Author Archives: Stohlman Law

Consumer Reports took an in-depth look at the practices of two of the largest subprime auto lending banks in America, and the results were grim: Predatory lenders focus their services on poorer people in desperate need of a car because they make money on defaults as well as successful loans. Subprime lenders have built a win-win scenario where the only losers are the already struggling borrowers themselves.

The report focused on the scammy actions of Credit Acceptance and Santander Consumer USA, both of which have been the subject of investigations in their shady practices. Indeed, we reported last year that Credit Acceptance was under investigation in 44 states. CR did a deep dive and found a system that sets up borrowers to fail because, either way, the lenders still make a profit:

Moreover, even when Santander and Credit Acceptance have a borrower who defaults, they still manage to make a profit, the state attorneys general in Mississippi and Massachusetts have alleged in lawsuits filed against the lenders, using a variety of tools to “squeeze as much money out of delinquent borrowers as possible,” as one put it. (Santander and Credit Acceptance reached settlements in those cases, neither admitting nor denying wrongdoing.)

Those methods, according to a Consumer Reports review of regulatory filing and legal documents, sometimes start with lenders working with dealers to mark up cars sold to low-income borrowers more than they do for customers with better credit, or to upsell them into pricier cars they can’t afford. Lenders are also accused of structuring the loans and their arrangements with dealers in ways that all but guarantee a profit even if borrowers default, the attorneys general say.

And when borrowers fall behind, as often happens, lenders aggressively work to collect debts through repossession and wage garnishment, according to allegations in the documents CR reviewed.

“There are some lenders with a business model, it seems, that expects some level of repossession, perhaps even desires some level of repossession,” says Pamela Foohey, a professor at the Benjamin N. Cardozo School of Law in New York City, who has published several studies on auto lending.

In the the third quarter of 2021, Credit Acceptance and Santander reported net profits of $250 million and $763 million, respectively, over the preceding three months.

In other words, it’s good business writing bad loans.

And default, as many do. These subprime lenders argue the high APR is because they’re taking on more risk, but that doesn’t actually pan out. Borrowers with lower credit scores often receive higher APR rates from auto loan companies than if they went through a traditional bank or credit union. Those with the higher APR were also more likely to default. When defaults happen, the impact on people’s lives is catastrophic. Take this case from the CR report:

In one example from the lawsuit, a consumer with a low income purchased a Nissan Altima sedan with a six-year loan from Santander that carried a $445 monthly payment and an interest rate of 21 percent. Her monthly income at the time: roughly $1,200.

“She worried the monthly payment was too high,” the state attorney general’s complaint said, “but she needed a car immediately and convinced herself she could handle the payments.”

That turned out to be too optimistic. She fell behind on the bill, allegedly leading Santander to hound her with relentless calls to collect. Eventually, she succumbed to bankruptcy to avoid having the car repossessed.

It can be an all consuming debt that can take decades to be cleared from. Author of the CR story, Ryan Felton, also looked into these loans when he worked here at Jalopnik. He found over 2,000 people had cases for wage garnishment by Credit Acceptance brought against them 20 years after the loan was issued in the city of Detroit alone. In a country where the majority of Americans need a car to get around these practices are, pardon the pun, highway robbery.

Credits: https://jalopnik.com/subprime-lenders-are-setting-up-car-buyers-to-fail-con-1848418238

WASHINGTON (AP) — The U.S. supply of computer chips has fallen to alarmingly low levels, raising the prospect of factory shutdowns, the Commerce Department reported Tuesday.

Companies that use semiconductors are down to less than five days of inventory — a sharp drop from 40 days in 2019, according to a department survey of 150 companies. The chips used in the production of automobiles and medical devices are especially scarce.

Demand for chips, the department said, was up 17% last year from 2019.

Citing the results, the Biden administration called on Congress to pass stalled legislation that would provide $52 billion for domestic semiconductor production.

“The semiconductor supply chain remains fragile, and it is essential that Congress pass chips funding as soon as possible,” Commerce Secretary Gina Raimondo said in a statement. “With sky-rocketing demand and full utilization of existing manufacturing facilities, it’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities.”

