Archive for November 2015
GROSSE POINTE SHORES Grosse Pointe Shores is hoping to take advantage of lower interest rates to save thousands on bonds that were issued in 2007 to pay for a new marina at Osius Park.
City Councilman Bruce Bisballe, chair of the Finance Committee, said the city is anticipating a savings of roughly $350,000-$450,000 over the remaining life span of the bonds which would be paid off in 2026, according to documents from the citys bond counsel.
The savings are not locked in until the bonds are actually sold, Shores bond counsel Patrick McGow, of Miller Canfield, told the Shores City Council during a meeting Oct. 20.
McGow said the bond sale which is expected to take place in January would not extend the duration of the bonds at all from the 20-year span for which they were initially issued.
Bisballe said those savings would directly affect the marina fund, which needs all the help it can get. Despite improved occupancy rates the marina was near capacity this past summer the city cannot charge boatwell fees that would be high enough to cover all marina costs without raising those fees above what the market would bear, given that boaters have many options locally for their watercraft.
Michael Gormely, another of the citys bond attorneys, told officials that because the (bond) market pretty much shuts down after mid-December, the Shores would be advised to enter the market in early January, when not many other bonds are being sold.
There is really no benefit in waiting any longer than January, he said.
Gormely also feels that the Shores might be able to get an even lower interest rate than projected, although that wouldnt be known until closer to the bond issuance.
Theres going to be a heck of a lot of appetite for these bonds, he said.
The City Council unanimously voted in favor of refinancing the bonds during the Oct. 20 meeting.
Im really excited, City Manager Mark Wollenweber said. This is a really positive step for us.
Mayor Ted Kedzierski also expressed enthusiasm for the upcoming bond sale.
This represents a long-term hellip; recurrent savings thats really important for the security of our marina fund, he said.
If you have children, or might one day have children, or might one day fall in love, get married and possibly have children and if you’re not saving for college, well, you’re behind the eight ball. You’d better get moving.
When the rising cost of college comes up as a topic, these are the horror stories you hear. You also hear how starting early, and planning for decades in advance, is essential to paying for college when your child gets that all-important acceptance letter.
How do you save enough money to finance a college degree?
Is it really that bad?
College costs are certainly going up faster than the average paycheck. The College Board says the average annual cost of a four-year public college is a bit more than $9,000 a year — a 17 percent increase since 2010. The average annual cost of a private four-year college is $31,000 a year. That number is also up, about 10 percent in the past five years.
The question is: How do you save enough money to finance a college degree?
The answer, according to Fidelity Investments’ Keith Bernhardt is to start now, wherever you are in your life. He told LifeZette the most important things to do are to give your funds as much time as possible to grow, and to contribute regularly.
If you’re living paycheck to paycheck, “a regular auto-transfer into an account dedicated to college savings eliminates the anxiety surrounding when you will be able to make your next contribution,” said Bernhardt. It also makes it less likely you’ll dip into the college fund as an easy fix.
Related: College Confidential
But Bernhardt said it’s smart not to get hung up on a specific cost because colleges will cost what they cost. There’s nothing you can do to change that.
“Few families pay the full cost of college advertised,” Bernhardt said.
Make peace with the fact that you can’t pay for everything and go out and look for ways to close the gaps. Look for “grants, scholarships, work-study,” he said.
By Ben Saul, Kyle Tayman and Andrew Kim
Ben Saul is a Partner in Goodwin Procters Consumer Financial Services Litigation Group and a leader in the areas of consumer financial services enforcement and fair and responsible banking.
Kyle Tayman is an Associate in Goodwin Procters Consumer Financial Services Litigation practice group, and is also a member of the Government Investigation, Financial Technology and Antitrust practices.
Andrew Kim is an Associate in Goodwin Procters Litigation Department and Appellate Litigation Practice and is a member of Goodwin Procters Gaming, Gambling Sweepstakes Practice.
The Dodd-Frank Act conferred broad and unprecedented powers on the Consumer Financial Protection Bureau (CFPB or Bureau) to police a vast array of activity. Chief among the Bureaus enforcement mechanisms has been the Acts UDAAP provisions, which authorize the Bureau to bring suit for “unfair, deceptive, or abusive” acts or practices.
Congress did not specifically define what makes an act “unfair, deceptive, or abusive.” Yet, for “unfair” or “deceptive” acts, it had no need to do so. As the Bureau has recognized, federal enforcement actions predating Dodd-Frank provide sufficient guidance as to what makes conduct “unfair” or “deceptive.”1 No such guidance exists, however, to explain the contours of what constitutes an “abusive” act. Nor does the CFPB have any current plans to fill this information gap. This lack of historical guidance coupled with the Bureaus silence on the matter has proven problematic for consumer finance companies seeking to understand their compliance obligations.
Although it is true that Congress itself provided little guidance in the text of the UDAAP statute and has previously prohibited “abusive conduct” in only specific contexts–eg, in credit decisions, debt collection, and telemarketing–that does not excuse the Bureaus approach to regulating abusive conduct.2 In fact, never before has an agency been given so much discretion to determine the legality of conduct, and yet done so little to inform the public of how it intends to exercise that discretion.
