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The Importance of Financial Knowledge and Discussions

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This week, the MagnifyMoney team has been in Greenville, South Carolina. In partnership with the Greenville Chapter of the Rainbow Push Coalition, we are holding a series of workshops and financial literacy seminars with community groups. We have also done the research on the local community banks and credit unions to help people make the best banking choices.

When I created MagnifyMoney with Brian, I had three simple goals:

  1. For people who are already financially literate, we want to have the easiest price comparison website with the best deals. You should never be able to find a higher savings account interest rate or lower credit card interest rate at any other website. And we can do that because we rank products based upon the value to the consumer, not the commission to MagnifyMoney (and we currently receive no commissions)
  2. For the people who don’t feel comfortable making financial decisions, we are designing actionable financial literacy courses and workshops. These are not theoretical classes, filled with equations and tax code. Instead, we help make it easy for you to have the confidence to compare, ditch, switch and save.
  3. For the banks, we have designed a transparency score that rewards the simplest products. And we have a blog that allows us to compliment those organizations that take good care of their customers. But, equally, we are not afraid to shame those organizations taking advantage of people or designing poor products.

To bring number two to life, we committed to spending at least 30 percent of our time out of our offices, and on the road. From classrooms at Brooklyn College to childcare centers in Chattanooga to churches in Greenville, the MagnifyMoney team provides hands-on financial help.

Our Trip so Far

Yesterday, we had a wonderful day with the Upstate Fatherhood Coalition. We hosted a few sessions during the day, and we received a ton of really good questions.

Some of the hottest topics:

  • How to deal with a collections agency, especially for medical bills
  • How to improve your credit score, especially if you are already 35 and don’t have any credit.
  • How to avoid overdraft fees, which hit almost everyone in the room
  • How to get out of payday / title loan traps

We had great conversations, and spent a lot of time talking about Internet-only banks (who have eliminated overdraft fees), and secured cards (which can be really useful for improving credit scores).

We also had the chance to meet with a brand new local credit union. Its goal is to help graduate people from payday loans to non-predatory loans. In order to get the loan (which can charge no more than 18% interest), the borrower has to complete a financial literacy program. Upon successful completion, he or she can refinance up to $5,000 of high interest loans. One woman in particular was moved from a 700% APR payday loan to 18%. And she is paying on time.

But, the best part of this is the mandatory savings element. When her interest rate was reduced at the new credit union, her payments became much lower. However, they don’t let her keep all of that. Instead, they take a portion of the monthly savings and put it into a savings account at the credit union, building the discipline to save.

The manager of the credit union is truly inspirational – and I’m pleased to see these types of efforts at the mico level. The big challenge: how can we scale organizations like this so that a real alternative exists to payday lenders.

Greenville Banks 

Any time we travel, we spend a lot of time looking at the local banks. And this trip is no different. We have reviewed the Top 20 local banks.

Unfortunately, the pattern that we see on the national stage is similar here in Greenville. The average overdraft fee here is $33, similar to the big mega-banks. And, the interest rates paid on deposits are low. The average savings account interest rate is 0.11%.

The Internet-only banks continue to win on fees, interest rates and digital experience.

There is real value – especially for small businesses – to having a local bank. They understand your business and can take care of you when you are in difficulty. But for consumer accounts, the Internet-only accounts just keep winning. I hope to arrive in town one day and become completely surprised by a community bank, but I haven’t yet.

And the city 

Greenville is a beautiful city, with an amazing restaurant culture. The MagnifyMoney team has been well fed by our friends in Greenville, and will miss the real Carolina sweet tea when we head back north.

Greenville_food

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Banking On Our Military: Protecting Service Members from Abusive Financial Practices

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Today we honor the men and women who defend our freedom. In this country, we are extremely fortunate that so many brave Americans volunteer to serve in our armed forces. At incredible personal sacrifice, they go to some of the most dangerous corners of the world to make sure that we remain safe here at home.

My father served in the Army, and I have quite a few extended family members who have also served. I often think about my cousin, who is a nurse in the Navy. I very rarely see her, because she is constantly being sent all over the world. She has served in Afghanistan a couple of times, and often disappears without being able to tell us where she has been. I have so much respect for her willingness to drop everything and do what is asked of her. And, when I thank her, she tells me it is no big deal. And in her mind, it is not a big deal because so many other people who are ready to risk their lives, without hesitation, surround her.

On behalf of the entire team at MagnifyMoney, I want to thank all of the men and women of the armed forces for their service.

