Speaking of Scams
Next time you receive a check in the mail for some astronomical
amount, don't assume it's from Ed McMahon and toss it in the garbage.
It could be an instant loan check.
These checks are a new marketing gimmick for financial
institutions (credit card companies and mortgage lenders) and they
are being met with opposition due to high interest rates and risk of
fraud.
For example, one consumer who had no affiliation with the
originating bank, received a $7,500 check which, if signed, would
loan her the $7,500 at a rate of 13.99% over 60 months.
The check need only be signed to be cashed. The lenders say they
only solicit people with good credit histories and defend the loans
as a convenience to consumers. But, others argue there aren't enough
protections to ensure a consumer isn't penalized if someone else
cashes the check.
Since some checks come from credit card companies, consumers may
believe the same rules apply to these checks as to the credit card.
But, in reality the checks are much different. For example they:
1. don't have the same rates as the credit card;
2. don't offer the same protections as the credit card;
3. usually don't have a grace period-interest is accrued as soon
as the check is cashed;
4. may charge an additional transaction fee;
5. may not offer rebates or miles as credit card purchases do.
Now Rep. Maurice Hinchey has proposed a bill banning the loans.
Hinchey's bill is also sponsored by Rep. Henry B. Gonzalez of Texas,
the Banking Committee's senior Democrat. The politicians see a
parallel with a 1970 law that banned the practice of sending
unsolicited credit cards in the mail. On the other hand, The American
Bankers Association views Hinchey's bill as anti-consumer since it
would hinder consumers' choices.
The checks are still too new to determine how widespread they are.
But, Signet has singed up nearly $1 billion in 18 months. As far as
protections, Gaylon Layfield, president and CEO of Signet says, "We
think the consumer is well protected," because consumers aren't
liable if a check falls into the wrong hands. Denise Foy, Vice
President of Beneficial Corporation, a major consumer-finance company
who issues the checks, says they have safeguards to minimize
inconvenience "in the rare event" a check is cashed by someone else.
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