The law says the Bureau may declare conduct “abusive” only if it “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service” or “takes unreasonable advantage” of one of three considerations: (1) the consumers lack of understanding as to the “risks, costs, or conditions of the product or service”; (2) the consumers inability to protect himself “in selecting or using a consumer financial product or service”; or (3) a consumers “reasonable reliance” that a financial services provider would “act in the interests of the consumer.”3
But it is the Bureau itself that has taken advantage of the abusiveness prongs vagueness, bringing a series of enforcement actions covering conduct that ranges from the mundane to the extreme. Both the plain text of the statute and Dodd-Franks legislative history strongly indicate that the Bureaus authority to regulate “abusive” conduct is narrower than the Bureau seems to think. Unfortunately, despite the text, legislative history of Dodd-Frank, and strong arguments against the Bureaus broad interpretation of its abusiveness powers, it is unlikely that the CFPB will encounter a serious challenge to its approach to enforcing the UDAAP statutes abusiveness prong, and unlikely that the Bureau will voluntarily rein in its regulate-through-enforcement approach. Thus, entities falling within the Bureaus jurisdiction must take affirmative steps to ensure that their actions comply not only with the original intent of the UDAAP statute but also with the Bureaus emerging understanding of how it will enforce the law.
What Does the Statute Say?
Although the UDAAP statutes abusiveness provision may seem far-reaching at first glance, Congresss selection of certain words indicates that it intended for the scope of the provision to be narrow.
Indeed, part of the abusiveness prong is effectively functionless because it is subsumed into other parts of the UDAAP statute. The first half of the abusiveness provision allows the Bureau to bring an action if a financial service providers conduct “materially interferes” with a consumers ability to “understand a term or condition of a consumer financial product or service.” But the better understood “unfair” and “deceptive” prongs of the UDAAP statute cover much of the same ground, right down to the requirement that the providers action be “material.”
As one federal court has noted, Dodd-Franks UDAAP provision is “virtually identical” to prohibitions against unfair or deceptive acts or practices in the Federal Trade Commission Act.4 Rightly so. It is difficult to see how an “abusive” action may “materially interfere” with a consumers ability to understand the terms or conditions of a financial product or service, without that action also being deceptive or misleading. Many of the Bureaus abusiveness cases to date bear out this interpretation as they tend to lean on the second half of the abusiveness provision, which prohibits financial service providers from taking “unreasonable advantage” of consumers, while ignoring the “materially interfering” provision.5
So what does it mean for a financial services provider to take “unreasonable advantage” of a consumer? Traditional principles of statutory interpretation dictate that each word of a statute must be given effect.6 Because Congress inserted the word “unreasonable” to modify the word “advantage,” it expressed its intent to allow financial service providers to take actions of a reasonably prudent business in its dealings with consumers, and that only the extreme or “unreasonable” would be unlawful. And the plain text also suggests Congress intended to give financial service providers a wide berth–“reasonableness,” as seen in other contexts, is generally a low bar to clear.7 Although, as the enforcing agency, the Bureaus interpretations of Dodd-Franks ambiguous provisions are entitled to deference8, no such deference is warranted if a statutes meaning is clear and unambiguous, and here, the operative parts of the UDAAP statute are unambiguously worded to reach only extreme types of conduct.
What Did Congress Say?
Dodd-Franks legislative history confirms what the plain text strongly suggests–Congress intended for the abusiveness provision to be sparingly used in circumstances where a provider engaged in extreme conduct. Many statutes are enacted with nary a word said about them. Not so for Dodd-Frank. Congress was unusually specific in the type of conduct it thought abusive. Consider the Senate Banking Committees report on Dodd-Frank,9 which declared the following types of conduct to be abusive:
o Consumer credit: “Double-cycle billing, universal default, retroactive changes in interest rates, over the limit fees even where the consumer was not notified that a charge put him or her over the allotted credit limit, and arbitrary rate increases.”10
o Debt collection: “Debt collectors threatening violence, using profane or harassing language, bombarding consumers with continuous calls, telling neighbors or family about what is owed, calling late at night, … falsely threatening arrest, seizure of property or deportation, … filing collection suits against the wrong people; filing suits past the statute of limitations; collection attorneys not having any proof of the debt sued upon and falsely swearing they do; suing for more than is legally owed; and laundering a time-barred debt with a new judgment.”11
o Payday lending: “Consumers … being threatened with jail for passing a bad check, even when the law specifically says they cannot be prosecuted if the check bounces.”12
o Auto lending: Steering minorities, lower-income borrowers, and servicemen to high-rate loans.13
The common thread of these actions can only be described as coercive and extreme activity. Of course, legislative history is not the end-all-be-all of statutory analysis, especially with a broadly worded conferral of authority like the UDAAP statute. But given (i) the plain text of the abusiveness provision, which prohibits providers from only unreasonable conduct in dealing with consumers, (ii) the existing prohibitions of unfair and deceptive conduct, and (iii) the legislative history identifying only extreme conduct as “abusive,” the only reasonable conclusion is that the Bureau should proscribe conduct and pursue enforcement actions that are coercive and extreme, just as Congress intended. Unfortunately, the Bureau has strayed from Congress mandate and instead pursued a more expansive view of “abusive” conduct.
What Does the Bureau Say?