Chip shortages have disrupted auto production and driven up car prices, contributing significantly to a 7% year-over-year increase in consumer prices last month — the hottest inflation in four decades. Still, it would take years for semiconductor factories to begin operation.

Credits: AP News https://apnews.com/article/technology-business-356ad647382e6a3112becece5fdead97

The Federal Reserve is on a mission to cool off demand and drive down inflation. And yes, you’re going to face higher interest rates on your credit cards as a result.

Fed rate hikes tend to be passed along to credit cardholders within a month or two. If the Federal Reserve makes its first move to raise short term rates at its next policy meeting in mid-March, as some expect, you could be looking at higher credit card rates as soon as April or May.

On Wednesday, the Federal Reserve gave a clear signal that the central bank will likely raise its short-term, federal funds rate in March. The Fed does not have a scheduled meeting in February.

“Card issuers have some flexibility, particularly with new customers, but credit card rates typically track the federal funds rate quite closely,” said Ted Rossman, senior industry analyst for CreditCards.com and Bankrate.com.

Most consumers already know that it’s not cheap to borrow by pulling out plastic. Or swiping the credit card app on your smartphone.

The rate hikes ahead should give consumers one more reason to pay off their high-cost credit card debt — and put a limit on how much they’re willing to borrow by tapping into a line of credit on a credit card.

The average credit card rate is 16.13%, according to data from CreditCards.com. Credit card rates vary based on your credit history with those with lower credit scores paying higher interest rates on their credit cards.

“Credit card debt is already very expensive and it will probably become even more costly in 2022,” Rossman said.

Credit card margins have already been creeping up, he said. For example, he said, the current 16.13% average is 12.88 percentage points above the prime rate, which is close to a record-high spread. The prime rate today is 3.25%.

Most credit cards today don’t offer fixed rates. They’re variable rates that go up or down as short term interest rates move up or down.

“The high end of the range — what people with lower credit scores pay — averages around 24%,” Rossman said.

The annual percentage rates, for example, for an AARP Travel Rewards Mastercard from Barclays range from 16.74% to 20.74% to 25.74%, based on your creditworthiness. A 0% introductory APR is being offered for 15 months on balance transfers made within 45 days of account opening. The balance transfer fee is either $5 or 5% of the amount of each transfer, whichever is greater.

The redesigned My GM Rewards Card has a 0% introductory rate for the first nine months only. After that intro rate, the annual rate on the card will range from 14.99% to 24.99%, depending on your credit score. The interest rates are variable, and could go up or down in the future based on shifts in the prime rate.

How much more will it cost to borrow on a credit card? 

If some forecasts are accurate, the Fed could raise short term rates by a quarter of a percentage point as many as four times or more in 2022. That means that interest rates on credit cards could ultimately go up on average to around 17% or higher by year end.

Those with lower credit scores could be looking at rates of 25% or higher on average by year end.

It’s not a huge extra cost for borrowers but it is extra money that’s going out the door. And some borrowers might want to reconsider how much they’re using their credit cards if they’re not paying off the bill in full each month.

The minimum monthly payment would go up by $4 a month — or $48 a year — if someone sees their rate go up from 16.13% to 17.13% and has a balance of around $5,525 on their credit card.

“The real issue is that credit card rates are already very high,” Rossman said.

If someone has a rate of 16.13% on average now, just making only minimum payments would keep someone in debt for 194 months — or a bit more than 16 years.

And the consumer in this example would end up paying $6,160 in interest if they had $5,525 in credit card debt at 16.13%

At 17.13%, it would take a consumer 197 months to pay down the debt by making only minimum monthly payments and the overall cost of interest goes up to $6,577 — or an extra $417 and that would amount to a nearly 7% increase in the cost of interest over many years if you’re only making minimum payments.

Here are some options consumers can consider:

Are there any 0% rates left? 

The 0% introductory offer: Some credit cards continue to offer a 0% introductory offer or a 0% balance transfer offer, even as the Fed is set to raise rates.

A balance transfer can help you pay down debt while the 0% rate remains in place, say for nine months, 15 months or even up to 21 months in some cases.

