Buyer beware; 9; 100 Pennies Make a Dollar

Buyer beware. The past and present by word of the bewildered consumer shoppers in the modern marketplace look for the Best Buy the safest product and find a perplexing jumble of good news. The consumer's choice is the story behind this program series buyer beware. Quiz for consumers which is cheaper. A loan of $500 at 6 percent on the unpaid balance or a charge account with a monthly interest rate of one and a half percent. If a consumer plans to buy a new stove and refrigerator should you get a loan or use her department store charge plate. The arithmetic used to answer these questions may be rather complex and keeping a budget may be another mathematical headache for many consumers. So let's take a look at the financial picture. The cornerstone to many consumer problems. In the United States. One family out of twenty one third of its income to the

payment of debt. Families whose parents are between 25 and 34 have incurred debts in three out of four cases. In other words borrowing money has become a way of life. But consumers are not fully aware of the commitments which they make as they sign on the dotted line. They do not consider the responsibilities of money management and may find themselves surrounded by installment payments. Cursory shopping around may reveal better interest rates and more suitable arrangements for periods of payment. Where should you look for the best loan agreement at least six sources of money are available to most consumers. You're. About 14000 banks in the United States make available funds for purchases ranging from houses on down in cost. Interest rates may

vary depending on the type of loan. But often these rates may be slightly lower than other lending institutions. Also borrowers should consider credit unions. Over 25 million people in the United States and Canada are members of these unions united by a common bond by their job their church affiliation or other common interest. Credit unions usually require a borrower to maintain a deposit but often as low as $5 before they'll arrange a loan. Interest rates at credit unions may prove very attractive. Borrowing for a home is the particular concern of savings and loan associations. Depositors make available their funds for others to finance the purchase of a home but for smaller purchases many turn to personal finance and small loan companies. However these companies may offer money at a much higher interest rate. Another source of money may be free at least temporarily.

The charge account held by many Americans or their credit card in the pocket of the consumer allows purchases with no interest charges for the first month in many cases. After this point charges do begin but some consumers can manage to pay their accounts before interest is added. Yet another source of money may be overlooked but holders of life insurance policies often have the right to borrow against the value of the policy. You will have to check with your company to learn of restrictions here and to set the limits of reduced coverage while the loan is outstanding. In other words you may have more cash on hand but less dollar coverage if you die. Shopping around at all these institutions bring you a flood of information. But now you must digested which cost the least. If you're buying a $500 television for example you're going to incur finance costs. That will

mean an ultimate charge ranging from almost six hundred and fifty dollars to less than five hundred forty dollars a difference of over $100. Why the gap. One loan at an annual interest rate of twenty four point six percent for two years brings a cost of six hundred forty eight dollars. Another loan at an annual interest rate of 12 percent over one year brings the total cost of five hundred and thirty three dollars. But this seemed like complicated arithmetic until a few years ago. In 1968 the Congress passed the truth in lending law and provided for enforcement by a number of agencies. J.L. Robertson member of the Board of Governors for the Federal Reserve system helped draft this legislation and interprets its purpose whether it was for it and she did so. Purpose of Truth in Lending is to assure a meaningful disclosure of credit terms so that the customer will

be able to compare readily the cost of credit irrespective of the source of the credit. This is accomplished really by requiring the creditor to disclose all the credit terms to the consumer prior to his being obligated on the transaction. This way you can compare the costs of credit obtained from one source with the cost of credit obtained from another. Now one of the ways in which this is done is to create a new common language which all extenders of credit must use in communicating with borrowers or buyers. They retail merchant the bank the credit union the finance company etc.. Now almost all the credit story in the same language so that the consumer can compare the

terms of these various sources. There are two specific new terms which I would call a new language which all extensions of credit or those who sell on credit must use. One is the annual percentage rate. And this is completely new. The other is the finance charge. The finance charge to take that one first is the total dollar figure of the charges which the consumer must pay for the extension of credit. Includes not only interest but any additional charges that the customer may have to pay for credit. For example required life insurance service charges etc.. The annual percentage rate on the other hand is the annual rate of the finance charge which can be used as a yardstick to measure the cost of credit.