The Bureaus “abusiveness” actions to date have covered a broad range of acts and practices that differ significantly in severity, making it difficult to get a sense of the Bureaus understanding of the meaning of the word “abusive.” This uncertainty is compounded by the fact that the Bureau continues to refrain from issuing any advisory regulations. That the Bureau has avoided revealing its playbook should not be surprising; since the Bureaus early days, Director Richard Cordray has made it clear that abusiveness is a “fact and circumstances issue,” evading calls for the Bureau to set a cognizable standard.14 And the little guidance that the Bureau has provided repeats the same refrain. For example, a September 2014 bulletin states that “[d]epending on all of the facts andcircumstances,” the failure to disclose adequate information about certain material costs and conditions associated with promotional credit card offers could be deemed “abusive.”15
In the absence of meaningful prospective guidance from the Bureau, consumer finance providers must instead look to the Bureaus enforcement actions. Those enforcement actions provide limited data points and analogues for the types of conduct that financial services providers should aim to avoid to remain off the Bureaus sights. These include:
o Colfax Capital Corporation: In an agency consent order, the Bureau concluded that attempting to collect on debts with interest rates higher than those allowed under state usury laws was abusive because it “takes unreasonable advantage of … a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.”16
o Security National Automotive Acceptance Company: The Bureau contended that an auto-finance companys threats to contact the commanding officers of delinquent military borrowers took “unreasonable advantage of [a] consumers inability to protect his or her interests in selecting or using a consumer financial product or service.”17
o ACE Cash Express: The Bureau stated that inducing delinquent borrowers to take out new loans with fees in order to pay for the old debts takes “unreasonable advantage of … the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.”18
o College Education Services: The Bureau claimed a financial advisory firm that enrolled and took fees from consumers who were ineligible for loan consolidation engaged in abusive conduct because it took “unreasonable advantage of … the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”19
o ITT Educational Services, Inc.: The Bureau argued that steering students into private student loan products took “unreasonable advantage of consumers inability to protect their interests in selecting or using the … Private Loans.”20
o PayPal: The Bureau considered PayPals alleged failure to disclose how payments were allocated to consumer balances to be abusive because the company took “unreasonable advantage of … the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product of service.”21
o Freedom Stores: The Bureau asserted that a contract of adhesion containing a venue-selection clause was abusive because it “took unreasonable advantage of the inability of consumers to protect their interests while using or choosing credit agreements.”22
While these actions give lenders limited insight into what constitutes “abusive” conduct to the Bureau, it remains too early to fashion a set of best practices based on the scattershot of enforcement actions the Bureau has undertaken. Part of that is attributable to the fact that the CFPBs overall approach to discerning abusiveness seems to be in flux. Consider, for example, the Bureaus treatment of the attempted collection of debts void under state law. In CFPB v.NDGFinancial Corp., the CFPB argued that the providers actions “materially interfered with consumers ability to understand that they were not under legal obligation to repay the loan amounts that were void under state law,”23 a violation brought under 12 USC. § 5531(d)(1). But, nearly two years earlier, the CFPB had previously claimed in CFPB v. CashCall that a providers similar actions took “unreasonable advantage of consumers lack of understanding about the impact of applicable state laws on the parties rights and obligations regarding … loans,”24 a violation of a different provision, 12 USC. § 5531(d)(2)(A). The Bureau has provided no explanation for this change in legal theory, and it seems unlikely that one is forthcoming.
One thing that is apparent from the Bureaus fluctuating understanding of abusiveness is that it is widening its net to cover a broader range of offenses. Despite the Bureaus initial position that “abusive” conduct must be “outrageous enough,”25 the agency has since gone to court over mundane and technical offenses.26 For now, financial services providers would do well to closely monitor the CFPBs most recent enforcement actions and avoid analogous conduct, at least until a cognizable and coherent standard of abusiveness emerges.
What Should the Bureau Say?
Congress intended for the Bureau to promulgate rules defining abusiveness, and the Bureaus case-by-case approach contravenes this intent. In enacting the UDAAP statute, Congress specifically instructed the Bureau to “prescribe rules to identify [unfair, deceptive, and abusive] acts or practices.”27 Congress expressed its desire to “stop regulatory arbitrage”–ie, to “write rules and enforce those rules consistently, without regard to” the type of service or provider.28 But no workable framework seems to be on the horizon.
The Bureau cannot sustain its current tack for much longer. As the Supreme Court has made eminently clear, agencies cannot announce a new interpretation of a statute for the first time in an enforcement proceeding and attempt to enforce that interpretation in the same proceeding.29 It is especially troubling if the Bureau continues to try and do so by litigating and deciding cases at the agency level, rather than in federal courts. The Bureau has already been severely criticized for announcing new interpretations in its first contested administrative proceeding.30 It seems imprudent as a matter of law and policy, therefore, for the Bureau to continue the case-by-case approach to discerning abusiveness, particularly at the agency level and away from federal courts where consumer finance companies likely stand on a more level playing ground with the Bureau.
The Bureau and regulated consumer finance entities would be far better off if it established the meaning of “abusive” by rulemaking. The Bureaus enforcement actions would then be on more solid legal footing, and regulated entities would have some degree of certainty as to whether their policies comply with the Bureaus vision of the law. But until the Bureau softens its position that abusiveness may be discerned only on a case-by-case basis, financial services providers have limited options for guarding against abusive practices. Regulated providers can at most monitor new CFPB abusiveness actions, either internally or with the assistance of outside counsel, and amend existing policies to avoid conduct that is analogous to what legislative history reveals Congress intended to target, as well as the conduct actually pursued by the Bureau.
1CFPB Supervision and Examination Manual, UDAAP 1 (Oct. 2012) (“The principles of unfair’ and deceptive’ practices in the Act are similar to those under Sec. 5 of the Federal Trade Commission Act (FTC Act). The Federal Trade Commission (FTC) and federal banking regulators have applied these standards through case law, official policy statements, examination procedures, and enforcement actions that may inform CFPB.”).
2 7 USC. § 9b (Commodity Exchange Act); 15 USC. § 1692d (Fair Debt Collection Practices Act).
3See12 USC. § 5531.
4Illinois v. Alta Colls., Inc., No. 14-C-3786, 2014 WL 4377579, at *4 (ND Ill. Sept. 4, 2014).
