ratings, The loss of one s financial assets, vehicle, or home. Seniors often live in older housing that needs repair. Seniors should be especially wary of having work done by contractors whom they do not know and who offer them package deals that include home financing. Often the work is shabby, if done at all, and the financing is costly. Their homes end up in worse condition than they were in originally. Seniors need to make certain that the work is done by competent contractors, and they should shop around before committing themselves to a long-term loan or mortgage arrangement. 4 Protecting Seniors from Financial Exploitation

5 What should a senior know about short-term payday loans? Payday-type loans are short-term loan products intended to be repaid with interest in two to four weeks in a single repayment. The annual percentage rate associated with payday loans is often in the triple digits as high as 390% or more. These products are offered as a quick and simple solution to a need for immediate cash until the borrower s next paycheck. All too frequently, however, the borrower is unable to make the payment and is forced to take a new loan to repay the previous one and interest. With each loan, the lender earns additional processing fees in addition to interest, not only on the original principal, but on the outstanding interest as well. Thus, what started out as a short-term need for a relatively small amount of cash can ultimately lead to an overwhelming spiral of unmanageable debt. Although the cost of payday loans remain high, the 2011 Illinois Payday Loan Reform Act (PLRA) affords some protection. Three types of such loans are allowed in Illinois: Payday Loan: Very high interest rates; loan must be repaid in two to four weeks. After 35 days, borrower may request an interest-free repayment plan. Lender cannot make a new payday loan if it would put borrower in debt for more than 45 days in a row. Payday Installment Loan Very high interest rates; loan scheduled to be repaid within six months. Lender cannot roll over the loan into a new one if the debt period goes beyond six months. Monthly payments cannot exceed 22.5% of the borrower s gross monthly income. Fair Housing Legal Support Center & Clinic 5

6 What should a senior know about short-term payday loans? (Continued) Small Consumer Loan. This loan cannot be offered by a lender who makes actual payday loans. Interest rate is capped at 99% APR and may be negotiated lower. Repayment terms generally are a year or more. The lender cannot roll over the loan into a new loan within the first 75 days of the loan repayment period. Monthly payments cannot exceed 22.5% of the borrower s gross monthly income. How do car title loans operate in Illinois? Like payday-type loans, car title loans are aimed at consumers whose poor credit prevents them from obtaining loans from banks or credit unions. While such loans are illegal in many states, they are permissible and regulated in Illinois. They should be considered a last-resort means to obtain emergency cash. Borrowers should understand that when a loan is made using a car as collateral, they risk losing the vehicle if they can t repay the loan, and the vehicle is repossessed by the lender to satisfy the debt. In Illinois: These short-term loans are expensive and interest can reach triple-digit annual percentage rates; however, the lender is restricted to charging simple interest only, which is calculated in equal monthly payments. This means the lender cannot charge interest on interest as is allowed on payday loans. The borrower must possess the actual, physical title of the vehicle. The title is surrendered to the lender in exchange for cash. The cash becomes the principal of the loan that must be repaid with interest. 6 Protecting Seniors from Financial Exploitation

7 The lender is required to verify the borrower s income in order to validate the borrower s ability to make the monthly payments. Balloon payments are not permitted in Illinois so the monthly payments (principal and interest) must be divided into equal parts. Car title loans are capped at $4,000, and the monthly payments cannot exceed 50% of a borrower s gross monthly income. Borrowers should be certain they can meet the repayment terms before signing the loan documents. A car title borrower may pay off the loan early to avoid additional interest. If paid in cash, the lender must return the title within 24 hours. If paid with a check, the lender may take an additional five days to make sure the check clears. Borrowers may have only one car title loan at a time and must wait 15 days after paying off one before taking out another. If the borrower fails to make repayment, and the car is repossessed and sold to satisfy the debt, the lender must return any surplus from the sale to the borrower. Fair Housing Legal Support Center & Clinic 7

