A Feel-Good Investing Option

One decision I made earlier this year that I’m happy with is moving some of my investments into the MSCI KLD 400 Social Index. In a nutshell, it’s an exchange traded fund similar to S&P 500 index funds with a key exception. It parses out companies that are significantly involved in the following industries: alcohol, tobacco, firearms, nuclear power, military weapons, and gambling.

Personally, I feel better knowing that I’ve at least made an attempt to not build my nest egg through death, destruction, and exploitation.

Also interesting. Economist James A Brander in The Journal of Business Ethics found that the companies meeting the criteria for this fund tend to have somewhat more sane executive compensation packages (12% lower on average) relative to the executives in the death, destruction, and exploitation industries.

Many Americans don’t have the luxury of choosing ethical funds for investments due to the limited choices offered by their 401k plans (assuming they’re in a position where they can invest at all). But, if you have money with more flexibility (ex. IRA, Roth IRA, Rollover IRA or money in non-retirement investments), know that there are options available worth checking out such as this.

TruStone Financial’s Manipulative Overdraft “Protection” Solicitation

My credit union, Trustone Financial, sent me an Overdraft Authorization solicitation today:

TruStone Financial Opt-In Notice

Correct me if I’m wrong, but when you receive a letter from a financial institution you have a business relationship with that says “ACTION REQUIRED” on the cover, the enclosed information should have something to do with taking action on something that’s, you know, required.

But, that wasn’t the case in this case. Instead, Trustone simply wanted me to opt-in to allowing them to charge me more money. Opt-in does not equal action required.

This manipulative request from Trustone appears to be in response to the Federal Reserve’s rule change last year where they told financial institutions that they could charge overdraft fees to customers on debit card transactions only after receiving permission from their customers to do so.

For example, had I used my debit card to pick up a cappuccino at Cuppa Java this morning, but had less than $5 in my checking account at the time, my credit union could take a few different actions:

1. Deny the charge, causing potential embarrassment to me, but saving me from buying something I clearly couldn’t afford. Or, perhaps just using a different card.

2. Pull the money from a savings account or line of credit to cover the expense.

3. Let the charge go through, then charge me a $30 overdraft fee.

4. Let the charge go through, knowing that I’ve been a loyal customer for 20 years and am probably good for it. (LOL.)

Situation #3 is the sticker here. They can no longer do that if I don’t fill out their authorization form. Because I haven’t given them permission to charge me an outrageous fee, they can’t.

This can get particularly ugly for people who are living check to check. Getting hit with even one of those $30 charges can set off a cascade of additional overdrafts, thus more $30 fees, thus more overdrafts. At Trustone, the death spiral can continue until you’re $800 in the hole. At that point, they decline additional debit charges rather than continuing to bury you. I’m not sure if that size of a hole was determined to be the most punitive someone with little money can recover from, or if it’s set by the government, but I suppose it’s nice to know that it ends somewhere.

So, Trustone, if you really think that it benefits me to opt-in to receive $30 charges when attempting to buy things I must not be able to afford, break it down for me. Frankly, this seems WAY more expensive than putting the same charge on a high interest credit card where a $5 cappuccino could ride along at 20% interest for a decade before becoming more expensive than one $30 overdraft fee, but I’m willing to listen.

Western Union’s Fraud Control 419 Scam Fail

A friend of mine recently had her Facebook account hacked. The hacker then started contacting her friends through Facebook Chat with a request to have money sent to her through Western Union. In a nutshell, the person made up a story that she was stuck in London with her family, had been mugged, and needed money to pay for the hotel and get home.

Below is a transcript of the conversation I had with my friend’s Facebook hacker / fraudster. Below that is a breakdown of my attempt to work with Western Union to solve this problem. It’s also worth nothing that the hacker wiped a lot of information off my friend’s Facebook profile, including her phone number so people couldn’t see her number and call her directly to verify the situation. They also turned off her wall so people couldn’t leave warnings for others about this scam.

(Friend of Ed)
Hey
How are you doing ??

12:04
(Friend of Ed)
glad you responded
i and my family are in some deep mess at the moment

12:04
Ed Kohler
oh?

12:05
(Friend of Ed)
we are currently stuck in London UK

12:05
Ed Kohler
on a vaca?

12:05
(Friend of Ed)
went on a short vacation unfortunately got mugged at a gun point last night
Scary!!!

