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Late Car Payment? A ‘Kill Switch’ Can Leave You Stranded

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About a decade ago, when Erin Hayes was in her late teens, she bought a used car with a subprime loan from one of those “buy here, pay here” car lots close to her home near Raleigh, North Carolina.

One day in 2013, having forgotten to make her payment, she got into her 2006 Kia Optima at work and turned the key, but instead of starting so she could go home, the car made a loud beeping noise and wouldn’t go anywhere.

The lender, without her knowledge, had installed a “kill switch” and triggered it remotely after Hayes missed a payment.

“I was very anxious,” Hayes said recently, recalling being stranded with her first car. “They cut the car off, and I was 20 minutes from home. I told them I would try to pay them, and they cut it on for an hour. If I didn’t have the payment to them in an hour, they’d cut it off again.”

A couple of years later, the same thing happened with her next car, a 2008 Hyundai.

Rudimentary kill switches have long been sold to the public as anti-theft devices for less than $50 apiece. But many subprime auto lenders across the country are using more sophisticated versions to ensure that car buyers make their payments.

In recent years, though, amid consumer horror stories ranging from inconvenience to outright danger, a few states are restricting or banning the kill-switch tactic as unfair and potentially unsafe.

New York is the latest, with a law that took effect in October requiring lenders to disclose in writing by certified mail when they install the devices on vehicles.

Nevada’s and New Jersey’s similar laws took effect in 2017. Lawmakers in at least two other states, Illinois and Rhode Island, are considering legislation.

Hayes, now 27, acknowledges her credit wasn’t very good back then; that’s why she had the high-interest loans and the kill switches in the first place. But she says having a kill switch on her cars led to her being stranded more than once.

At least her cars didn’t stop in the middle of a trip. That’s what happened to T. Candice Smith from Las Vegas. Smith in 2013 testified to the Nevada legislature that her car’s kill switch activated as she was driving down Interstate 15.

“All of a sudden the steering wheel locked up and the car shut off,” she testified. “I was barely able to make it to the left shoulder. I was scared and shaking and had no idea what just happened.”

Lenders and switch makers contend that the switches are less embarrassing than the traditional “repo man” showing up on a car owner’s doorstep to take the car. They argue that the switches make getting the car operational again faster and easier than going to an impound lot.

“They do serve a purpose, and there are benefits to them,” said Michael R. Guerrero, consumer finance attorney at Ballard Spahr, a California law firm that specializes in advising companies on how to comply with consumer law, in an interview. “They reduce repossession costs, and they permit the consumer to cure the default and restart the vehicle when it’s cured. They also give some consumers access to credit who otherwise might not qualify.”

Guerrero tracks the handful of states that have passed laws that rein in the use of kill switches by requiring disclosure when the devices are placed on the cars and allowing borrowers who are in arrears to make a payment that will get the cars to start again. Some states also require an emergency override code that can be sent to a borrower if an urgent need arises.

Jeff Karg, director of marketing and communications for PassTime in Colorado, said that the automobile starter interrupt devices — as kill switches are also known — that his company manufactures can help consumers avoid repossessions by buying time to negotiate a payment plan with the lender.

His company conforms to state laws, he said. “We do have best practices in terms of how we think that the industry should operate with the consumer in mind and being respectful and taking proactive action to keep the consumer in the vehicle.”

But only half a dozen states have enacted regulations on kill switches, including California, Colorado, Connecticut, Nevada and New Jersey. The laws vary, but all, at the least, require telling the borrower that the devices, which also have GPS tracking, are installed.

The Colorado law specifically prohibits stopping the vehicle if doing so would pose a danger to its occupants, such as when it’s in motion. Most of the other laws call for 24 or 48 hours’ notice before the vehicle is disabled, and many allow grace periods or emergency overrides.

Sophia Romero, staff attorney in the Consumer Rights Project at the Legal Aid Center of Southern Nevada, said it took years and a series of lawsuits for the law in her state to catch up with the practice of installing the devices on cars.