8 What should a borrower be aware of when purchasing a vehicle from a Buy Here, Pay Here (BHPH) auto dealer? BHPH used car lots are often the last resort for car buyers with poor credit who need a car. The dealer first determines how much he is willing to lend the buyer, then selects which cars are available for that loan amount. The most common problem with these arrangements is that frequently an overpriced vehicle is sold with a high interest rate loan to someone with cannot afford the payments. As a result, there is a high repossession rate in these transactions. The Truth in Lending Act (TILA) offers some consumer protection in these deals. The car dealer is the actual lender and is responsible to accurately disclose (1) the cash price of the vehicle and (2) the total amount financed. Failure to do so can result in the loan being rescinded. Some BHPH dealers require borrowers to make monthly payments in person at the car lot. This can facilitate repossession if the borrower is late with the payment or has missed a payment and drives onto lot to make a payment or seek refinancing. Some franchise car dealers self-finance car sales to buyers with poor credit and may offer a better deal than a BHPH lot. Consumers should always shop around and not simply presume they do not qualify for conventional car financing. 8 Protecting Seniors from Financial Exploitation

9 How do tax refund anticipation loans operate? Tax refund anticipation loans are expensive, very short-term bank loans brokered by a borrower s tax preparer based on the borrower s anticipated tax refund as collateral. Illinois law caps interest rate of such loans at 100% APR. The borrower s tax refund is deposited directly to the bank to repay loan, thus the interest period is usually one to two weeks. Tax preparers generally charge a variety of fees to process the loan application and may charge more for the actual tax preparation in exchange for this service. The loans are sometimes described as instant cash advances, which can mask the fact that the product is actually a loan that must be repaid. Such a loan product does not appreciably reduce the time it takes to receive a tax refund. What are some warning signs of a financial scam or fraud? While scams and frauds come in a wide variety of forms, there are some common telltale indications: A phone call or seeking to validate a senior s credit card number or bank account, sometimes asking for the numbers printed on the bottom of a check. Pressure to make a quick decision because of the limited availability of the offer. Any telephone or offer of any kind that insists on secrecy. An unsolicited phone call or offer requiring a large pre-payment before the unsolicited product or service can be delivered. Fair Housing Legal Support Center & Clinic 9

10 What are some warning signs of a financial scam or fraud? (Continued) A good rule of thumb: good deals for the recipient generally don t come knocking on their door. There is a reason someone is offering a special deal and it is almost always for the benefit of the one offering it. The best defense against telephone scams: Hang up, even if the offer or request sounds legitimate. Asking the caller to mail the offer can provide the caller with information they may not have had before: confirmation of a name with an accurate address and a working phone number. How do scammers and fraudsters find seniors? The most common method of finding seniors is to purchase information from companies that sell marketing data such as names, addresses, and phone numbers. Legitimate companies use such data to sell their products and services; fraudsters use it to cheat people. Another source is information consumers provide themselves when they fill out surveys or apply for giveaways or sweepstakes. Fraudsters also sell or trade lists of victims of previous scams and frauds. Scammers can validate a working phone number by using a computer to robocall a list of numbers and simply determine which ones were answered. The person called answers the phone, but there is no one on the line. A senior s best defense is to have a phone with caller ID and not answer any number that is unfamiliar. A legitimate caller can leave a voice message with a call-back number. 10 Protecting Seniors from Financial Exploitation

11 What are some common frauds and scams that target seniors? Although there are many variations, there are some basic types of tried and tested scams that have cheated seniors for years: IRS imposter agent scam. A caller represents that the taxpayer has a tax delinquency that must be settled immediately by sending money or providing a credit card authorization in order to avoid dire consequences. This is a 100% fraud. The IRS always initiates an action or inquiry with a taxpayer in writing. Best defense: Hang up. Identity theft scams. A caller claims to be from Medicare, an insurance company, bank, or health care agency requesting validation of such items as social security number, bank account number, credit card numbers, driver s license number, birth date, address, or other personal information. Best defense: Hang up and call the bank, credit card customer service, or health care provider directly. Seniors should not provide any personal information by phone unless they initiated the call themselves. Grandchild in trouble scam. A young person or someone claiming to represent a grandchild calls and frantically pleads for money to be sent or wired to get loved one out of jail. The caller may have enough information to make this sound plausible. Distraught grandparents often act without checking the facts. Best defense: Take the contact information from the caller and verify the situation with other family members before doing anything else. Fair Housing Legal Support Center & Clinic 11

