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San Diego, CA.
Why are bankers getting more excited about promoting
consumer debt? Because a new lucrative debt protection
program has replaced credit insurance as part of more and
more lending agreements consumers sign when closing a loan
other than a mortgage. This is not a separate insurance
contract, so loan officers do not need a license to sell
it and it is regulated by one state or federal banking
agency rather than 50 state insurance agencies, according
to USBanker magazine (06-04).
This is a new and growing profit center for lenders.
Credit insurance, a waste of money for the majority of
borrowers, used to be an option. Now, even the most
creditworthy customers may be stuck paying for this
protection, which amounts to the lender agreeing to
suspending or canceling the loan payments under certain
conditions for an unspecified period of time. So if a
consumer wants the loan, they may have to pay the debt
protection fees, like it or not.
The monthly cost is up to the lender, and to a large
degree what the market will bear. It seems the $15-$25
a-month added to the payment is acceptable to borrowers,
says USBanker, however it becomes a much tougher sell when
it approaches $50 a month-add on. Some lenders refer to
their product as monthly outstanding balance (MOB) debt
cancellation contracts. Debt protection with an
unemployment clause sells very well as one California
based lender discovered when comparing sales of debt
protection without an unemployment provision. This is just
another fee trap for qualified borrowers and even for
sub-prime borrowers. The chances of ever being eligible
for and collecting any benefits are very remote for the
large percentage of
borrowers.
A plus for home buyers is that many mortgage lenders are
now including no-cost or low-cost policies that provides
six to nine months of loan payments, following an
involuntary loss of employment. This seems worth while on
the surface if, in fact, it is no cost. Mortgage lenders
have a logical selfish interest because the costs
associated with default, in some cases leading to
foreclosures, can be in the $10,000 to $40,000 range or
more. Some policies also cover work related injuries,
however employers must certify the injury and the insured
must be under constant care.
The ICFE urges all borrowers to read loan offers very
carefully and completely to determine what fees and other
often unnecessary add-ons may be included in the monthly
payments before signing on the dotted line.
For more info contac:
Paul Richard, RFC
Executive Director
Institute of Consumer Financial Education
PO Box 34070
San Diego, CA 92163
619-239-1401
Email Reply: icfe@cox.net
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About the ICFE:
About the
ICFE:
The Institute of Consumer Financial Education (ICFE), founded in 1982 by the
late Loren Dunton (creator of the “certified financial planner” (CFP)
designation) and it is dedicated to helping consumers of all ages to improve
their spending, increase savings and use credit more wisely. The ICFE trains and
certifies Personal Finance Instructors for its own curriculum. It also trains
and certifies Credit Report Reviewers and Identity Theft Prevention Specialists.
The ICFE is an award winning, nonprofit, consumer education organization that
has helped millions of people through its education programs and resources. It
publishes the Do-It-Yourself Credit File correction Guide, now in its 16th
printing and has distributed over one million “Credit/Debit Card Warning Labels”
and “Credit/Debit Card Sleeves” world wide.
The ICFE became an official partner with the Department of Defense/Financial
Readiness Campaign in June of 2004.
The ICFE is also a partner in the national Jump$tart Coalition for Financial
Literacy and the California Jump$tart chapter. The ICFE staff is also active
with San Diego Saves, an offshoot of America Saves, and the California Student
Debt Resource Awareness Project (CASDRAP) (studentdebthelp.org).
The ICFE’s on-line help for consumers who spend too much was featured in PARADE
Magazine in the Intelligence Report section. The money helps and tips are from
“The Money Instruction Book,” a course in personal finance, positioned to become
among the premier programs in the new bankruptcy and debtor education
initiatives.
The ICFE Web site at:
http://www.icfe.info helps consumers with mending spending, learning about
the proper use of credit, budget and expense guidelines, how to set up and
implement a spending-plan and also how to access financial education courses and
videos and how to teach children about money. Other ICFE services include a free
eNewsletter, and an online resource center of financial education learning
tools, including videos, books, software and personal finance courses.
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