As the consumer shops for the best credit done you no longer can a seller or a lender use terms such as one and a half percent a month which is really as you know 18 percent a year on an annual percentage rate basis that misuse the b 18 percent annual percentage rate. Governor Robertson explains the arrangements made for enforcing this encompassing legislation. When the statute was passed. The Congress decided that it wanted this particular agency to draft the regulation which would implement the statute and so direct it. However it was felt that where particular concerns are already subject to some kind of supervision by a federal agency that the enforcement should be vested in that particular agency. Consequently as you know there are three Federal Bank supervisory agencies they control of the currency supervision of the respective national banks the Federal Deposit Insurance

Corporation with respect to state nine member banks and the Federal Reserve with respect to member banks. Most retail businesses would be subject to the jurisdiction of a Trade Commission for example. Well what happened was that we did draft the regulation and we do enforce it with respect to state member banks. But the enforcement over all other creditors is divided among a large number of federal agencies. The one which has the the biggest job in the enforcement end of it is the Federal Trade Commission. But the reason it was denied it was because there's certain federal agencies already had jurisdiction and therefore expertise in given fields and consequently was felt best to leave the enforcement with them a large number of lenders then are surveyed by the Federal Trade Commission for any buy lation of this law. Sheldon Feldman acting chief in the division of deceptive practices at the Federal Trade

Commission has special responsibilities here. He reflects on this role while the Federal Trade Commission has responsibility for. About 95 percent of all the creditors to come within the law. There is about 118 billion dollars worth. That's billion with outstanding consumer credit presently and the Federal Trade Commission has about 65 billion dollars worth. But we have almost all the creditors. We have finance companies department stores retailers funeral homes doctors and dentists and hospitals and insurance companies. Everybody that isn't federally regulated and the only people that are really federally regulated today are banks and savings and loan associations. And about half of the credit unions. Mr Feldman's experience with the law on a working basis leads him to these observations. There are a lot of problems that are gradually being resolved. Basically the legislation is not complex it is purely a disclosure law. It does not involve

itself with setting any rates. And therefore most people who extend credit you know that they do when they know that a new federal law exists and they are making the disclosure there they are getting the benefit of their own legal counsel and they are writing to the agency that enforces this. As to most of them as I indicated the Federal Trade Commission and there are a lot of the forms that they can follow in the pamphlet that has been in almost its 2 millionth printing. And consequently when you read the pamphlet which has questions and answers it's called what you want to know about regulations. When you read this pamphlet and you see the illustrative forms and you read the regulation basically half the battle is won. One of the most difficult areas to control in terms of borrowing money is the advertisement of such services. The FTC must ride Rain on institutions which make claims about monthly payments and interest charges. Mr Feldman sets the limits.

There's a general rule in the end of regulation that concerns advertising and it is that if you advertise a specific term of credit you must tell everything or almost everything. Now there is one exception to this. One term can be advertised without saying any other term and that's the annual percentage rate. Congress I think did this specifically so that it would be easy for creditors. Whether you're a loan company or a department store to advertise the one uniform term of credit the under percentage rate. But other than that if you give the monthly amount. The number of months. The amount of the finance charges anything like $10 a month or take up to three years to pay then you must give the following disclosure in your advertising. You must get a cash price. The amount of the downpayment if any. The annual percentage rate the number amount and the due date or the period of the payments. And finally a new term that consumers will be seeing the deferred payment price and for repayment price is nothing more than the

total credit price. Many agreements for loans are not signed in the formal surroundings of an office but at home. Salesman who come to the door or have special services to offer may persuade a consumer to sign a binding agreement and may Lola's person into a feeling of confidence because of these familiar surroundings. The next morning the borrower may realize with a surprise that his income will not cover another set of monthly payments. What can he do. The Truth in Lending legislation provides certain rights. Governor Robertson describes them but the Lending Act. And the regulation contain a unique provision which does allow a consumer to cancel or trade a credit transaction if that credit transaction involves getting a

security interest in his home. It is a mortgage on his home or any collateral interest in it or on a lock which he intends to use for his home. The in those cases the creditor must give to the customer a printed notice of his right of rescission which he can use to cancel the transaction simply by returning it to the creditor. He has three business days in which to exercise that right of cancellation this is sort of a cooling off period. That gives him a period within which he can think it over and make sure that he wants to go through with it. During that period that the transaction can be cancelled and the creditor is in a very bad position to go ahead with any work or to make any other place because it may be cancelled and he can get nothing back now.