12:06
Ed Kohler
Wow. I’d say.

12:11
(Friend of Ed)
i was hit at the back of my neck with the gun
all cash cellphones including credit card were stolen off by the muggers

12:12
Ed Kohler
not good

12:12
(Friend of Ed)
it was a brutal experience but i thank god we still have our lives and passport saved…i really need your help

12:13
Ed Kohler
What do you need?

12:14
(Friend of Ed)
our return flight leaves in few hours time from now and we are having problems settling the hotel bills and getting a cab down to the airport
wondering if i could get a quick loan from you
i promise to def refund it as soon as we get back home hopefully tomorrow

12:15
Ed Kohler
How much do you need?

12:17
(Friend of Ed)
1,250
Okay ?

12:18
Ed Kohler
What does that cover?

12:18
(Friend of Ed)
do you know how to get it to me ?

12:19
Ed Kohler
What would work for you?

12:19
(Friend of Ed)
yes…do you know how to get it to me ?

12:20
Ed Kohler
How?

12:20
(Friend of Ed)
you can have to send it on my name and present location via western union
kindly log on to www.westernunion.com
got it ?
….

12:22
Ed Kohler
How about I just pay the hotel directly?

12:23
(Friend of Ed)
i will also be needing some money to get a cab down to the hotel and also need some money for feeding
are you on the site now ?
???

12:25
Ed Kohler
How about I just pay the hotel directly?

12:26
(Friend of Ed)
i told you earlier i will also be needing some money to get cab down to the airport and we are totally freaked out here

12:26
Ed Kohler
I bet the hotel could pay for the cab. I could just pay that one bill for you.

12:26
(Friend of Ed)
we have nothing to feed on on the main time before getting on the flight
should i give you the info you need in wiring the money to me ?

12:28
Ed Kohler
yep
Does the hotel have a restaurant?

12:29
(Friend of Ed)
okay..here is the info you need

12:34
(Friend of Ed)
Name: (Friend of Ed)
Location: London United Kingdom
got it ?

12:35
Ed Kohler
What else do I need?

12:36
(Friend of Ed)
that all you need

12:36
Ed Kohler
is it set up now?
12:38
(Friend of Ed) connected

12:38
(Friend of Ed)
can i have your direct email address so i can email you..i have to rush down to the hotel room now to get our stuffs ready

(Friend of Ed)
you there ??
you still there ??
you still there ??
you still there ??
you still there ??
you still there ??
you still there ??
you still there ??
you still there ??

12:44
Ed Kohler
Yep. Do you have a Western Union account number I should send the money to?

12:44
(Friend of Ed)
all you need to do is send it on my name
i thank God i still have my valid ID passport to pick up the money

12:45
Ed Kohler
12:45
Could you let me know that you’re who you say you are?

The same fraudster also spoofed my friend’s email address to send emails to her Facebook contact’s email addresses:

I don’t know what wrong with my facebook account cos it really acting up…It’s me.. am sorry i did not inform you that i will be going on vacation,this is for real, i’m doing everything i can to work my way out of here peacefully.. i have checked with the consulate but there is nothing really working out, most important is i don’t have enough money on me, please i need you to loan me the money,i will def refund it as soon as am back home.

I owe you alot

While carrying on this chat, I called my friend and left her a voicemail to let her know that her Facebook had been hacked. I also reported her account as hacked through Facebook’s 419 Scam Report Form.

I then contacted Western Union’s fraud department to let them know that I had a fraudster on the hook, and would like to work with them to have the person arrested. Unfortunately, this did not go well. Rather than help figure out who the fraudster was, the Western Union fraud rep’s advice was to contact my friend and tell her that her Facebook account had been compromised. I explained to the rep that I was interested in solving the larger issue with the fraudster. I suggested that we work together to have the person arrested when they go to a Western Union office to pick up fraudulently acquired funds. I figured it would be worth transferring a few bucks through Western Union as bait to help catch the fraudster. Should that person walk into a Western Union office, the office could call the local police to have the person arrested.

Unfortunately, Western Union’s response to this request is that there was nothing they could do. That, of course, is a load of crap. Western Union clearly has the capability to flag a fraudulent transaction and notify authorities. They are simply choosing not to help fight criminal activity that leverages their money transferring system.

