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    Alternate Credit Scoring Gaining Support

    New methods would work better for those with "thin" histories

    The heavy reliance on credit scores to determine a person's "worthiness" for loans has led to the exclusion of many otherwise responsible citizens from the chance to purchase a home, a car, or any sort of collateral.

    "Thin credit" histories often trap consumers into accepting deals with higher interest rates and predatory terms, which disproportionately affects black and Hispanic borrowers.

    Now there is increasing support for the use of "alternate" credit scoring -- building a financial history through paying bills or other means besides using credit or debt -- to gauge a borrower's ability to handle their money.

    A recent study by the National Association of Hispanic Real Estate Professionals found that one-third of the respondents couldn't get loans for their clients because they had little to no "traditional" credit records, and that many of their borrowers had to pay exorbitant rates as a result.

    If the mortgage and financial industries embraced alternative credit scoring as a means to encourage home ownership within the growing Hispanic market, it would inject as much as $200 billion in capital into a slumping industry, the report said.

    The Association joined a growing chorus of business professionals, lenders, and analysts calling for greater implementation of "alternate" credit scoring, utilizing payment of bills and rent to recalculate a borrower's overall "responsibility."

    Alternate credit scoring is already practiced by many businesses, after a fashion. Many utilities regularly report customer payment data to the major credit bureaus. If a customer misses a single bill payment under the principle of "universal default," their credit scores could drop and their borrowing interest rates would rise accordingly.

    The town of Havelock, North Carolina recently introduced a new policy that grades customers' utility payment deposit on their paying history, a trend being repeated across the state.

    Havelock's finance director, Lee Tillman, said the new system would reward customers that pay regularly and on time, while recovering losses from customers who do not.

    "Thin credit" advocates are pushing for credit reporting agencies and businesses to regularly document positive payment data on a wider level, in the hopes that it will grant more consumers the chance to enjoy the benefits of property ownership without taking on heavy debt.

    Leading "alternative" credit bureau PRBC (Payment Reporting Builds Credit) recently obtained a patent for the system it uses to track and record monthly bill payments and develop credit files from the information.

    PRBC chairman Michael Nathans said the move "recognizes PRBC's technologyfor storing and scoring that data to produce a report indicating the payer's creditworthiness, specifically their willingness and ability to make timely payments."

    Corey Stone, PRBC's CEO, also touted the value of credit scoring as a way for banks and insurers to lure otherwise ignored customer groups to use their products.

    "It gives banks and credit unions a new way to help their customers build credit and secure their financial futures, while supporting higher depositor retention and cross-selling with the institution's credit and insurance products," he said.

    "Thin credit" histories often trap consumers into accepting deals with higher interest rates and predatory terms, which disproportionately affects black an...

    Payday Lenders Fleece Consumers for $4.2 Billion A Year

    Average Borrower Pays Back $793 For a $325 Loan

    Consumers who borrow money from so-called "payday lenders" end up paying $4.2 billion in excessive fees, according to a new report from the Center for Responsible Lending.

    The group's study finds that across the nation payday borrowers are paying more in interest, at annual rates of 400 percent, than the amount of the loan they originally borrowed. "Americans who think they're getting a two-week loan and end up trapped in debt," the report says.

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    Efforts to reform the industry aren't working, the group claims. It says lenders still collect 90 percent of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies.

    The significance of that statistic hits home, it says, when you consider the payday loan industry now exceeds $28 billion a year.

    The group said it used data collected by state regulators, financial records released by payday lenders, and assessments by third-party analysts, to update its 2003 quantification of the cost of predatory payday lending to American families.

    Among the report's findings:

    • Ninety percent (90%) of payday lending revenues are based on fees stripped from trapped borrowers, virtually unchanged from our 2003 findings. The typical payday borrower pays back $793 for a $325 loan.

    • Predatory payday lending now costs American families $4.2 billion per year in excessive fees.

    • States that ban payday lending save their citizens an estimated $1.4 billion in predatory payday lending fees every year.

    "Payday loans sink borrowers into quicksand-like debt," said Michael D. Calhoun, CRL president. "Borrowers end up paying more in interest -- at rates of 400 percent -- than the amount they originally borrowed. But by addressing payday lending squarely with a 36-percent APR cap, state lawmakers can get working Americans back on solid financial ground."

    Julian Bond, chairman of the NAACP said his organization is committed to fighting abusive financial practices like payday lending.

    "This is hard-earned cash being siphoned out of the wallets of working people," said Bond. "This $4.2 billion is much-needed monthly benefits being squeezed out of the pocketbooks of retired and disabled folks. This $4.2 billion should be helping people stay firmly put in the middle class, rather than keeping them trapped in the quicksand of poverty."

    Payday loans are marketed as short-term cash advances on the borrower's next paycheck. But previous research has found -- and this study confirms -- the industry depends on repeat business or "flipped" loans. In fact, 90 cents of every dollar payday lenders make comes from Americans caught in the debt trap -- those borrowers who are flipped into loan renewals five or more times per year.

    The new report finds the average payday borrower pays back $793 for a $325 loan.