5SeeCompl. ¶¶ 25, 28, CFPB v. Sec. Natl Auto. Acceptance Co., No. 1:15-CV-401 (SD Ohio filed June 17, 2015); Compl. ¶ 71, 75, CFPB v. PayPal, No. 1:15-CV-1426 (D. Md. filed May 19, 2015); Compl. ¶ 62, CFPB v. Nationwide Biweekly Admin., Inc., No. 3:15-CV-2106 (ND Cal. filed May 11, 2015); Compl. ¶¶ 41, 47, 63, 65, CFPB v. S/W Tax Loans, Inc., No. 1:15-CV-299 (DNM. filed Apr. 14, 2015); Compl. ¶¶ 55, 59, CFPB v. Coll. Educ. Servs. LLC, No. 8:14-CV-3078 (MD Fla. filed Dec. 11, 2014); Compl. ¶¶ 166-182, CFPB v. ITT Educ. Servs., Inc., No. 1:14-CV-292 (SD Ind. filed Feb. 26, 2014); Compl. ¶¶ 61, 63, CFPB v. CashCall, Inc., No. 1:13-CV-13167 (D. Mass. filed Dec. 16, 2013); Compl. ¶¶ 56, 61, 62, CFPB v. Am. Debt Settlement Solutions, Inc., No. 9:13-CV-80548-DMM (SD Fla. May 30, 2013); Consent Order ¶¶ 15, 16, 17, In re Fort Knox Natl Co., No. 2015-CFPB-0008 (filed Apr. 20, 2015), available athttp://files.consumerfinance.gov/f/201504_cfpb_regulation-fort-knox-mac-settlement.pdf; Consent Order ¶¶ 41, 43, In re Colfax Capital Corp., No. 2014-CFPB-0009 (filed July 29, 2014), available athttp://files.consumerfinance.gov/f/201407_cfpb_consent-order_rome-finance.pdf; Consent Order ¶¶ 28, 30, In re ACE Cash Express, Inc., No. 2014-CFPB-0008 (filed July 10, 2014), available athttp://files.consumerfinance.gov/f/201407_cfpb_consent-order_ace-cash-express.pdf.
6Loughrin v. United States, 134 S. Ct. 2384, 2390 (2014) (“cardinal principle” of statutory interpretation is that “courts must give effect, if possible, to every clause and word of a statute” (citation and internal quotation marks omitted)).
7See, eg, United States v. Hurt, 527 F.3d 1347, 1356 (DC Cir. 2008) (in ineffective assistance cases, “the bar of objective reasonableness is set rather low”); Dunkin’ Donuts Franchised Restaurants LLC v. Sandip, Inc., 712 F. Supp. 2d 1325, 1327 (ND Ga. 2010) (adopting the Blacks Law Dictionary definition of “unreasonable” in the commercial context–“irrational or capricious” or “not guided by reason” (quoting Blacks Law Dictionary 1679 (9th ed. 2009)).
8 12 USC. § 5512(b)(4)(A); Chevron, USA., Inc. v. Natural Resources Defense Council, Inc., 467 US 837, 843-44 (1984); CFPB v. Morgan Drexen, Inc., 60 F. Supp. 3d 1082, 1091 (CD Cal. 2014).
9 S. Rep. No. 111-176 (2010).
10Id. at 17.
11Id. at 19-20.
12Id. at 21.
13Id. at 22.
14How Will the CFPB Function Under Richard Cordray: Hearing Before the Subcomm. on TARP, Fin. Servs., and Bailouts of Pub. And Private Programs, 112th Cong. 69 (2012) (statement of Richard Cordray, Director, Consumer Financial Protection Bureau).
15Marketing of Credit Card Promotional APR Offers, CFPB Bull. No. 2014-02, at 4 (Sept. 3, 2014), available athttp://files.consumerfinance.gov/f/201409_cfpb_bulletin_marketing-credit-card-promotional-apr-offers.pdf.
16 Consent Order ¶¶ 41-44, In re Colfax Capital Corp., No. 2014-CFPB-0009 (filed July 29, 2014), available athttp://files.consumerfinance.gov/f/201407_cfpb_consent-order_rome-finance.pdf.
17 Compl. ¶¶ 25-29, CFPB v. Sec. Natl Auto. Acceptance Co., No. 1:15-CV-401 (SD Ohio filed June 17, 2015).
18 Consent Order ¶¶ 28-31, In re ACE Cash Express, Inc., No. 2014-CFPB-0008 (filed July 10, 2014), available athttp://files.consumerfinance.gov/f/201407_cfpb_consent-order_ace-cash-express.pdf.
19 Compl. ¶¶ 54-61, CFPB v. Coll. Educ. Servs., No. 8:14-CV-3078 (MD Fla. Dec. 11, 2014).
20 Compl. ¶¶ 170, CFPB v. ITT Educ. Servs., Inc., No. 1:14-CV-292 (SD Ind. filed Feb. 26, 2014)
21 Compl. ¶¶ 70-75, CFPB v. PayPal, Inc., No. 1:15-CV-1426 (D. Md. filed May 19, 2015).
22 Compl. ¶¶ 72-78, CFPB v. Freedom Stores, Inc., No. 2:14-CV-643 (ED Va. filed Dec. 18, 2014).
23 Compl. ¶ 140, CFPB v. NDG Fin. Corp., No. 1:15-CV-05211-CM (SDNY filed July 31, 2015).
24 Compl. ¶ 63, CashCall, Inc., No. 1:13-CV-13167 (D. Mass. filed Dec. 16, 2013).
25How Will the CFPB Function Under Richard Cordray, 112th Cong. at 70.