A long 21-month 0% offer is being made on the Wells Fargo Reflect, Citi Simplicity and Citi Diamond Preferred cards, according to CreditCards.com.

After the 0% promo, Wells Fargo Reflect charges 12.99% to 24.99%, Citi Simplicity charges 14.74% to 24.74% and the Citi Diamond Preferred charges 13.74% to 23.74% currently.

Many consumers may be confused and wrongly believe that they’d get stuck paying a higher rate on all their of their debt if they don’t pay off the entire balance while the 0% rate is offered, according to a survey by LendingTree.

That’s often true with deferred-interest programs, such as when you open a credit card to buy furniture or cover a medical procedure. Interest is retroactively applied to your entire original purchase amount, even if you leave just one dollar unpaid by the time the regular rates hit under a deferred-interest plan.

But consumers aren’t going to be billed for interest retroactively if they do not pay off their card’s entire balance during while a 0% balance transfer rate is in place. You’d only owe the higher rate on the remaining balance.

Sometimes, the 0% transfer rate only applies to balance transfers made within the first 60 days or first 120 days of opening the account. Pay very close attention to the various rules in place.

You also typically need to have good credit to qualify for the 0% limited offer, such as a FICO score of 670 or higher.

Also pay attention to any balance transfer fees. Some cards have an intro balance transfer fee of 3% or 5%. You could be paying $150 to $250 to transfer a $5,000 balance. But it could be worth it, if you make sure to pay down a good chunk of the debt during the 0% offer before higher rates hit.

You are often required to make a minimum monthly payment each month while the 0% intro rate applies. That’s typically based on 1% of your balance.

“Let’s say you owe $5,000 and you only make minimum payments of 1% of the balance each month,” Rossman said.

“You would still owe $4,049 at the end of those 21 months. And then the interest rate could skyrocket.”

To truly pay down your debt, you’d need to make far more than the minimum payment during the 0% time frame.

Another warning: If you miss a payment, it’s possible with some cards that the 0% rate will no longer be available to you and you’ll face much higher rates sooner than imagined.

Should I try to get a personal loan? 

Look into low-cost personal loans: Personal loans are available at banks, credit unions and online lenders and some offer rates as low as 2.5% to 5.99% APR.

Many consumers are turning to such loans to consolidate their credit card debt and lock in lower rates.

But unlike a credit card, you’re going to have to pay off a personal loan during a set period of time so monthly payments would be higher than that for a credit card.

One offer noted that at 5.99%, you’d pay nearly $24 a month for each $1,000 borrowed for 48 months. Payments are the same each month, based on a fixed interest rate and a fixed repayment timeline.

But here’s the deal, higher rates are charged to those who have weaker credit scores. Some personal loans on the market now can be 20% to nearly 36%. The current average is around 10.28%, according to Bankrate.com. And you do need to factor in the cost of fees; some have fees, some don’t.

Rossman noted that origination fees are common, ranging from nothing to up to 8% of the amount being borrowed.

You’d want to try to improve your credit score before borrowing by making sure to pay bills on time and avoid borrowing too much on your credit cards, keeping outstanding balances below 30% of your total credit limit.

What if I feel like I can never get out of debt? 

Talk to a nonprofit financial counselor: Look at your credit card statement for information on how to contact a credit counseling service. Some statements offer a number that will give you contact information for various services.

Farmington Hills-based GreenPath Financial Wellness, a nonprofit counselor, gives details on its services at www.greenpath.org. Or you can call 800-550-1961 from 9 a.m. to 5 p.m.  Monday through Friday. The offices are currently closed for in-person visits.

The first rate hike by the Fed is expected to be small. But borrowers need to take into account that more rate hikes are likely ahead and the costs of borrowing will be going up.

Credits: https://www.freep.com/story/money/personal-finance/susan-tompor/2022/01/26/credit-card-rates-inflation-federal-reserve/9210165002/

Jan 26 (Reuters) – U.S. auto retail sales are expected to dip in January as reduced manufacturing due to the Omicron variant, supply chain constraints and global inflation caused prices to soar amid high demand, consultants J.D. Power and LMC Automotive said.