    In spite of public scrutiny and recent attempts by state policymakers to reform the practice, repeat loans have only been eliminated in states that don't allow payday lending. These "safe" states -- Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont, and West Virginia -- hold all lenders to their consumer loan laws, which usually include a double-digit interest rate cap.

    "We join with the Center for Responsible Lending in calling for laws in every state in the nation that will protect the earnings of working people," said Jean Ann Fox, director of Consumer Protection for the Consumer Federation of America.

    "In states that enforce reasonable limits on annual interest rates, payday lending is simply not a problem." Congress recently adopted this approach when the Pentagon sought protections for their troops from payday lenders. The Defense Authorization bill President Bush signed in September included a 36-percent interest rate cap on consumer loans to military families.

    Payday Lenders Fleece Consumers for $4.2 Billion A Year...

    People to People Does It Again

    Letter Invites Long-Dead Child to be an "Ambassador" for $5,000

    It's happened again. For at least the second time in less than a year, the marketing company for a non-profit organization -- founded by President Dwight D. Eisenhower -- has sent a letter to the parents of a deceased child stating their teenager was named for an educational trip overseas.

    This time, the parents live in New Port Richey, Florida.

    They received the letter in August, 2006, stating "a teacher, former Student Ambassador, or national academic listing," named their daughter for this honor.

    Their daughter, however, died in 1992. She was 18 days old and suffered multiple birth defects.

    "It Makes You Very Angry"

    "It makes you very angry because it makes you wonder how they could do that to someone," the child's mother told WFTS in Tampa-St. Petersburg, Florida. "When they die you never forget, I mean, every day you think of themthere's no excuse ... it just re-opens the whole death all over again."

    The girl's father called the letter "tear-jerking" and said "it eats you up inside."

    In September 2005, a mother in Iowa received a letter from the same organization stating her son was named for a Student Ambassador trip overseas.

    Her son, however, died in 1993. He was seven weeks old.

    Iowa Calls It Misleading

    The Iowa Attorney General's Office criticized the group's letter, saying it misled parents into "believing that their child was selected on merit when that is not the case, and that parents may be manipulated into making substantial expenditures they might otherwise decline to make."

    Iowa officials discovered the organization also misled parents during its in-person presentations.

    "(Those) also convey the message that students are specially selected as an honor," said Iowa Assistant Attorney General Steve St. Clair. "And we found that representatives with whom our investigator had phone contact described the program in the same manner."

    In June, 2006, the organization agreed to modify its letter and presentations.

    But parents across the country told ConsumerAffairs.com the organization continued to send its misleading letter -- and dupe students into believing they were hand-picked for expensive trips abroad. The trips cost an average of $5,000.

    Some parents received a letter as recently as October, 2006.

    Letters Come From People To People

    The non-profit organization behind these letters is People To People International, which President Dwight D. Eisenhower founded in 1956.

    People To People International is headquartered in Kansas City, Missouri. President Eisenhower's granddaughter, Mary Jean Eisenhower, is the group's president and chief executive officer.

    "We all feel very badly that this has happened," Eisenhower said earlier this week of the letter sent the Florida parents. "This was a matter of human error. It was a mistake and we're trying to make it right. Our intent is to spread happiness -- not to hurt people."

    When asked what action her organization will take in the wake of the Florida incident, Eisenhower referred questions to the president and chief executive officer of the for-profit company that markets the Student Ambassador programs.

    Ambassador Group Responds

    That company is the Ambassadors Group, Inc., based in Spokane, Washington. It sends letters to students nationwide on People To People letterhead.

    Jeffrey D. Thomas is president and CEO of the publicly-traded Ambassador Group, Inc. (EPAX). He also lists his title as CEO of People To People, which Eisenhower says he has contractual authority to do.

    "We're trying to work out a solution with the family in Florida," Thomas said. He declined to elaborate. After the incident in Iowa, People To People donated $5,000 to the Iowa SIDS Foundation and $20,000 to Blank Children's Hospital.

    Thomas said a list service his company uses provided the name of the Florida child. But People To People, he said, may fire that service.

    "We've told them that unless we know where you're getting these names -- and can assure us they're not deceased children -- we're not interested in working with you," Thomas said, adding the list service uses multiply sources to gather names.

    Wording Of Letter Changed

    Thomas also said People To People has changed the wording of its letter.

    "We've moved quickly to make sure this doesn't happen again," he said. "We've changed the letter's wording so that there will be no way people can misconstrue anything about how we came to get their child's name. Our letter won't say their child was named or nominated unless we can trace the source. The letter will talk about the benefits of the program."

    He added: "This is devastating. And we're investigating how it happened. Our goal is to do the right thing and we're working to get this fixed."

    Thomas said the letters stating students were named by a "teacher, former Student Ambassador, or national academic listing," went out as recently as October, 2006, because "they were already in the pipeline."

    He also said he's not aware of any other letters going to parents who lost a child years ago.

    The parents in Florida hope that's true. They don't want another family to suffer like they did because of People To People's letter.

    "I want them to clean up their act," the girl's mother told WFTS. "It's just unfair to everyone."

    People to People Does It Again...

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