Obviously there has to be some exceptions here because if the roof of one's home is blown off. Yes to get it fixed you can't wait 3 days to get it fixed. His furnace blows up. He certainly in the middle of the winter he certainly can't wait for three days before he gets someone started to work on them and consequently we've provided that he may waive this right to precision in emergency cases. By a by writing to the creditor at the time of the transaction stating that he he can't possibly wait 3 days because to do so would jeopardize his welfare is help his safety or endanger his property. But we've placed a safe guard around this and requiring that the consumer would have to give the creditor a signed personal statement describing

the emergency the creditors are not in a position where they can merely print up waivers and hand them out to a customer. This has to be on an individual basis and only in emergency cases. Similar provisions are now made in many states so that consumers may reconsider any unsolicited sales agreement. This may Protech the young educated buyer from becoming the victim of his own limited budget or outright fraud. Some fly by night operators make use of the growing trend toward borrowing money and find a handsome profit in selling nothing. They promise delivery on fine furniture or referral employment opportunities but demand payment of money from the buyer they are willing to finance this purchase price and have their customers sign a sales agreement. This signature and its accompanying promise to pay back borrowed funds are then sold by the Huckster to a finance company. The swindler may sell this contract for only half its value but this

money is pure profit. Since he does not intend to provide the item ordered by the customer the finance company then handles the task of collecting monthly payments. The consumer in rage tries to stop payments to the finance company because he never received the goods but his signature binds him to those payments. In most cases taken to court the finance company has been found an innocent party to such a transaction and is given the right to the money still owed. Such deception has often come to the point that a consumer has been evicted from his own home to settle a debt for goods never received it. Here is the danger. Borrowed money may provide urgently needed funds on short notice. But may also entangled a consumer in a web which only grows thicker. How can someone so I'm Ashley get out unscathed.

The easiest remedy is an avoidance of the problem. When more than half of the income of a family is committed to monthly payments it's time to take stock. From resistance to further borrowing is necessary. But some need a helping hand. Debt consolidation services may provide this guidance by controlling expenses in the family budget and arranging to pay loans at a reduced rate temporarily. These agencies and branches of commercial operations may have to cover the costs of such help increasing slightly the financial obligations of the borrower. But if they are reputable and honest in their operations this cost will not be unreasonable and in fact a small price to pay for economic respectability. Even here however consumers must be aware of fraud. Charles a Miller assistant chief inspector of criminal investigations at the Post Office Department reluctantly recognizes hazards here.

We had alternatives have debt consolidation schemes under investigation. Not all of them that we invent that is we have to sift through the complaints it may appear on pay are we hear from two or three or four victims may sound like that this is a fraud. But when you get down into it you find oft times that there's these are just the people expected perhaps too much and there is no real evidence that the promoter intended to defraud anybody by the under in loan debt so-called debt consolidation schemes we have 76 of those under investigation throughout the United States. This type of scheme is based on the representations that he made to people who are in debt having trouble meeting their other financial obligations. They see again an ad in a newspaper or maybe a solicitation by mail or by telephone from a

promoter who represents himself as an expert and softening this type of financial problem. You just give me a list of all your Das. But then you pay me. M What is the total amount. The most that you can possibly pay with that is each month. You've got to have enough money to live on and so forth but on the other hand you're going to get really have to get rid of these debts where you send the money to me. I in turn will parcel it out to your debtor. Be in touch with them and making arrangements with them to her so that they'll accept it so much per month. And the thing that's made very attractive. Maybe actually it's going to take five years for this fellow to pay off his debts but the sales pitch is always embellished and exaggerated. We can do it for you in three years. Such schemes should be brought to the attention of the post office department or state

officials. Disillusioned consumers may also resort to the truth in lending law if it applies. Sheldon Feldman offers advice which extends to most federal agencies. But there's two things you can do. First of all the law gives a right super ride already and by that I mean for the first time is a federal law that says to a consumer you can sue the creditor if you didn't comply with the Truth in Lending Act. For not less than 100 nor more than a thousand or twice the amount of the finance charges up to $1000 so the first thing you can do is contact a lawyer or if you can't afford a lawyer neighborhood legal services and see if you have a cause of action to sue. You can get this is the first time where you don't have to rely just on having the government try to get something like a cease and desist order you can in fact get some redress yourself. The second thing at the same time while you're doing that and seeking a lawyer or legal advice as to whether the law's