It makes me wonder how much money Western Union makes from fraudulent web scams such as 419 scams like this one. Their complete lack of interest in catching a person who’s using their business for criminal activities is shocking.

How Can I Transfer a Mortgage Away from Wells Fargo?

After refinancing my home, the bank that handled the transaction sold my mortgage to Wells Fargo. No big deal. Loans are sold all the time.

However, I’m now discovering that Wells Fargo isn’t the kind of company I’d like to see profiting from my debt.

The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, the sources said.

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

According to the sources, the Wells Fargo investigation concludes that senior managers at the firm, the fourth-largest American bank by assets, broke civil laws. HUD’s inspector general interviewed a pair of South Carolina public notaries who improperly signed off on foreclosure filings for Wells, the sources said.

This is kind of a big deal. In fact, the companies involved in this fraud offered to pay $5 billion (with a “b”) to settle this (without admitting any wrongdoing, of course). The government responded by stating that that’s WAY too low a figure, and that $30 billion (with a “b”) is a more reasonable figure to make up for the pain they’ve caused American taxpayers. $30 billion in fraud is the like stealing $100 from every single American.

So, I’m looking for advice on how I may be able to convince Wells Fargo to sell my mortgage to a more reputable lending institution. Any ideas on how I can convince them to get rid of me would be greatly appreciated.

PS: I believe I was told (and even signed off) at my closing that Wells Fargo would be buying my mortgage. That was before I realized that this company was ripping off taxpayers. Turning back time is tough without a DeLorean.

An Excellent Explanation of Credit Scores

It turns out that your financial situation is being graded on a curve, and the curve is being graded against the economy. The Cleveland Fed breaks it down in this video:

So, if all of you could figure out how to improve the economy, while simultaneously ruining your own credit, I’d really appreciate the help.

via Zillow.

What Do Sub-Prime Borrowers Look Like?

CrisisOfCredit.com has an excellent video explaining how we got into this credit crisis. But one thing about the video seems a little overdone.

They include drawings of what a prime vs sub-prime borrower looks like.

Prime:

Prime vs Sub-Prime Lending

Sub-Prime:

Prime vs Sub-Prime Lending

That seems a little ridiculous. The number of kids, weight, and smoking habits of borrowers likely has little to do with their financial situation.

As I understand the term, sub-prime refers to people with credit scores under 620. That can be just about anyone who’s fallen behind on credit cards or other types of financing.

In a rising market with high employment, even that group skated along just fine because they could always refinance based on the increased equity of their homes, or continue to pay their mortgage while letting other bills fall behind. But things hit the fan when homes stopped increasing at the rates they were. Put that together with layoffs and it’s pretty easy to see why both images above could represent the credit crisis.

Can You Trust Craigslist Beggars?

Have free online classifieds sites made begging easier? I have no idea if it works, but here’s someone who’s giving it a try (the highlighting is mine):

Family of six in dire need of financial help! soon... - minneapolis / st paul misc. services - backpage.com

The reason for the highlighting is what I found related to this over on Craiglist:

CAN YOU HELP FAMILY IN CRISIS??

and

Family In Need of House ASAP

and

Urgent Please Help for Christmas.

What the heck is going on here? How can someone’s family size fluctuate so much in a month?

Why doesn’t Tami know how to spell her own name?

If you’re in a position to donate, stick to reputable charities over this strange case.




Looking for More Credit Card Transparency

Jeffrey McManus raises some interesting points about the type of data credit card companies share with their customers along with that they hold back. They’re good at telling you your balance, due date, and minimum payment, but McManus would like to see:

* When will I pay off this ding-a-dang debt?
* What is this ding-a-dang debt costing me?

Good points

I get my credit card statements online, where the information – while more up to date – is generally thinner than what you’ll find in a printed statement. For example, I can’t find out the APR for my cards online. What’s up with that? If you’re going to charge me interest, shouldn’t you have the decency to publish the rate you’re charging me? Fortunately, I don’t carry a balance, but still feel like I’m being mislead by my credit card providers.

Prosper.com Loan Review – Person to Person Lending

Prosper.com LendingProsper.com is a service that allows people to lend money – with interest – to other people, and thus turns everyone into a bank. I’ve put off writing this review for a while because I wanted to make sure this service was legitimate before endorsing it. It is, and I’ll explain why below.