Although so many of us show our gratitude for the service of our veterans, there are some people who take advantage of our men and women in uniform, particularly in financial services. Some of the worst offenses include:

  • Debt collectors, who engage in illegal and abusive practices, targeted particularly at service members
  • Payday loan companies, who often use patriotic imagery and set up shop near bases, and charge extortionate prices
  • Banks, particularly targeting service members, with outrageous overdraft fees (a form of payday lending)
  • Mortgage companies (particularly servicing companies) that deny service members the protections that they deserve under the law
  • Large banks that make it too difficult to receive the protections of the Servicemembers Civil Relief Act (SCRA)
  • Any financial organization that doesn’t give our service members the benefit of the doubt

Uncle Bill 2Some businesses make a strategy out of exploiting our men and women in uniform, and their unique living situation. Fortunately, the CFPB has created an Office of Servicemember Affairs, led by Holly Petraeus. If you have experienced difficulties or unfair treatment from a financial organization, you can complain online to the CFPB, by clicking this link. They have a dedicated team that deals with service member complaints, and to-date have helped return $200 million to men and women in uniform.

We will deal with each of the biggest issues below.

Debt Collectors

Service members are uniquely at risk: credit defaults (failure to pay your bills) can result in having your security clearance revoked under the Uniform Code of Military Justice. And collection agencies know that.

Some collection agencies are particularly aggressive, and they will:

  • Contact your chain of command, trying to humiliate you into payment
  • Contact your spouse, making threats
  • Demanding payments from widows immediately, trying to get their hands on the death benefit

This happens far too often, and it is repulsive.

Remember that you have rights, and you do not have to tolerate abusive and illegal debt collection actions. Our recommendation:

  1. Make sure, particularly before a deployment, you have a power of attorney given to someone who can negotiate on your behalf with the debt collection agency. Typically this is a spouse or a parent.
  2. Immediately report any illegal contacts from the agency to the CFPB. Remember: they cannot contact your chain of command. They can only speak to you or someone you designated about your debt
  3. Restrict their ability to contact you, in writing. Below is a sample letter that you can use:

Dear [Debt collector name]:

I am responding to your contact about collecting a debt. You contacted me by [phone/mail], on [date] and identified the debt as [any information they gave you about the debt].

You can contact me about this debt, but only in the way I say below. Don’t contact me about this debt in other way, or at any other place or time. It is inconvenient to me to be contacted except as I authorize below.

You can only contact me at:

[Mailing address if you want to get mail]

[Phone number and convenient times if you want to be contacted by phone]

[If correct, include the following] My employer prohibits me from receiving communications like this at work.

Thank you for your cooperation,

[Your name]

Payday Loans

It is very easy to get stuck in a payday-lending trap. Although a payday loan may feel like an easy solution when you have an immediate need for money, it can become an expensive debt trap that becomes impossible to escape.

Fortunately, there are alternatives for service members. PenFed (a credit union), has a foundation. They have created a program: ARK (Asset Recovery Kit). This is basically a way to escape a payday loan: PenFed will lend you $500 for a $5 fee. No credit report is pulled, no interest is charged, and it is confidential and fast. However, in order to receive the money you need to sit with a consumer credit counselor. I believe this is a good requirement.

You can learn more about this program, and apply here.

Banks – and their Overdraft Fees

Payday lending companies typically charge $15 to $20 for every $100 that you borrow for 2 weeks.

Overdrafts on basic checking accounts can be even more expensive: they can be over $35 per incident. And some of the worst banks are the ones that target the military. When we recently reviewed the fees charged per branch, the absolute worst performer was Fort Hood National Bank, which targets the military. It makes $1.3 million per branch on banking fees – which is outrageous.

Given the mobile nature of a service member’s life, we recommend considering:

An internet-only bank, like Ally Bank has completely free ATM usage (including the reimbursement of other bank ATM charges anywhere in the US). In addition, there is no overdraft fee if money is transferred from your savings account to your checking account, and the overdraft fee is capped at $9 per day. You can compare that to other options on our checking account page.

There are certain financial organizations that target the military, and understand your unique needs. However, their overdraft fees are not always good deals, and their ATM networks are more limited.

cashRewards Credit Card from Navy Federal Credit Union: The Active Duty account is great if you can link a savings account or a line of credit. If you link a savings account, there is no fee for an overdraft transfer. And, if you need to borrow money, they offer a reasonable overdraft line of credit that is much cheaper than a payday loan or overdraft at a traditional bank. However, if you don’t have a line of credit or a savings account, you can be charged up to $60 per day in fees, similar to the large banks. In addition, you do receive $20 worth of ATM rebates per month (for active duty). If you go to the ATM 1 time per week, that should cover you.

Mortgage Companies 

Here is a common story: your house in underwater (you owe more money on your mortgage than your home is worth), and you receive a PCS (Permanent Change of Station). You feel stuck. When you call your mortgage company, they tell you that you don’t have any options.

They are wrong.

If you are in active duty (or just left), if you or your spouse have been injured in active duty, of if you have received a PCS, then you may be able to qualify for a military hardship on your mortgage.

Fannie Mae has created an entire resource guide here.

Freddie Mac has created a resource here.

I would recommend the following steps:

  1. Tell your mortgage company that you may qualify for military hardship, and you want to talk to a specialist. If you do not receive what you need, then
  2. Contact Fannie or Freddie (depending upon which one owns your mortgage). If your mortgage is not Fannie or Freddie, or you still don’t receive what you need, then
  3. Contact the CFPB Complaint Office.