Retail sales of new vehicles could fall 8.3% to 828,900 units from a year earlier, a report released by the consultants on Wednesday said.

“The volume of new vehicles being delivered to dealerships in January has been insufficient to meet strong consumer demand, resulting in a significantly diminished sales pace,” said Thomas King, president of the data and analytics division at J.D. Powers.

The COVID-19 pandemic has caused bottlenecks in supply chains, driving up costs for everything from labor to raw materials.

With consumer demand exceeding supply, new vehicle prices continue to go up. The average new-vehicle retail transaction price in January is expected to reach $44,905, the previous high for any month was in December 2021 at $45,283.

U.S. business activity grew at its slowest pace in 18 months in January as a winter surge in COVID-19 infections worsened worker shortages at factories, though demand remained strong.

Total new-vehicle sales for January 2022, including retail and non-retail transactions, are projected to reach 932,099 units, a 15.6% decrease from last year.

“The start of 2022 faces risk from a multitude of drivers that have been affecting the market for several months. The addition of geo-political concerns with a potential Russia-Ukraine conflict is adding additional economic risk,” said Jeff Schuster, president, Americas operations and global vehicle forecasts, LMC Automotive.

The seasonally adjusted annualized rate for total new-vehicle sales is expected to be 14.1 million units, down 2.6 million units from 2021.

Despite the added risk, the consultants expect 2022 global light vehicle sales to improve by 6% to 86.2 million units.

(Reporting by Kannaki Deka in Bengaluru; Editing by Shinjini Ganguli)

Credits: Yahoo Finance: https://finance.yahoo.com/news/u-auto-sales-slip-january-140001706.html?soc_src=social-sh&soc_trk=ma

Can a Florida Judgment Lien on Homestead Property Affect Your Closing?

There are scenarios where a recorded Florida Judgment Lien could affect your ability to sell a home or land. For example some homeowners caught in the 2008 financial crisis or other financial difficulties may have had the misfortune of having to file bankruptcy in order to discharge their debts. In cases where part of the discharged debt burden included judgment liens filed against the debtor, there can be implications for future real estate sales transactions.

How Does a Florida Judgment Lien Work?

As part of a typical civil court judgment, the court may order the payment of money from one party to the other. If the party owing the money (the debtor) does not pay, the party awarded the money (the creditor) may file a Florida Judgment Lien Certificate with the Department of State. The debtor then becomes subject to an officially recorded lien.

A judgment lien on real property entitles the judgment creditor to have the sheriff’s department levy and sell the judgment debtor’s property in order to pay the creditor the awarded judgment. Florida law allows the sheriff to seize:

• Personal property owned by the debtor. This generally includes movable things such as art, antiques, cars, boats, furniture, horses, jewelry and other valuables.
• Real property owned by the debtor such as houses, condos, buildings, land, or similar holdings.

Property that is exempt from seizure includes one motor vehicle worth $1,000 or less, one additional personal property item worth $1,000 or less, and an individual’s primary home or homestead. This latter is called the homestead exemption. Florida defines its homestead exemption as the debtor’s property interest in his or her primary residence, subject to any lien that attached before the property acquired homestead status. (Fla. Const. art. X, §4.)

To qualify for the Florida Constitution’s homestead exemption and gain protection from a Florida Judgment Lien on homestead property, the debtor must be a Florida permanent resident and the subject property must be the debtor’s primary place of residence. The Florida Constitution grants unlimited homestead protection against judgment creditors to any Florida resident regardless of length of residency.

When bankruptcy is involved, the homestead exemption protects a primary residence of unlimited value from creditors as long as the property is not larger than half an acre in a municipality or 160 acres elsewhere and the debtor has lived in Florida and maintained the primary residence for the preceding 40 months or more. In cases where the 40-month residency requirement has not been met, homestead protection is capped at $160,375. Liens may be attached to any owner’s equity in excess of this amount.

Judgment Liens and Real Estate Sales Transactions

Any judgment liens that are part of the public record can affect a Florida homestead property owner’s ability to provide clear title in a sale. Even though a bankruptcy proceeding may clear all debt obligations, any judgment that remains in the official public records of the county where the subject property is located will appear on a title commitment. Similar to a mortgage, any judgment listed on the commitment must be satisfied or released before clear title can be provided to the buyer.