Here is how the site works: Borrowers sign up with the site, then run their credit score through the site (Prosper currently uses Experian for this). Prosper converts the borrower’s credit score into a letter grade to simply things. For example, a 700 credit score would translate into a B rating on a scale with the following grades: AA-A-B-C-D-E-HR (HR = high risk).

The borrower then tells Prosper how much they’d like to borrow and Prosper gives the borrow a feel for what they can expect to pay interest-wise on their loan. A borrower with a B rating who’s looking for $1000-5000 is currently able to borrow money at 13.95%.

Next step: The borrower then starts a week-long auction for their loan. Sticking with the B rating borrower example, the borrower would probably want to start their auction at a higher rate – say, 18%. Once that goes live, people on the lending side of Prosper (including me) will bid on the borrower’s loan in increments of $50 up to the full value of the loan. Before long, a group of dozens (if not hundreds) of lenders will, together, fulfill the loan. But there will still be plenty of time on the clock. At that point, lenders will start outbidding each other and start driving down the rate of the loan do something below 18% and probably in the 14% range based on historical patterns.

When the week is up, the borrow has the option on whether to take the lender’s offer or skip it.

If accepted, the lender’s money is transfered to the borrower, who repays the loan in fixed payments over three years (36 monthly payments).

My Experience

I’ve only used the service on the lending side, and I can tell you that it works very well. In fact, it works better than expected, but I imagine that’s because it’s still early and an imperfect market. I believe the balance of borrowers to lenders favors lenders right now, so lenders are getting surprisingly high returns on the money they lend.

My current rate of return on money I’ve lent is 13.59%. Yes, that’s correct. And none of the borrowers I’ve lent money to haven’t fallen even one day behind on their payments.

My Lending Strategy

When I first started using the site, I reviewed borrower’s stories and checked out their reasons for borrowing money. I would then bid on the cases that seemed like a fair risk. However, I was often bumped out by other lenders who came later to the same auction which led to more time than I wanted to invest. So I switched over to using Prosper’s portfolio management plan. With this, I simply tell Prosper what my risk tolerance is, and they’ll auto-bid on loans in dollar increments that I set.

This is also nice because Prosper will auto-fulfill loans whenever my account accrues $50 in repayments from other borrowers. Get that money back to work, pronto.

Common Questions

I’ve talked about this with a lot of friends, and here are the common questions I am asked.

Is this secured debt? No. There is nothing to repossess if the borrower doesn’t pay. However, lenders are required to choose a collections agency to work with on their behalf, assuming a borrower falls behind. Prosper has a separate market to help you determine which collections agency has had the best results collecting on overdue debt payments. There is a small fee for this.

How can I tell whether a borrower is legitimate? Proper publishes a ton of data about a person’s financial history after running the borrower’s credit score. This will give you a feel for how much debt they already have, how much they make, etc. You can also ask borrowers questions (and read questions and answers from other prospective lenders). Over time, the site also keeps a history of borrowers so people can build credibility up within the site similar to Ebay’s rating system.

Who started Prosper? The folks who founded e-Loan, so they have serious experience with online lending.

How do I get started?

I am definitely NOT a financial adviser, but if you want to give it a try, here is what I recommend: Sign up with the site as a lender. Go through the verification process, then fund your account with $75. Once the money hits your Prosper account, lend someone $50 to get a feel for how the system works. Once you’ve successfully done that, Prosper will give you a new-lender $25 bonus. Then lend out the remaining $50 in your account. You’re up 33% at that point and have a much better feel for whether this is something worth pursuing.

Wal-Mart Screws the Poor with Debit Card Fees

Dear Wal-Mart,

When you charge people to issue them a debit card, then charge them to put money on the card, and charge them a monthly fee in order to have a debit card, you’re no longer providing a service. You’re simply preying on your poorest and most financially illiterate customers.

This is insane:

Walmart’s Debit Card Has Lots Of Hidden Fees

  • Card issue fee: $8.94
  • Reload the card with more money: $4.64
  • ATM transaction fee: $1.95
  • ATM balance inquiry: $0.75
  • Monthly maintenance fee: $4.94
  • Statement fee: $2.00

And you know it’s insane. Your greed is destroying the financial future of financially strapped people.

Show some maturity and social responsibility.

Provide cards at reasonable rates – you’ll still make money on every transaction – and get your foot off the throats of your poorest customers.

via Consumerist & j-walk blog