One of the unnoticed problems, she said, was that many of her clients’ pay schedules were not coordinated with their car payment schedule, leaving them with little money at the end of the pay period to make the car payment.

“Their cars were off most of the time,” she said. “Obviously it hurts the consumer because these people can’t get to work.”

Nevada bills in 2013 and 2015 to restrict kill switches failed. The state legislature finally approved legislation last year that took effect in July 2017.

North Carolina, where Hayes lives, does not have a specific kill-switch law. However, under the state’s repossession law, a lender is permitted to render a car inoperative if payments are missed, according to Laura Brewer, spokeswoman for the North Carolina Department of Justice.

Separately, the Federal Trade Commission is looking into whether installing the devices on cars violates consumers’ privacy, as was reported last year in Bloomberg and other news outlets. The FTC, citing a policy not to comment on open cases, would not confirm the inquiry when asked about it this month.

The Electronic Privacy Information Center, a privacy rights group based in Washington, D.C., also filed a complaint last year with the Consumer Financial Protection Bureau, asking the agency to look into the devices as invasions of privacy.

“You basically have systems where private companies are not only tracking the locations of vehicles on which they have lent money, but they also have the capability to remotely turn the vehicles off,” said Alan Butler, senior counsel at the Electronic Privacy Information Center. “That is a question of privacy and safety and abuse of the lender.”

The CFPB has not ruled on the complaint.

Nicole Munro, a partner in the Maryland law office of Hudson Cook and a compliance lawyer who advises clients such as kill-switch manufacturers, said that used car dealers who do their own financing use the devices to “reduce the risk associated with providing financing to consumers with subprime credit or no credit history. It offers them the opportunity to put someone in a better car, or in a car at all.”

Munro, who said she and her clients have met with the FTC on potential kill-switch regulation, also pointed out that with the exception of Nevada, where the law defines a technological shutoff as a repossession, shutting off a car until the payment is made does not “show as a repossession on a consumer’s credit report.”

“That’s really important from the consumer’s point of view,” she said. “We’re not trying to use the technology to harass consumers. It is really to reduce risk and keep consumers in their vehicles.”

But John Van Alst, an attorney with the National Consumer Law Center, based in Boston, sees the devices as a threat to consumers, especially those whose credit may not be stellar.

“They are like the doomsday device in ‘Dr. Strangelove,’” he said. “They are a looming threat and they change the balance of power.

“The problem may be for many consumers that there aren’t a lot of options or that they are misled by dealers who make them think they wouldn’t qualify for a loan anywhere else,” he said. “Unfortunately, they don’t have the choices many of us do when deciding how to finance a car.”

And that can lead to embarrassment, he said.

“You can imagine if you are out on a date and your car starts telling you that you are behind on your payments.”

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4 things kids need to know about money

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(NC) Responsible spending includes knowing the difference between wants and needs. Back-to-school season, with added expenses and expectations around spending, is the perfect time to not only build your own budget for the year ahead, but also to introduce your own children to the concept of budgeting.

The experts at Capital One break down four basic things that every child should know about money, along with tips for bringing real-life examples into the conversation.

What money is. There’s no need for a full economic lesson,but knowing that money can be exchanged for goods and services, and that the government backs its value, is a great start.
How to earn money. Once your child understands what money is, use this foundational knowledge to connect the concepts of money and work. Start with the simple concept that people go to work in exchange for an income, and explain how it may take time (and work) to save for that new pair of sneakers or backpack. This can help kids develop patience and alleviate the pressure to purchase new items right away that might not be in your budget.
The many ways to pay. While there is a myriad of methods to pay for something in today’s digital age, you can start by explaining the difference between cash, debit and credit. When teaching your kids about credit, real examples help. For instance, if your child insists on a grocery store treat, offer to buy it for them as long as they pay you back from their allowance in a timely manner. If you need a refresher, tools like Capital One’s Credit Keeper can help you better understand your own credit score and the importance of that score to overall financial health.
How to build and follow a budget. This is where earning, spending, saving and sharing all come together. Build a budget that is realistic based on your income and spending needs and take advantage of banking apps to keep tabs on your spending in real-time. Have your kids think about how they might split their allowance into saving, spending and giving back to help them better understand money management.