26 One “mundane” example can be seen in Freedom Stores, a case where the Bureau alleged that forum-selection clauses were abusive because they forced consumers to litigate disputes related to their debts far from where they lived. Compl. ¶¶ 72-78, CFPB v. Freedom Stores, Inc., No. 2:14-CV-643 (ED Va. filed Dec. 18, 2014). Yet courts have routinely upheld similar forum-selection clauses, absent evidence of fraud, undue influence, or, as one court put it, “overweening bargaining power.” See, eg, Titan Indem. Co. v. Hood, 895 So.2d 138 (Miss. 2004). Despite the fact that forum selection clauses are presumed to be valid, Doe 1 v. AOL LLC, 552 F.3d 1077, 1083 (9th Cir. 2009), and that there typically is a high fact-intensive bar to clear for declaring them invalid, the Bureau has claimed all forum selection clauses that may burden consumers with distant travel as “abusive.”
27 S. Rep. No. 111-176, at 172.
28Id. at 11.
29See Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 2168 (2012) (no agency deference where agency “announces its interpretations for the first time in an enforcement proceeding”).
30 Petrs. Br. at 24-32, PHH Corp. v. CFPB, No. 15-1177 (DC Cir. filed Sept. 28, 2015) (arguing that the Bureaus new interpretation of RESPA, announced for the first time during the adjudication, deprived Petitioners of fair notice). Disclaimer: The authors law firm, Goodwin Procter LLP, represents the PHH Petitioners.
Request Bloomberg Law now
Financial literacy is a big problem in the United States. In a recent study, only 9.4% of American students performed at the top level in a financial literacy test that included such tasks as calculating the balance on a bank statement and interpreting income tax brackets.
In a perfect system, our children would learn everything they need to know about personal finance in school, but that unfortunately isnt the case. With that in mind, here are six of the most important financial lessons young people should learn before entering their adult lives.
Matt Frankel: As a former high school math teacher, I could ramble off a list of 100 financial lessons that we should be teaching in school. However, I think that more lessons about compound interest could be beneficial — but unfortunately no significant time is typically spent on the topic until college-level mathematics.
Specifically, I think every high school student should graduate with the knowledge that compound interest could be your best friend or worst enemy. If youre borrowing money — especially on a credit card – most young adults (or even the older ones) dont realize just how much it really costs.
A few years ago in one of my Algebra II classes I did an experiment. I asked my students how long it would take to pay back $2,000 worth of credit card debt at 23% interest if they paid $40 per month. The guesses ranged from four to seven years. Many were shocked to learn that it would take nearly 13 years and cost about $6,200 — more than triple the amount of the debt.
On the other hand, to show how compound interest can work in your favor, I also asked the following: If you deposit $5,000 into an account every year, and your investments grow by 8% each year, how much will you have after 40 years? Not a single person in the class had a guess of more than $200,000 — not even close to the actual answer of $1.3 million.
Compound interest can become a financial trap, or could be the road to financial freedom — and we should be making this abundantly clear to the young adults of the US
Jordan Wathen: It amazes me that we allow people to graduate high school without the slightest understanding of how loans work, and how much they cost. I cant help but think that if the average American had a better understanding of how loans worked the housing crisis might have been much less damaging, and the amount of student loans outstanding wouldnt be anything close to $1 trillion.
Even some basic rules of thumb would put students on the right track. For every $1,000 you borrow, a typical 5-year car loan will cost about $20 per month, a 10-year student loan will cost about $11 per month, and a 30-year mortgage will cost about $5 per month. These are inherently imperfect, as all rules of thumb are, but they can go a long way in helping to shape better decisions.
If nothing else, students should know that typing amortization calculator into their favorite search engine will give them everything they need to calculate how much their college choices will ultimately cost, how much a luxury car really strains a budget, or why buying a McMansion straight out of college probably isnt the best idea. These represent the three biggest purchases most people will ever make, yet the average high school graduate is unprepared to face them head on.
Selena Maranjian: One thing I wish I learned long, long before I did was how you can make a lot of money with money. In my teens and 20s, I just let any extra money I had languish in my savings account at the bank, and I only thought of it as there for when I wanted to buy something, such as a new stereo or car. I knew I was earning interest on my savings, but it rarely seemed like much, and I paid little attention to that.
I wish Id appreciated how effectively I could have put much of that money to work. For example, if Id just parked a single $10,000 lump in an inexpensive index fund tracking the overall market, and if Id earned an annual average return of 10%, close to what the stock market averages over long periods, it could have grown to more than $280,000 over the 35 years from age 30 to 65. A single $5,000 investment made at age 25 could have grown to more than $225,000 over 40 years. And just imagine what I might have amassed if Id kept plunking money into the stock market over the years.
One way that such wealth building happens can be via dividends. If you sock money away in shares of healthy, growing dividend-paying companies, you can collect regular dividends over the years and reinvest them in additional shares of stock. The dollars you sock away for decades can work very powerfully for you, generating more dollars that can earn more dollars, and so on. Early retirement can be within reach of young people if they start investing early.
Adam Galas: My father introduced me to investing at the age of 13, when I was in Middle School. Throughout high school, college, and into medical school I noticed that my peers misunderstood the stock market and how to best use it.
Many of them viewed the stock market as incomprehensible, something that could only be understood by those with advanced degrees in that field and thus most young people I met didnt bother to try to invest at all, even those who had discretionary income.
Those that did attempt to invest would say things such as Stock X is a lot better than Y because its only $3 instead of $100, thus it is more likely to double or Stock X is down 20% this year so I should sell and buy Y which is up 50%.
