Wednesday, March 20, 2013

Loan Sharks Still Swimming Offshore

Payday lenders are among the scummiest people on the planet, I say without fear of argument, preying on the most financially vulnerable among us.

Unlike the loan sharks of yore, they no longer threaten to break your kneecaps, but short of that -- pretty much anything goes.

But when you're living teeny-paycheck-to-teeny-paycheck, a sudden emergency can leave you with nowhere else to turn. All of a sudden, an interest rate in excess of 500 percent can seem, if not reasonable, at least an option (especially because the rate is not usually presented in APR terms, but as "I can give you $100 now, and you'll pay me back, plus $20, in two weeks," which sounds almost reasonable.).

If you can't pay the full $120 two weeks from now, your lender will "kindly" accept partial payment and roll over the loan... You can see how quickly someone can get lost in debt.

Because  payday lenders rely on those whose financial options are few, and whose financial acumen is often also low, some states (15 to date) ban such loans. The lenders' solution? Move online.

New York Times journalist Jessica Silver-Greenberg reported late last month that these lenders have found willing co-conspirators in the major banks (full article, here). The banks themselves don't dirty their hands with such loans directly, but they're enablers, permitting "the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals." (emphasis added)

The bankers' explanation? They are "simply serving customers who have authorized the lenders to withdraw money from their accounts."

This is ingenuous, at best.

Especially since the withdrawals often "set off a cascade of [highly profitable] fees from problems like overdrafts."

I doubt that there are any truly ethically-minded payday lenders, but moving online has made it even easier for the true scam artists to operate.
While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. 

Customers have the legal right, under federal law, to stop such automatic withdrawals. But many have complained that their banks have ignored their requests to do so.

But there's a glimmer of good news.

In today's Times, Silver-Greenberg reports that JP Morgan Chase is changing its policy to give its customers greater control to halt the automatic withdrawals and close their accounts (full story, here). Unfortunately, both Bank of America and Wells Fargo said that their policies regarding payday loans would be unchanged.

It's also only a glimmer of good news because JP Morgan Chase said that part of the policy change would include "training to their employees so that stop-payment requests are honored."

Wouldn't you expect your bank to honor your request to stop payment from your account anyway?!?

Monday, March 11, 2013

$8.3 Million. And Counting.

How much is a bad business decision going to cost you? It depends, of course.

Johnson & Johnson got one answer last week: $8.3 million and counting.

That was the jury award ($338,000 for medical expenses, and $8 million for pain and suffering) from the first of many cases against Johnson & Johnson's DePuy Orthopedics unit for its now-recalled metal-on-metal artificial hip.

The 12-member jury, however, did not award punitive damages, accepting that the company did not act "with fraud or malice". (A complete news article on the decision, by Barry Meier in Friday's New York Times, can be found here.) Meier wrote that

Internal Johnson & Johnson documents that became public during the trial indicated that the company executives were told by surgeons, who were also paid consultants to the design maker, that the design of the A.S.R. [Articular Surface Replacement, the full name of the metal-on-metal hip replacement] was flawed. In addition, some surgeons also urged the device maker to slow sales of the implant or stop them completely....

In the case, evidence was also presented that showed Johnson & Johnson considered redesigning the A.S.R. to reduce its problems, but then abandoned the project because the implant's sales did not justify the costs of the redesign.

Johnson & Johnson did move to recall the device, introduced first in 2003, in 2010 "when data from an orthopedic registry in Britain showed that its failure rate was higher than normal."

In fact, about four in ten patients with an A.S.R. would need a second operation within five years to have the implant replaced. In comparison, traditional artificial hips, made of a combination of metal and plastic, generally have a failure rate of less than 5%.

DePuy has said that it will appeal the damage award.

The second of more than 10,000 cases goes to trial today in Chicago.