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20 Percent Of Americans In Relationships Are Committing Financial Infidelity

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Nearly 30 million Americans are hiding a checking, savings, or credit card account from their spouse or live in partner, according to a new survey from CreditCards.com. That’s roughly 1 in 5 that currently have a live in partner or a spouse.

Around 5 million people — or 3 percent — used to commit “financial infidelity,” but no longer do.

Of all the respondents, millennials were more likely than other age groups to hide financial information from their partner. While 15 percent of older generations hid accounts from their partner, 28 percent of millennials were financially dishonest.

Regionally, Americans living in the South and the West were more likely to financially “cheat” than those living in the Northeast and Midwest.

Insecurity about earning and spending could drive some of this infidelity, according to CreditCards.com industry analyst Ted Rossman.

When it comes to millennials, witnessing divorce could have caused those aged 18-37 to try and squirrel away from Rossman calls a “freedom fund”.

“They’ve got this safety net,” Rossman said. They’re asking: “What if this relationship doesn’t work out?”

As bad as physical infidelity

More than half (55 percent) of those surveyed believed that financial infidelity was just as bad as physically cheating. That’s including some 20 percent who believed that financially cheating was worse.

But despite this, most didn’t find this to be a deal breaker.

Over 80 percent surveyed said they would be upset, but wouldn’t end the relationship. Only 2 percent of those asked would end the relationship if they discovered their spouse or partner was hiding $5,000 or more in credit card debt. That number however is highest among those lower middle class households ($30,000-$49,999 income bracket): Nearly 10 percent would break things off as a result.

Roughly 15 percent said they wouldn’t care at all. Studies do show however that money troubles is the leading cause of stress in a relationship.

That’s why, Rossman says, it’s important to share that information with your partner.

“Talking about money with your spouse isn’t always easy, but it has to be done,” he said. “You can still maintain some privacy over your finances, and even keep separate accounts if you and your spouse agree, but you need to get on the same page regarding your general direction, otherwise your financial union is doomed to fail.”

With credit card rates hovering at an average of 19.24 percent APR, hiding financial information from a partner could be financially devastating.

But, Rossman adds, it’s not just about the economic impact but also the erosion of trust.

“More than the dollars and cents is that trust factor,” he said. “I think losing that trust is so hard to regain. That could be a long lasting wedge.”

Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.

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7 Examples Of Terrible Financial Advice We’ve Heard

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Between television, radio, the internet and well-meaning but presumptuous friends and family, we’re inundated with unsolicited advice on a daily basis. And when it comes to money, there’s a ton of terrible advice out there. Even so-called experts can lead us astray sometimes.

Have you been duped? Here are a few examples of the worst money advice advisers, bloggers and other personal finance pros have heard.

1. Carry a balance to increase your credit score.

Ben Luthi, a money and travel writer, said that a friend once told him that his mortgage loan officer advised him to carry a balance on his credit card in order to improve his credit score. In fact, the loan officer recommended keeping the balance at around 50 percent of his credit limit.

“This is the absolute worst financial advice I’ve ever heard for several reasons,” Luthi said. For one, carrying a credit card balance doesn’t have any effect on your credit at all. “What it does do is ensure that you pay a high interest rate on your balance every month, neutralizing any other benefits you might get from the card,” Luthi explained. “Also, keeping a 50 percent credit utilization is a surefire way to hurt your credit score, not help it.”

Some credit experts recommend keeping your balance below 30 percent of the card limit, but even that’s not a hard-and-fast rule. Keeping your balance as low as possible and paying the bill on time each month is how you improve your score.

2. Avoid credit cards ― period.

Credit cards can be a slippery slope for some people; overspending can lead to a cycle of debt that’s tough to escape.

But avoiding credit cards on principle, something personal finance gurus like Dave Ramsey push hard, robs you of all their potential benefits.