Over my 16-year investing career Ive studied pretty much every kind of investing method you can imagine, from short-term speculating into penny stocks, leveraged options, currency trading, day-trading, and commodities. From very painful personal experience Ive come to the conclusion that consistent long-term buy-and-hold investing in quality companies with dividend reinvestment is the absolute best way to build wealth and achieve ones financial dreams.
That simple truth is backed up by numerous studies spanning 145 years of US market data – since 1871, the Samp;P 500 has returned an inflation adjusted 6.9% — that covers every conceivable kind of world and economic event, from bank panics, depressions, world wars, oil shortages, and killer flu pandemics that killed up to 5% of the global population.
Brian Stoffel: Home economics classes that my classmates and I were required to take in middle and high school were great — they focused on cooking, how to run a mock restaurant, and everyday home activities. They helped us realize what it meant to be frugal.
There was only one problem: no one wanted to be frugal. We wanted all the latest bells and whistles. We didnt see the point in having money and not spending it. Other than staying out of debt, we never covered the why of frugality.
Fellow Fool Morgan Housel once wrote that freedom of time is the only reasonable financial goal that anyone should ever have. I think hes right: if you can focus on what you want to focus on — when you want to focus on it — your life is great.
And you only get that type of freedom when you live frugally, and build up a safety net around you to insulate you from tough economic times. I can only imagine how motivated the next generation of students would be to live frugally if they all had this guy visit their classrooms during their senior year of high school.
Sean Williams: Going to school is supposed to help you get ahead in this world. While it does offer perspective in certain study areas, schools these days are often lacking in other areas.
As my colleagues point out, theres quite a bit that schools fail to teach. But, I can find no more egregious error than not being taught how to properly market ourselves to prospective employers.
At no time during high school or college can I recall being taught the basics of self-marketing, which includes how to properly create a resume; how to fine tune it to demonstrate your skills and how they would be pertinent to an employer; how to use social media and other channels to find appropriate jobs commensurate with your skill level; how to interview for a job; or how to network once youve landed a job to ensure you have some potential for upward mobility.
Adding salt to the wound, not being taught how to market ourselves also means we dont know how to ask the right questions during and after an interview. This translates into workers often being underpaid for their skill level. Worse yet, a recent PayScale survey suggests that 57% of respondents havent asked for a raise. If you dont understand the basics of marketing yourself or your skills, itll be difficult to prove to your employer that youre worth more and deserving of a pay raise. If you can net higher wages it could mean the difference between simply retiring and retiring comfortably, and on your own terms.
Obviously Id like to see schools step in and begin emphasizing these points, but Id also encourage parents reading this to share your real-world job experiences with your children to help give them an edge when they enter the workforce.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
SPONSOR CONTENT: Forget the iPhone 6. Next Apple Sensation Leaked
Forget the iPhone and the Apple Watch. Another revolutionary Apple technology is booming. According to Gartner Research, the market for this technology will soon be worth a whopping $721 billion!
But you wont hear about this game-changer in front page headlines. Peeking under the hood reveals a more intriguing story about a little-known company that has cornered the market for the technology hidden in Apples devices. Simply click here to learn its name.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Medical and law school graduates with six-figure debts aren’t the only ones who can benefit from student loan refinancing. According to a new study by NerdWallet, if you have another type of advanced degree, you could also save thousands of dollars.
For example, if you have a Master of Fine Arts, you can save an average of $4,575 by refinancing, and grads with a Master of Education or Teaching can save an average of $4,272, NerdWallet found. Graduates can refinance their loans to reduce interest and monthly bills after two years of regular payments on a 10-year loan.
Advanced degrees come with a high price tag, and the more in debt you are, the more likely you are to save by refinancing. Since law and medical school graduates have the highest median debt among popular graduate programs, they’ll likely save the most. On the flip side, graduates with a master’s of business administration or a master’s of social work have the lowest median debts, so although they can save by refinancing, they’ll have the least to gain.
Edward Pinto is making the case that it doesnt.
Pinto, resident fellow and co-director of the American Enterprise Institutes (AEI) International Center on Housing Risk, declares a housing policy failure occurred in the 20th Century.
That failure, Pinto told attendees at the recent Governors Housing Conference, was caused by looser and looser mortgage lending standards resulting in excessive leverage piling debt onto households.
Certainly home ownership policy does not promote wealth, and doesnt promote middle income families, Pinto insisted. … The purpose of a mortgage is not to be in debt for your entire lifetime … It was never intended that people 65 years old or older to have a mortgage.
Pinto is currently researching policy options for rebuilding the US housing finance sector in the 21st Century by examining policies on mortgages, foreclosures, and the availability of affordable housing for working-class families. Pinto is a former Fannie Mae executive vice president and chief credit officer, and he has been doing research on the role of federal housing policy in the 2008 mortgage and financial crisis.
Most Americans, said Pinto, try to generate wealth the old fashioned way: By buying a home, investing in a retirement plan and investing in a childs education.
The 30-year mortgage gets you away from all three of those things, he stressed.
Pinto pointed out that todays home ownership rate at around 62 percent is no higher than it was in the early 1960s.
He suggested lenders should steer low-to-moderate income home buyers toward wealth building 15- and 20-year loans with monthly payments nearly as low as a 30-year loan.
These shorter-term loans, said Pinto, should have broad income eligibility with a fixed rate for at least five years.
Pinto showed a chart evaluating net home equity in comparing a 15-year mortgage versus a 30-year loan. After a seven-year period, the 15-year mortgage created nearly $47,000 in net equity while the 30-year loan generated about $19,000. The comparison was based on a $100,000 home purchase price.
