Credit-Repair Firm Loses Its Credibility
Question: I am writing this letter in hopes of getting this story told and saving some others from going through the ordeal my husband and I have been going through for the last seven months. Due to a failing business, my husband and I were forced to file for bankruptcy about two years ago and moved to another area. In May, ‘86, we saw an ad in a paper for credit cards for persons who had had past credit problems.
In July, we filled out an application for a credit card and received a letter saying our application had been approved. We were given instructions on how to submit the necessary funds to receive the card. You have to deposit the amount of your credit limit plus $150. We sent in $650 plus a $45 processing fee.
Last November, we received a letter saying that our credit cards would be issued in about three weeks. We have written many, many letters, made many, many phone calls and gone through many rude conversations with these people, and to this day we still do not have our credit cards or our refund.
We don’t really know where else to go to try to keep others from falling into this trap. I wrote another letter to them today, and I also contacted the attorney general’s office to see if there is anything they can do.--L.C.
Answer: Sigh! I wish you had given me this outfit’s name and phone number, even though my experience with such “credit repair” companies has been just as dismal as yours--they tend to have the sort of sensitivity toward public exposure normally associated with large boulders. It’s been a long, long road.
First, the credit card was invented and half an hour later the “credit repair” industry sprang up to “help” consumers who, for one reason or another, had been turned down for a card.
“California was the first state to try to control these outfits,” states Marvin B. Kaplan, the spokesman for Houston-based Associated Credit Bureaus, “and that was back in ’85. Since then, about 14 other states, using California’s as the model, have passed similar legislation.”
Written Contracts Required
None of them actually outlaws the practice, though, but simply requires the firms to provide consumers with written contracts, specify the services to be performed, take no advance payments unless the company has posted a bond or has established a trust account, make no misleading statements about their services, agree not to advise consumers to make false or misleading statements to creditors or credit bureaus and so forth.
“New York,” Kaplan added, “went a step further in January, ‘87, and prohibited them from taking any fees until after they’d performed their services. It seemed to work at first, and they were dropping out of business like flies. But I called the New York people a few weeks ago, and the credit-repair outfits were right back in business again--they just moved over the state line into New Jersey or Pennsylvania.”
There’s a curious irony in this sort of “credit repair” work anyway, Kaplan pointed out. “Credit is really a promise to pay for goods and services at some time in the future. So, the minute you put up $500 in collateral to get $500 worth of ‘credit,’ it isn’t really ‘credit’ at all but a secured loan. And what’s that going to tell anyone about your credit worthiness?”
The people you contacted have at least added one new twist to the credit-repair scam--exorbitance. “They charged these people $150 over the $500 line of credit they wanted and then tacked on another $45 ‘processing fee’ ?
“Good grief, that’s $195 in charges to get a $500 credit line--39% up front!” Kaplan said, incredulous. Plus, of course, another 19% or 20% on the cost of the goods or services purchased with the card--if you ever get it. A couple of years ago the standard fee was $25 to $50.
“A credit card isn’t an end-all, be-all,” he continued. “You sure can live without one, and when you’ve been turned down two or three times by a credit card company, maybe you should rethink the thing--maybe they’re doing you a favor.”
If you persist, however, it’s always better, he continued, to try to make a deal with a local bank. If they won’t take you as a conventional card member, maybe they will if you post $500 as collateral--in other words, the same strategy these clowns charged you $195 to perform.
Notify Postal Inspectors
Unfortunately, in a case like this, Kaplan feels that you’ve done just about everything in your power to do--namely, notify the attorney general’s office. One other course open to you: Notify the postal inspectors through your local Postal Service office, because the mails were used to perpetrate what, so far, is an out-and-out fraud. Hollow comfort, I’m afraid.
Q: Maybe you can answer a question that has puzzled my wife and me. We’re planning on retirement in about five or six more years and have been trying to come up with some realistic estimate of how much income for living expenses our savings will generate. All we get are “it all depends” answers. That’s not good enough for intelligent planning. Any suggestions?--T.C.
A: You obviously won’t buy “it all depends.” It’s a sticky question all right, because as any financial planner will tell you, your post-retirement nest egg should be spread over any number of investments that balance safety with acceptable risk and, consequently, wildly varying yields. Getting an average here is a little bit like trying to guess the average weight of a classroom full of 6-year-olds--from the skinnies to the chubbies.
Generally speaking, the safer the investment the lower the yield--but not always. You’ll need some investments that are low-yielding but give you a hedge against inflation.
Others will give you a hedge against deflation but, again, may be low yielding (or not). Others should be in tax-free securities, which distorts the picture by throwing into the pot a low-yield that isn’t really all that low because of the tax-free feature.
See the problem? Here’s one rough rule-of-thumb, however, that some planners use: For every $1,000 in investments, figure a dividend/interest income of anywhere from $6 to $12 a month. “Rough” is the name of the game here. With a nest egg of $100,000 you’ll have an income of anywhere from $500 (6%) to $1,200 (14.4%) per month. The average: $9 per $1,000 or an overall yield of about 10.8% annually.