“Credit cards are a good tool for building credit and earning rewards,” explained personal finance writer Kim Porter. “Plus, there are lots of ways to avoid debt, like using the card only for monthly bills, paying off the card every month and tracking your spending.”

If you struggle with debt, a credit card is probably not for you. At least not right now. But if you are on top of your finances and want to leverage debt in a strategic way, a credit card can help you do just that.

3. The mortgage you’re approved for is what you can afford.

“The worst financial advice I hear is to buy as much house as you can afford,” said R.J. Weiss, a certified financial planner who founded the blog The Ways to Wealth. He explained that most lenders use the 28/36 rule to determine how much you can afford to borrow: Up to 28 percent of your monthly gross income can go toward your home, as long as the payments don’t exceed 36 percent of your total monthly debt payments. For example, if you had a credit card, student loan and car loan payment that together totaled $640 a month, your mortgage payment should be no more than $360 (36 percent of $1,000 in total debt payments).

“What homeowners don’t realize is this rule was invented by banks to maximize their bottom line ― not the homeowner’s financial well-being,” Weiss said. “Banks have figured out that this is the largest amount of debt one can take on with a reasonable chance of paying it back, even if that means you have to forego saving for retirement, college or short-term goals.”

4. An expensive house is worth it because of the tax write-off.

Scott Vance, owner of taxvanta.com, said a real estate agent told him when he was younger that it made sense to buy a more expensive house because he had the advantage of writing off the mortgage interest on his taxes.

But let’s stop and think about that for a moment. A deduction simply decreases your taxable income ― it’s not a dollar-for-dollar reduction of your tax bill. So committing to a larger mortgage payment to take a bigger tax deduction still means paying more in the long run. And if that high mortgage payment compromises your ability to keep up on other bills or save money, it’s definitely not worth it.

“Now, as a financial planner focusing on taxes, I see the folly in such advice,” he said, noting that he always advises his client to consider the source of advice before following it. ”Taking tax advice from a Realtor is … like taking medical procedure advice from your hairdresser.”

5. You need a six-month emergency fund.

One thing is true: You need an emergency fund. But when it comes to how much you should save in that fund, it’s different for each person. There’s no cookie-cutter answer that applies to everyone. And yet many experts claim that six months’ worth of expenses is exactly how much you should have socked away in a savings account.

“I work with a lot of Hollywood actors, and six months won’t cut it for these folks,” said Eric D. Matthews, CEO and wealth adviser at EDM Capital. “I also work with executives in the same industry where six months is overkill. You need to strike a balance for your work, industry and craft.”

If you have too little saved, a major financial blow can leave you in debt regardless. And if you set aside too much, you lose returns by leaving the money in a liquid, low-interest savings account. “The generic six months is a nice catch-all, but nowhere near the specific need of the individual’s unique situation… and aren’t we all unique?”

6. You should accept your entire student loan package.

Aside from a house, a college education is often one of the biggest purchases people make in their lifetimes. Often loans are needed to bridge the gap between college savings and that final tuition bill. But just because you’re offered a certain amount doesn’t mean you need to take it all.

“The worst financial advice I received was that I had to accept my entire student loan package and that I had no other options,” said Gina Zakaria, founder of The Frugal Convert. “It cost me a lot in student loan debt. Now I tell everyone that you never have to accept any part of a college financial package that you don’t want to accept.” There are always other options, she said.

7. Only invest in what you know.

Even the great Warren Buffett, considered by many to be the best investor of all time, gets it wrong sometimes. One of his most famous pieces of advice is to only invest in what you know, but that might not be the right guidance for the average investor.

In theory, it makes sense. After all, you don’t want to tie up your money in overly complicated investments you don’t understand. The problem is, most of us are not business experts, and it’s nearly impossible to have deep knowledge of hundreds of securities. “Diversification is key to a good portfolio, and investing in what you know leads to a very un-diversified portfolio,” said Britton Gregory, a certified financial planner and principal of Seaborn Financial. “Instead, invest in a well-diversified portfolio that includes many companies, even ones you’ve never heard of.”

That might mean enlisting the help of a professional, so make sure it’s one who has your best interests at heart.

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