A 15-, 20-year loan has about half the foreclosure risk than a 30-year loan, he said. What matters is how much equity you build up rapidly.
AEI says historically low mortgage rates, an improving labor market, and loose credit standards, combined with a 36-month-long sellers market for existing homes, continue to drive up home prices faster than income.
The typical first-time buyer today puts little money down and chooses a mortgage that pays off very slowly, AEI expert Stephen Oliner added. This combination means that many first-time buyers are only one recession away from being significantly underwater.
The Internet and tech-savvy consumers, meanwhile, appear to be taking over the home buying process as financing options are being debated.
About 90 percent of first-time home buyers with more than half of them in the 25-to-34 age group used the Internet in the process, according to eHomeNetwork, an Internet-based home buying education service partnering with lenders.
In 2014, eHomeNetwork said 30 percent of home buyers were Millenials, those born after 1980, who now represent more than 70 million in the US population.
Most Millenials own and use multiple mobile devices and multitask regularly, said a presentation delivered by eHomeNetwork President Milt Sharp Jr. Social media and peer-reviewed content is critically important … Outreach campaigns that are smart, funny and optimistic are more likely to be effective with Millenials.
Down payment assistance, he noted, is the number one reason why home buyers take homeownership education counseling programs.
Online education, he continued, helps the potential home buyer avoid child care or travel costs, and waiting for a next class offering. In general, consumers are willing to pay a $99 fee for counseling, according to Sharp.
Counseling agencies need a strong web presence to reach these potential buyers, Sharp added. … Many consumers see a clear value proposition (especially with down payment assistance) and appear willing to pay a fair fee for education.
For more go to www.housingrisk.org.
As we move out of our blistering hot summer and then to the most stay at home and less traveled season of the year, its important to point out that acquiring wealth doesnt necessarily give us peace, solitude, and the complete full life we are in search of. These are qualities of intrinsic value; the value of money and material things can only pale in comparison. My parents taught us to respect money, but not to worship it or allow it to possess you. They taught us how to build enduring wealth through an unbreakable value system based on principles and uncompromising virtues. Attaining wealth without faith, compassion, integrity and concern for bringing others along, can lead to emptiness and despair.
The national lottery, Survivor, Who Wants to be a Millionaire, Big Brother, etc., have become staples of our cultural consciousness. These shows and events and their promise of instant fortune nourish our secret desires for power and respect. The common thread: All of these game shows carry the suggestion of an alternative, an escape from the daily drudgery of work. They promise that with a million dollars, all of our problems and anxieties will disappear.
The message probably has a special resonance in America where citizens have been weaned on the myth that fortune awaits them. Lacking a sense of genuine cultural history, Americans have been bound together by a common belief in credit. Capitalism is our motherland and our cultural heritage was forged in the post-Civil War boom, when shrewd men took advantage of the Industrial Revolution to secure vast fortunes. From their success sprang the notion that in America, a better life awaited. This rags to riches theme formed a powerful folklore; one that linked capitalism with the beautiful possibilities of life. The capitalist system is built upon the notion that the friction of workers competing against one another benefits the consumer and thus the economy. The classic definition of capitalism is that for one to win, another must lose.
One wonders if the concepts of brotherly love and fundamental acts of charity dont fall by the wayside of an economic system so red of tooth and claw. After all, our spiritual compass recognizes that there are principles beyond the acquisition of wealth, which endow our lives with meaning. Our spirituality is based on the concepts of unconditional love and forgiveness. To embrace these concepts, one must remove himself or herself from materialistic concerns. Capitalism, on the other hand, is a triumph of individual ego. It is based upon a bourgeois value system that makes the accumulation of objects a substitute for Gods country. This point was not lost on theologian Walter Rauschenbusch, whose turn-of-the-century social gospel movement equated the burgeoning Industrial Revolution with the new idolatry. The Bible warns that Thou shall have no other God before me, nor any graven images. Rauschenbusch feared that capitalisms emphasis upon material acquisition and personal vanity was supplanting the worship of the almighty as the center of mans life. American industrialists have massaged this incongruity by preaching a distinction between their public and private lives. A long line of hackneyed social theory aided them in this regard. For example, Social Darwinism has been much esteemed by the industrialists who liked to justify their shrewd business practices as a means of preserving the social order. After a long day of squashing the hope of the masses, they would retreat into their posh homes and indulge in a few religious customs. For them, the workplace and their homes were separate moral spheres. (As if their supreme being wasnt going to notice the technicality.) And though many turn-of-the-century industrialists proclaimed their belief in a higher power, they seemed to stop short of embracing the true word of their fundamental spiritual foundation on company time.
Of course, this separation of public and private moral spheres is absurd. Plainly, our actions public and private animate our religious beliefs. Without action, our religious beliefs cease to have meaning. It is not enough to love the belief systems that animate your life; one must love his fellow human beings as their faith teaches. And this is not strictly an emotional appeal either. Can the marketplace truly find no value in the warmth of community that comes only from selfless sharing? Are we completely blind to the priceless spiritual fruits because they are not easily commoditized in terms of dollars? An informed capitalist knows that it is only through moral acts of love and fraternity that man can benefit from that which is beyond measure within a materialistic society. The sad thing is that many continue to aspire for material acquisition without any thought to the true meaning of life. For them, I offer St. Augustines sage observation: Our souls are restless, O Lord, until they rest in thee.
bull; Armstrong Williams is a widely-syndicated columnist, CEO of the Graham Williams Group, and hosts Sirius Power 128 evening drive daily from 7 pm to 8 pm His new book in stores July 2011 is Reawakening Virtues.
