MANAGING YOUR MONEY / Earning More, Keeping More : JUST SAY NO : <i> Consumer “services”--some of them legal, some not--offer little that you couldn’t accomplish on your own.</i>
When a splotched credit record threatened to kill their chances of qualifying for a home mortgage earlier this year, Lale and Robert Jackson of Toluca Lake turned to Credit Masters for the help they thought they needed to boost their chances of getting a loan.
Credit Masters, a credit repair company, offered to talk to the couple’s creditors and negotiate repayment schedules for overdue bills.
“I thought I needed help, and I was willing to pay for the convenience of letting someone else do the work for me,” says Lale Jackson, a property manager.
But the Los Angeles city attorney’s office has since closed Credit Masters down. Although the Jacksons are now $550 poorer, they’ve learned a painful lesson: No one can “fix” your credit for you--it’s one of those chores you have to do yourself.
Credit repair schemes, many of which are illegal in California anyway, are just one of the many types of help consumers don’t need--or at least, don’t need to pay for. Others, consumer advocates say, include accelerated mortgage repayment plans and job-finding assistance, inheritance search services and credit insurance.
While some of these “services” are not illegal--and actually deliver what they promise--they usually offer little that you couldn’t accomplish on your own.
Although many of these schemes target low-income, undereducated consumers, the Jacksons’ experience underscores the fact that anyone can become a victim. Consumers who should--and sometimes do -- know better are often snared by the offer of assistance in negotiating what appears to be an unmanageable bureaucratic nightmare.
Perhaps these schemes are the result of the labyrinthine bureaucracy in both business and government that frustrates so many consumers. Maybe they have mushroomed because individuals feel that they are too busy to handle mundane paperwork themselves.
Or perhaps they simply satisfy many consumers’ belief that “professional” assistance will give them that extra insight needed to have a problem promptly resolved.
Whatever their root, the schemes prey on consumers’ fears that they can’t figure out by themselves how to make the system work for them.
“We are a service-oriented society. Large numbers of people believe that by going to a professional who specializes in that service, the job will get done better,” says Sue Frauens, acting chief of the Western region of the Federal Trade Commission in Los Angeles. “But the truth is that most consumers don’t need these services.”
The schemes continue to exist in large part because their victims are often too embarrassed to complain--and when they do, they discover that the services are within the bounds of existing laws.
James Conran, director of the state Department of Consumer Affairs, refers to them derisively as “sharp” business practices.
“They’re not illegal necessarily,” he says. “But many probably do not fall within the code of honest or ethical business behavior.”
Here’s a quick rundown on some of what Conran calls “schemes on the fringe.”
* Credit repair services. Beware of services offering to repair your bad credit. They can’t do it. Neither, according to California law, can they charge you a fee before providing whatever services they promise.
True, it’s perfectly legal for a company to advise you on how to approach your creditors and bill you later for its help. However, you can get this advice for free from the nonprofit Consumer Credit Counseling Service, which has more than 20 offices in Southern California. To locate the office nearest you, call (800) 388-2227.
* Advance-fee loan counseling. It’s against the law for anyone to charge you an upfront fee to find you a loan. To be sure, banks, mortgage brokers and other licensed professionals are permitted to charge for securing you a loan. But they’re supposed to get their money when the loan is actually made--not when you apply.
Businesses that charge hundreds or even thousands of dollars upfront to find you a business or debt-consolidation loan are operating illegally and should be reported to authorities immediately. Many of these services simply pocket the money and claim that your loan application was rejected by several potential lenders, says Kathy Almanzar, an investigator with the Better Business Bureau of Southern California.
* Accelerated mortgage repayment services. These companies, perhaps one of the most unnecessary services on the market, offer to speed the repayment of your home mortgage by taking money from your bank account every two weeks and pay your lender every four weeks. The net result is 13 mortgage payments every year instead of the usual 12--which can cut as much as 12 years off the life of a 30-year loan.
For this service, you pay up to $350 at the outset and give the service interest on the funds it pulls out of your account every two weeks.
There are two big problems with these services. Most important, there’s no ironclad guarantee that the company will actually forward the money to your lender; it could skip town with your cash, leaving your mortgage in shambles and your homeownership in jeopardy.
Second, consumers can step up their mortgage payments on their own at any time--and at no extra charge--by simply contacting their lenders.
* Job-finding services. Consumer advocates warn that anytime a company wants to charge you money to find you a job, a red flag should start waving. “Reputable employment agencies get their fees from employers, not potential employees,” says Tim Bissell, chief investigator with the Los Angeles County Consumer Affairs office.
In addition, Bissell says, many of these agencies will simply give you job listings they have gathered from government postings and newspaper classified ads--sources that are readily available to consumers without the aid of a middleman.
* Inheritance searches. Sometimes known as “missing heir” schemes, these services offer to discover if you have any long-lost relatives who might have left you money in their wills or are willing to make you a beneficiary upon their death.
According to the Better Business Bureau of Southern California, many of these companies simply peruse the telephone book to find people with your last name. Any familial connection is strictly coincidental.
* Home reappraisal assistance. Has the value of your home or investment property slipped since you purchased it? Then perhaps you are entitled to a lower property assessment from the county--and a lower property tax bill as well. For $50, $100 or more, these services offer to help you file the necessary paperwork with your county assessor’s office.
Only trouble is, local assessor’s office employees are more than willing to help you. And they charge nothing. Watch out for similar unnecessary services, such as those offering to help you file for your homeowner’s property tax exemption and homestead protection--both of which you can claim for yourself by filing a few simple documents with the county government for free.
* Credit insurance. Some companies try to persuade you to buy insurance that will pay off your credit cards or other installment-sale debt in the event of your death. But this type of coverage is unusually expensive, and the fees interfere with your ability to repay your credit charges. You risk nothing by skipping this coverage.
* “Instant” credit cards. The promoters of these schemes promise to get you a credit card if you give them $500 to $1,000. They take your money, subtract their fee of $100 or more, then put the remainder in a bank account under your name.
What you actually get is a “collateralized credit card” that allows you to charge up to the amount in your bank account and not a penny more.
While collateralized credit cards are an ideal way for consumers with tarnished credit records to re-establish their credit-worthiness, you certainly don’t need a service to help you. Any number of banks offer these cards for a modest application fee.
So why do all these services continue to exist if they are so unnecessary? California’s consumer affairs chief believes that consumers are as much to blame as the rip-off artists.
“People do things that aren’t smart because they don’t think it all through. They are lazy or they think things are more complicated than they really are,” says Conran. “Regrettably, we are not able to outlaw stupidity.”
