Consumer financing scams are everywhere.
Look around. Just because the law requires “Truth in Lending” or the “Credit CARD Act” demands plain English disclosures, doesn’t mean the law is followed. Almost everyday the Credit Monkey hears about nightmare credit card and loan scams from his friends and family. It’s embarrassing to admit, but it even happened to the Monkey last week, ALMOST.
My wife called me on her way home from the office bubbling with excitement. Finally, after weeks of shopping, she found the perfect living room furniture. Better yet, she got a sweet financing deal, six months same as cash with immediate delivery.
When I arrived home, my wife shoved the furniture receipt and sales collateral into my hands, all the time extolling the virtues of a tan sectional with a right side arm. I smiled feigning interest. Home decor is Mrs. Monkey’s thing, not mine. Then I pulled myself a side to review the sales and financing documents.
After a quick scan of the papers, I asked, “Where’s the rest of it?”
“The rest of what?” she replied.
I cringed as, “Oh no, here we go,” popped into my mind. So began “one of those” husband and wife conversations about the great deal and the sweet financing that may not be so great or so sweet. It didn’t take long to realize that Mrs. Monkey didn’t know the terms of the “sweet financing” for which she agreed. Just like many other people who get scammed, Mrs Monkey heard only the the parts of the sales pitch that excited her, e.g., “that sectional is just the size you need”, “isn’t the color wonderful”, “it’s in stock”, “delivery will be Wednesday”, “six months same as cash”. When it comes to details, however, Mrs. Monkey had no idea what to ask. Rather than appear uninformed, she accepted the furniture retailer’s statements about the “sweet financing” without question.
Consumer Financing Is Confusing
Financing agreements are complicated. Lending jargon is confusing. That is why federal law requires businesses that offer consumer financing disclose the terms of their loans in writing and in plain English at the time that the credit is offered or granted. The required disclosures include information about the interest rate, the amount of the payments or how payments are calculated (depending on the type of financing), minimum payments and when payments are due.
Mrs. Monkey received none of the required information. All she received was an eight by ten inch blue paper receipt. Printed in small type on the bottom left side of the receipt was this brief statement.
“No interest if paid in full within 6 Months. To avoid interest, you must pay the full balance before the promotional period ends. If you do not, interest is charged from the date the purchase posts to your account at the standard APR. Minimum Payments will NOT pay off the balance in time. I agree this purchase is subject to the terms of this receipt, the promotional offer shown, and the cardholder agreement.”
There was was a space for initials and then the statement below followed by a signature line.
After reading the paragraph, I had more questions than answers. What is the “standard APR”? How much are the minimum payments? What are the terms of this receipt? I had no idea to what Mrs. Monkey agreed and the retailer failed to disclose anything more than a sugar coated sales pitch.
Printed on the bottom right of the receipt, next to a signature line was, “I hereby acknowledge and agree to the arbitration agreement on the back of this invoice and all other terms of sale.”
Also on the front of the receipt was a paragraph titled “FINANCE TERMS.” The paragraph contain no real terms other than a statement a statement that either the furniture retailer or a local bank will finance the purchase for you and to get the promotional financing the buyer must agree to take any dispute to arbitration. Arbitration? Really?
Typically, consumer financing terms are found on the back of the sales order or the agreement granting credit. There were none. All that was on the back of Mrs. Monkey’s receipt were arbitration terms that weighed heavily to the benefit of the retailer. Under the arbitration rules demanded by the seller, it would cost more to settle a dispute than it cost to purchase the furniture.
I called the retailer and asked for a copy of the required disclosures. They had none. In fact, no sales person knew the terms of the credit offering beyond six months same as cash. I cajoled and I threatened the sales team and the office staff for thirty minutes before my call was transferred to a knowledgeable manager. The manager knew some of the terms, but failed to inform his staff. When he told me the terms, I understood why. Every penny of the loan must be paid in its entirety within six months. If not, 29.99% APR interest is charged on the entire balance including the paid six months “same as cash” portion.
Let’s skip past the Monkey’s outrage over the deceptive financing, the ridiculous arbitration agreement and the unscrupulous inclusion of two items to the sale that Mrs. Monkey expressly told the salesperson she did not want or need and let’s get to the end of the story. The following day, Mrs. Monkey went back to the store and cancelled the purchase.
5 Rules to Avoid Consumer Financing Scams
Avoiding consumer credit scam requires vigilance, a little bit of knowledge and some common sense. To avoid a consumer credit scam, follow these Five Rules:
- If something sounds too good to be true, it usually is.
- If details are unknown, then is a good reason to avoid the transaction.
- Financing disclosures are at least one page long. On its website, Bank of America provide samples of various Truth in Lending Disclosures. If you are granted credit without the required disclosures, you were scammed. Click on the link below for for sample disclosures. https://www.bankofamerica.com/credit-cards/credit-card-agreements/
- Read disclosures closely for excessive APR rates and hidden fees such as late fees, annual fees, service charges and even paper statement fees.
- Beware of limited time or introductory offers. Relying on special offers can cost you more than they save you.
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