On Friday, Shares of La Quinta Holdings Inc (NYSE:LQ), lost 2.65% to $14.69.
La Quinta Holdings, declared the appointment of Jim Abrahamson, Chief Executive Officer of Interstate Hotels and Resorts, to its Board of Directors, effective November 12, 2015.
Jim is an excellent addition to our Board of Directors, said Keith A. Cline, Interim President amp; Chief Executive Officer of La Quinta. He brings a wide variety of directly relevant experience related to hospitality, hotel administration and franchise development. Jim’s advice and guidance will be extremely constructive and right away assistful as we continue to develop our strategy to accelerate La Quinta’s growth longer term.
Mr. Abrahamson, 60, is presently the Chief Executive Officer of Interstate Hotels and Resorts. Preceding to joining Interstate in 2011, Mr. Abrahamson held senior leadership positions with InterContinental Hotels Group (IHG), Hyatt Corporation, Marcus Corporation and Hilton Worldwide. At IHG, where he served from 2009 to 2011, he was President of the Americas division, and at Hyatt, which he joined in 2004, he was Head of Development for the Americas division. At Marcus, where he served from 2000 to 2004, he led the Baymont Inns and Suites and Woodfield Suites hotels division compriseing of about 200 properties, both owned and franchised. At Hilton, where he served from 1988 to 2000, Mr. Abrahamson oversaw the Americas region franchise and administration contract development for all Hilton brands, and he launched the Hilton Garden Inn brand.
La Quinta Holdings Inc. owns, operates, and franchises select-service hotels under the La Quinta brand. It serves the upper-midscale and midscale segments. As of May 7, 2015, the company had about 870 hotels with about 86,000 rooms under the La Quinta Inn amp; Suites, La Quinta Inn, and LQ Hotel brands in 47 states of the United States, in addition to in Canada, Mexico, and Honduras.
Shares of SLM Corp (NASDAQ:SLM), declined -0.77% to $6.47, during its last trading session.
Ascensus College Savings and Sallie Mae are happy to declare that Upromise by Sallie Mae members have collectively contributed $250 million of Upromise cash back earnings into their Ascensus 529 college savings accounts. Ascensus has partnered with Upromise by Sallie Mae since 2002 to offer account holders the opportunity to boost contributions to their college savings accounts through the Upromise program.
“We recommend that families follow a 1-2-3 approach to saving for college and that means first, opening a savings account; second, setting a aim and regularly contributing money; and third, exploring tax-advantaged options like a 529 college savings plan,” said David O’Connell, president, Upromise by Sallie Mae. “It’s encouraging to see many of our members effectively using their Upromise cash back to further boost their college savings.”
That was the message the Virgin Valley Elementary School kindergartners, first- and second-graders received Thursday, Nov. 5. The students had the opportunity to attend an assembly about saving for college sponsored by the Nevada State Treasurer, Dan Schwartz.
During the assembly, the students were introduced to The Nevada College Savings Plans Program by Rebecca Jackson and “Sage,” the program mascot. Sage taught the students how these programs offer families across the state and nation a wide variety of college savings options, with the benefits being able to be used at any eligible institution of higher learning, including universities, colleges and trade schools.
Virgin Valley Elementary was Sage’s last stop on his bus tour traveling the state of Nevada this year spreading his message about the importance of college savings. Interested parents can find more information about these valuable savings plans at http://nv529.org/.
It is hoped that all of the young students that attended the assembly at Virgin Valley Elementary School have been inspired to start saving for their college education!
I have a confession to make: when it comes to scenes of characters looting through the remnants of a once thriving society, the magic is gone. These scenes have always been one of The Walking Dead’s most essential pleasures, a kind of muted, post-capitalist fantasy of scrounging your way through the world, taking what you needed where you found it, and not giving a damn about cash or credit. The only currency that mattered was what you were willing to do to protect what you had. That’s a brutal metric, but it’s also a freeing one, especially when we’re not the ones engaging in it. No one on the show has to worry about saving for college.
That’s still more or less true even with Alexandria, but the novelty has worn out. “Always Accountable” has Sasha and Abraham making their way through a town, finding what they can find, and when their story began, I had a certain sinking sensation. As good as the show has become at telling silent stories with the artifacts of a bygone age, there are only so many times you can see words scrawled on a wall, or a half-packed suitcase, or an overturned tricycle, before the symbols lose their impact. Our heroes are living in the graveyard of the world. That’s a potent, powerful idea, but it’s been there since the start, and at a certain point, being sad about all those dead fictional people we never met is just not enough to hold my interest.
Thankfully, Abraham and Sasha had a bit more to do than just grave-rob, and even more importantly, Daryl was off having his own adventure, one which tangentially introduced us to what’s sure to be the series’ next big threat. After successfully leading the main zombie herd twenty miles away from Alexandria, the three are ready to head home when an ambush (or else a run in with somebody else’s car chase) throws everything to shit. Sasha and Abraham total their car in the ensuing fracas, and Daryl is separated from the other two, ultimately crashing his bike in a burned out forest.
And when I say “burned out,” I mean that literally. There’s a story here, and everything that happens to Daryl in the woods feeds into that story. This episode is meant to tell us why it’s taken Sasha, Abraham, and Daryl to get back to Alexandria, but if it that was the only thing it accomplished, it would be wasted time. So we get some character building for Abraham, a potential new romance between him and Sasha, and, perhaps most importantly, we get an introduction to what’s sure to be a major foe in the weeks ahead.