been complied with. You should write to the Federal Trade Commission and of course we're in 11 major cities such as Chicago and. If you don't know where there is a Federal Trade Commission office you can simply write to Truth in Lending Federal Trade Commission. Washington D.C. to a 5 8 0 and preferably with a copy of your contract or other disclosure that might be involved. I will tell you in basic terminology whether you should go further and seek legal advice but some reach the point of no return and find no protection from the letter of the law. Their only alternative may be bankruptcy. Then all debts are cancelled and a man may start anew. But his credit rating will never recover and the record of bankruptcy will follow his every footstep. An alternative to debt is savings and many consumers choose to take this

route. They make regular or irregular deposits in savings accounts at their local bank or they arrange for deductions to buy savings bonds. Some buy stocks on a periodic basis and sell those which realize a profit of significance if they need to convert their financial holdings to cash. Interest is a prime consideration here too. Borrowers shopped for the lowest interest rate and savers look for the highest. Consumers should take the time to compare their savings methods and their rate of return. Even savings accounts and banks may differ in actual payment of interest. One consumer discovered that banks with identical interest rates compound and semiannually produced different balances after a year's deposit of $1000. Mr. Evans started with a bank on the corner of Main and Green Street. Yes I wanted to check on the return in my savings account here. Mr. EVANS.

Your balance is now one thousand and twenty four dollars and seventy nine cents. But I thought 5 percent interest should that be $25 interest. You know you see we operate on an actual day basis. There are only 181 days in the first six months of the year so your interest that 5 percent per day comes to less than $25 but you make up that difference during the last six months of the year. And this is only the beginning with withdrawals from such a savings account and subsequent deposits for the same amount. Interest can range from under $20 to almost $40 on a sample of $1000 savings at 5 percent. There are several prevailing methods of accounting which create the difference. Some banks use the first in first out system which takes out of a savings account. Those funds which were deposited first. This means that no money stays in for any length of time. If withdrawals are

frequent even if the actual balance in the account is quite high. The method of accounting which may bring the most return for the deposit or is called The Day of deposit today a withdrawal or slash D.W.. This system provides for interest earned on an amount from the time it is placed in the account to the time it is withdrawn. A longer period of time in many cases. But the problem comes in day to day living a savings account accruing such interest. Sounds like a fine idea. However it never seems to grow as fast as it should. Part of the problem comes with a lack of planning or a budget. The term budget immediately suggests rigid discipline and uncomfortable scrimping that may or may not be so. A careful analysis of your lifestyle may indicate the priorities which you have

in your daily existence. You may feel that fine food is important or that good books are vital to your library or the latest clothing styles are a necessity. The question is which are the most important. Once a pecking order has been established you may devote your income to the special interests which you have and cut down on wasted funds in areas that are unimportant to you. Many consumers who analyze their spending patterns find that they have lost hundreds of dollars a year on unneeded items for example excessively high heating bills may be the result of inadequate insulation inefficient heating equipment and a thermostat set too high. Correction of these three conditions may return 20 dollars or more a month to your pocket that could easily amount to hundreds of dollars over a short period of time. Others try to remodel a home in a style suitable for four youngsters when they only have one or two still at

home. The extra space costs money. Actually the informed consumer may be the best friend for a healthy budget. Knowing about merchandising practices prevalent prices and new products may save you dollars every day and allow you to set aside a small amount each month. As a financial cushion. Careful records from past years of spending will quickly indicate the loopholes and the repair work needed on your plan for your finances. The sum of 100 pennies make a dollar and you can make that you're dollar by constant attention to the mathematics of finance. Make your money work for you not against you. Discover that your role as a consumer may have more impact on the health of your finances than your ability as a breadwinner. Buyer beware. Still low by word of the consumer shoppers search

for information and protection to buy the best for the least. Our next program records the key moments in a consumer's life as he stands on ceremony from birth to death. You'll recall the phrase buyer beware. This is the national educational radio network.