Don’t wait to reach out. With mortgages, the earlier you reach out for help, the better.

In addition, you have certain protections from foreclosure. If you obtained your mortgage before you entered military service, than the lender is required to get a court order before they foreclose – even in states that do not require a court order. If the lender does receive a court order, and you can prove that you are unable to meet your financial obligations because of military service, the foreclosure must be stopped (or the mortgage adjusted).

Your SCRA Rights

When you join the military, you have certain protections under the SCRA (Servicemembers Civil Relief Act). Namely:

  • Any debt that you had before entering military service (including mortgages, student loans, credit cards and other loans) cannot charge an interest rate higher than 6% while you are in the military. That can be a massive reduction (especially on credit cards), and you should make sure you take advantage of it. Call your lender and tell them you are eligible for SCRA interest rate relief. (Some banks, like Chase, will reduce the interest rate further. Others, like Bank of America, charge the full legal max)
  • You cannot be evicted if your monthly rent is less than $3,047.45 per month.
  • You have protection from foreclosure (as detailed above)

There are some additional rights – which are summarized well here.

Common Decency

Sometimes banks just lack common sense. When my cousin was deployed, she ended up paying her credit card bill a week late. (She couldn’t pay earlier because she was on a ship in the Pacific, called at a moment’s notice). The credit card company charged her a late fee and increased her interest rate. When she explained that she was in the Navy, they didn’t budge.

Everyone is rushing to wave the red, white and blue on Veteran’s Day. But real patriotism is not taxing our service members with obscene charges. That ranges from the small (nickel and diming on late fees) to the outrageous (harassing a widow, illegally, within 24 hours of her husband’s death to collect on a payday loan).

To all service members: I thank you for your service. I encourage you to reach out to us ([email protected]) if we can be of any help. And I urge you to complain to the CFPB if you run into trouble. You make too many sacrifices on our behalf; banks and lenders should not have the ability to take advantage of you.

Uncle Sam image taken from Creative Commons.

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MagnifyMoney’s Mission to Increase Financial Literacy

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At MagnifyMoney, we are passionate about increasing financial literacy and financial education. We have been working on developing a basic financial literacy course with Brooklyn College over the last few months, and on Monday I tested out that curriculum on the first 17 students, all of whom are freshman.

I always enjoy getting out of the office, meeting people and listening to their stories. And I had the great fortune of meeting a wonderful group of college students, our financial literacy guinea pigs.

Our course had 5 components:

  • Understanding time perspective, and how that influences financial decisions.
  • Understanding the power of compounding interest
  • Understanding your credit score, and how important it will become
  • How to choose the best checking and savings account, particularly when free does not mean free
  • How to choose the best credit card, and should a college student even get a credit card?

In the class, only 35% of the students had received any prior financial literacy training before our session today. I feel like our education system is not adequately preparing our children for the big decisions that they need to make in college, and I am thrilled to be partnering with Brooklyn College to get them the information that they need early in their college careers.

They have made meaningful financial decisions by selecting a college and a financial aid (or scholarship) package. These student loans will be with them for a very long time, and will influence their financial lives in very meaningful ways. Students should be taught about compounding interest and debt well before they have to make decisions about financing their education.

In addition to student loans, they have become the focal point of bank marketing messages. One student has a checking account from Bank of America, and she opened the account after they arrived at her high school. Yes, banks were marketing at high schools! How can a student decide the appropriate checking account with confidence, if they are not taught about monthly fees, ATM fees and overdraft fees.

Most of the information that I shared with the students came as a surprise. Some of the biggest surprises:

  • Credit scores do not take income or expenses into account.
  • Banks are even allowed to charge $35 for a $6 overdraft. They thought that had to be illegal (and, quite frankly, so do I!)
  • Paying the minimum due will result in nearly 30 years of debt repayment, with the absolute cost turning into more than two times the original purchase price.
  • The power of compounding interest to work towards their advantage. They did not realize how much diligent, early savings could produce for retirement.

From my perspective, I can’t believe how banks continue to use branch locations and tradition (my parents banked there, so I will too) to recruit and keep customers, including the most digitally engaged generation every. The students told me about how they bought books (online), clothes (online), and even food (online). But, when it came to banking and credit cards, they just responded to what was in front of them, rather than price-comparison shopping online.

We need to educate people, starting at a very young age, about the true cost of banking and borrowing products. And we need to build a habit of comparing, ditching and switching. Once the students today realized how expensive traditional banking has become, and how good the other alternatives can be, they committed to behaving differently.

After the lesson, I spent a lot of time answering individual questions. It was great to see their engagement, and I hope I convinced a few people today. But I am excited to take the feedback and make the course even better. For far too long, banks have received far too much for too little. If we can train the next generation to become truly financially and digitally savvy, so much money can be saved.

We have big rollout plans for this course. So, I thank the first 17 for their feedback, and I will write more about our exciting plans soon.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.