Steps should be taken well in advance of the intended sale date to establish protected homestead status and clear any recorded liens on your property. Depending on the amount of the judgments, a title insurance underwriter might accept a simple owner’s affidavit that declares the property to be your constitutional homestead and thus protected from judgment lien creditors. However, if the value of recorded judgment liens is high, an underwriter will be unlikely to accept an owner’s affidavit.

Avoiding a Judgment Lien on Real Property

If a simple owner’s affidavit will not suffice, and aside from paying judgments at closing, there are two strategies for arranging the problem-free sale of your homestead property in the presence of judicial liens. The first strategy for preventing a judgment lien from impairing the sale of your homestead property is available through the Florida Statutes.

Florida Homestead Protection

Article X, Section 4, Constitution of the State of Florida (1968) exempts a homestead from forced sale and provides that no judgment or execution shall be a lien thereon. As will be seen, this strategy would need to be implemented several months before any proposed sale closing event and ideally before any attempts to attach a judicial lien to the property.

Designation of homestead by owner before levy, § 222.01, Florida Statutes, stipulates that any natural person (not a corporation or partnership) residing in the state may avail of the provisions of the constitution and laws exempting property as a homestead from forced sale under any process of law. This is done by making, signing, and recording in the circuit court a written statement describing the real property and declaring that it is the homestead of the party in whose behalf such claim is being made.

Once a judgment on the matter is received and a certified copy of a judgment has been filed in the public records, a person who is entitled to the homestead exemption may file a notice of homestead in the public records of the county in which the homestead property is located. The notice informs filers of judgment liens that the property is an exempt homestead and will be conveyed or mortgaged. Lien holders have 45 days to respond, either to argue the homestead status of the property or foreclose a judgment lien on the property. If they fail to do so, any buyer or lender may take the property free and clear of any judgment lien.

Avoiding Judicial Liens During Bankruptcy

The second strategy involves removing or “avoiding” judicial liens during a bankruptcy procedure. When the subject property is a homestead residence, a Florida resident debtor is entitled to motion the Bankruptcy Court for an order removing a judicial lien from the property. Note that the lien must have already attached to the property in question.

If a bankruptcy proceeding has been completed sometime in the past, it is not wise to assume that the bankruptcy attorney has automatically taken steps to block liens in consideration of the possibility that you might want to sell the home someday. Bankruptcy attorneys often do what is necessary to have debts discharged without considering the future ramifications of any judgments already recorded. They do not take the additional steps necessary to avoid judgment liens.

Unfortunately, attempting to reopen a closed bankruptcy case in order to file a lien avoidance motion will probably involve additional court and attorney fees. Moreover, it may not be possible to reopen the case if doing so “prejudices” the creditor — for example, if a creditor has already incurred costs related to beginning a foreclosure on the home.

Dutiful bankruptcy attorneys will follow through and file the requisite motions and orders to have any judicial liens on exempt property avoided, so that their client can sell their homestead in the future without worrying about judgment liens. However, implementing the bankruptcy strategy as a method to deal with liens in the period immediately preceding a sale is problematic. Aside from the time required to complete bankruptcy proceedings and obtain the desired judgment, there is a mandatory waiting period before any liens are officially removed.

Be Proactive in Dealing with Judgment Liens

Sellers often do not address lien concerns prior to the sale of their property only to find out that the requirements for satisfying or releasing the judgment liens cannot be fulfilled before the proposed closing date. Therefore, it is imperative for homeowners who have judgment liens recorded against them to seek competent legal advice as soon as possible when considering the sale of their homestead property.

The homestead exemption discussed in this article does not protect homestead property from all creditors and all judicial liens. This is why it is important to have a knowledgeable real estate lawyer working for you. The team at Barry Miller Law is expert in all aspects of real estate title.

If you or someone you know has questions concerning Florida homestead protection, dealing with judicial liens on homestead property, or any other matter pertaining to real estate law, contact Barry Miller Law for assistance at 407-423-1700 or by email at info@BarryMillerLaw.com for a consultation.