12 What are some common frauds and scams that target seniors? (Continued) Dating and lonely hearts scams. Variants to these types of confidence swindles have always been a favorite ploy of fraudsters and con artists who take advantage of seniors seeking love or companionship. The internet and social media have made it easier than ever to initiate contact, gain a senior s trust and affection, and obtain money from them. Scammers have also targeted faith-based dating sites in order to take advantage of the likelihood that potential victims would be less likely to suspect someone of their own faith to be a con artist. Best defense: Be careful. Using a legitimate dating service can provide a buffer and some additional verification of the other person s identity. Prepaid debit card scams. Prepaid debit cards can be useful to help a person keep their debt under control; however, if the card is not associated with a bank account, the funds are not insured and the user may not have legal recourse to recover their money if scammed. These cards do not provide the consumer protections that credit cards do. Card identification theft. Using cell phone cameras, criminals can film a prepaid card user at a checkout counter or ATM or gas pump and obtain both the card s number and the user s personal identification number (PIN) code. The fraudster can then create a counterfeit card or make telephone or online purchases and drain the funds from the card. 12 Protecting Seniors from Financial Exploitation

13 Best defense: A senior should always cover the PIN pad when making a purchase or ATM withdrawal and be aware of someone standing behind or too close to them when using the card. They should also regularly check the balance on the card. On-line prepaid card scams. Online payday lenders have charged as much as a $50 fee for a prepaid debit card with a zero balance as part of the application for a payday loan. Other online fraudsters have enticed victims to provide a prepaid debit card in order to receive funds for bogus sweepstakes or lottery winnings, non-existent inheritances from an unknown distant relative, or as part of an scheme to help the fraudster move a large amount of phantom funds from one country to another. Best defense: Be aware of the high risk associated with doing business with unknown parties on the Internet. Power of attorney abuse. Seniors are vulnerable to having money misappropriated by relatives, a helpful neighbor, or personal assistants who have been given power of attorney over the senior s financial affairs. If seniors need help managing finances or paying bills, they should be sure that person can be trusted completely. It is best to have an attorney who represents them draft a document providing power of attorney to accomplish the limited transactions needed. Fair Housing Legal Support Center & Clinic 13

14 What are some of the legal protections seniors have against financial exploitation, predatory lending, and financial scams? Federal laws The Truth in Lending Act (TILA) requires lenders to make accurate written disclosures of the actual amount of money financed and all finance charges, including interest, payment schedule, and annual percentage rate of interest (APR). Denial of credit or discriminatory credit treatment on the basis of age is a violation of the Equal Credit Opportunity Act (ECOA). Fair Debt Collection Practices Act (FDCPA) protects debtors from harassment by debt collectors. Prohibited acts include: Calling before 8 a.m. or after 9 p.m. Using abusive language or profanity Leaving voice messages without identifying themselves as a debt collector and a call-back number Making threats Telling others about the debt Making repeated calls in a short time span Leaving the impression that the caller has some connection with the police, sheriff, or any government agency. State and local laws and ordinances Illinois Consumer Fraud and Deceptive Business Practices Act prohibits businesses from making false or misleading statements to sell a product or service and gives consumers a means for recovery if violated. Illinois Payday Loan Reform Act offers borrowers some breathing room to help prevent an endless cycle of short-term debt Illinois Motor Vehicle Retail Installment Sales Act requires a sales contract to clearly indicate the finance charge and any charges other than the cash price of the vehicle. 14 Protecting Seniors from Financial Exploitation

15 How can government agencies be contacted for help or more information? Federal The Consumer Financial Protection Bureau The Federal Trade Commission State and local Illinois Attorney General filecomplaint.html Illinois Department of Financial and Professional Regulation (IDFPR) or Illinois Department on Aging Cook County Commission on Human Rights City of Chicago Commission on Human Relations City of Chicago Division of Business Affairs and Consumer Protection consumer.html Other local governments may have their own commissions or agencies to address lending problems that are unfair or predatory. Fair Housing Legal Support Center & Clinic 15

16 The John Marshall Law School Fair Lending & Home Preservation Law Project The John Marshall Law School Fair Housing Legal Support Center has been in operation since The Fair Lending & Home Preservation Law Project was established in It currently provides financial education to city residents (particularly seniors), advocates, housing counselors, law students, and attorneys under a grant from the City of Chicago s Department of Planning and Development. The John Marshall Law School Fair Housing Legal Support Center & Clinic 315 S. Plymouth Court Chicago, Illinois Phone: Fax: fairhousingcenter@jmls.edu The work that provided the basis for this publication was supported by funding under a TACIT grant from the City of Chicago, Department of Planning and Development. The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication. Such interpretations do not necessary reflect the views of any City of Chicago government entity. Fair Housing Legal Support Center & Clinic 315 S. Plymouth Court, Chicago, Illinois 60604