Category Archives: banking

Cheque Over-Payment Scam

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The Cheque Over-Payment Scam is the main topic in the Canadian Banking Association Fraud Prevention Tip monthly newsletter just received.  Their Safeguarding Your Money web page has an e-mail link by which you can subscribe to the newsletter.

The cheque over-payment scam is also known as advanced payment fraud. The scam usually begins with a letter or e-mail asking for assistance cashing a cheque. The details behind the request may vary – some scammers may ask for help securing an unclaimed inheritance, others may name you a winner in a lottery you don’t remember entering or they may offer to buy something you are selling online or through a newspaper ad.

Regardless of the details, all will send a cheque, all will ask you to cash it in your own bank account, all will request a certain portion of the money be returned to the sender, and all will offer to let you keep the difference for your trouble.

An Australian government website details how the scam proceeds.

The scammer will invent an excuse for the overpayment. For example, the scammer might tell you that the extra money is meant to cover the fees of an agent or extra shipping costs. The scammer might just say that it was a mistake they made when they wrote the cheque.

The scammer will then ask you to refund the excess amount—usually through an online banking transfer or a wire transfer (such as Western Union). The scammer is hoping that you will do this before you discover that their cheque has bounced. You will have lost the money you paid into their account, and if you have already sent the item you were selling, you will lose this as well.

The RCMP warns that this scam is very prevalent at the moment:

Numerous complaints have been received recently of counterfeit cheques and the overpayment scam being used to entice sellers on online markets to accept these cheques as payment for items they are selling.

Perhaps the most surprising confirmation of this was an apparently genuine offer to buy tutoring services from me that has just ended as I write this post.  Lo and behold the final message from John Hill [[email protected]] of London read as follows (typos included)

Hello,
Thanks for your message. I would be more than happy if you can handle Paul, my son, very well for me because is all I have left ever since his mother died four years ago. Payment for the lessons will be made upfront like I told you and will be by Certified Cashier’s Cheque. In view of this I will need you to email me the information required to send the payment as I will not like to send the payment to a wrong location.

I have contacted my business associate that he should make my funds available in payment of some farm equipment I supplied to him. He assured me he would make the payment (Cashier’s cheque) available and send you the cheque. I also want to let you know that the payment is a bit more than the cost for the six month lessons. So please, as soon as you receive the check I will like you to deduct the money  that accrues to the cost of lessons and you will assist me to send the rest balance to my cousin. I would have asked my associate to issue two separate checks, one for you and the rest to my cousin but like I told you that my cousin is currently in europe with my son and will not be able to cash a check drawn from Canada bank. The remaining balance will cover the funds for Paul and my cousin’s flight expenses down to Canada, also to cover his living expenses over there and to buy the necessary materials needed for the lessons. I think, I should be able to trust you with the remaining balance? Am also ready to compensate you with additional $100 for the extra services you are doing for me. I will give you the details of my cousin that you will send the  balance of the money as soon as you receive the cheque. Here are some of the details I will need for final assurance of the payment to you.

Needless to say that was the end of that attempted cheque over-payment scam.

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The Right Credit Card

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The majority of people appreciate the convenience, ease, and flexibility that credit cards can provide.  What they have not appreciated in the past were some of the fees that some cards carry.  However as the New York Times headline said today Card Users, Take Heart: One Penalty Is Vanishing

The noxious penalty imposed on American Express and Discover consumers who exceeded their spending limit has finally died, quashed by legislation signed in May by President Obama to ease onerous fees for cardholders.  In recent days, American Express customers began receiving notices of the fee elimination, which takes effect in October. Discover Card customers will soon get similar notifications.

Such fees are often mentioned in the small print but people often do not do their homework well enough.  Credit cards offer flexibility and convenience providing you use and repay the card sensibly and responsibly.  The important thing is to compare alternatives and read all the small print.

There are many financial situations where it is important to see as wide a variety of suppliers so that you can learn what is important and what should be avoided.  A good example of such a website in Australia is http://www.compare2save.com.au/  For a whole variety of the more serious financial decisions you have to take, you will find that Compare 2 Save has the details on a number of service suppliers.  Loans, Bank Accounts, Insurance, Broadband suppliers, Car Hire, you will find the data you need to make comparisons. 

In particular they also have details on 8 credit cards you could consider.  There are credit cards with 0 percent interest on purchases for a generous period of time or prestige credit cards with additional benefits for those that qualify. … and the list goes on.

You must carefully research and compare different credit cards to find the one that best suits your needs. Not least, read all the small print and make sure you fully understand so that you do not live to regret your choice.

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Advance To Go

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Many will remember that card from that much-loved Monopoly game,  which was often so welcome particularly when running the risk of landing on those high-rent properties.  Advance to go and collect $200.  What could be better?  Unfortunately it was only Monopoly money so it did not do much for you in the real world.

Perhaps even more unreal for many of us is Advance to Go, Collect $1 Million by Kirsty Dunphey.

This is the story of a young, successful business woman operating a real estate office in Tasmania. Anything is Possible is a catch phrase that accurately describes this true story showing how a young girl can pull herself and her family out of a situation that almost destroyed them financially and emotionally. From absolutely nothing to owning over $3 million dollars worth of property in under four years, Kirsty’s story shows how it can be achieved.

That is certainly inspiring but may represent too large and long-term a challenge for any senior who may be in need of a quick cash advance.

Given this ongoing recession, many who have been extremely prudent throughout their lives are now finding their resources are stretched.  If an unexpected emergency comes up, be it a medical problem or a house maintenance issue that must be fixed immediately, then there are no funds available.  In some cases money may be tied up in longer term arrangements and there may be penalties involved in withdrawing it early or delays in receiving withdrawals. 

In such cases, what is often known as a payday loan may well provide the answer.  In the US, provided one works with a domestic-based payday advance lending company and exercises extreme caution in entering into such arrangements, then this may give a very rapid solution to a cash deficiency.

This is Advance To Go with real and tangible meaning.

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Behind With Credit Card Payments

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If you are behind with credit card payments, then you are certainly not alone.  Equifax Canada reports that More Canadians are in arrears on credit payments.

More than half a million Canadians are more than three months behind on their credit payments.  That represents a 19 per cent rise in the average delinquency rate in the year ending May 31.

In May, a report from the Certified General Accountants Association of Canada showed Canadians are increasingly relying on credit cards and credit lines to finance day-to-day expenditures.

  • Household debt is at an all-time high reaching $1.3 trillion in 2008
  • Canadian households are financing consumption activity with unearned money as families increasingly reach for credit to finance day-to-day living expenses.
  • The majority (58%) of survey respondents with rising debt said that day-to-day living expenses are the main cause for the increasing debt. This was higher than the 52% reported in 2007.

Undoubtedly the same situation exists in the US.  The situation is likely to get even worse since Credit Card Issuers Are Raising Rates Ahead of New Law.

Credit card companies are raising interest rates and fees seven months before new rules go into effect that will limit their ability to do so, much to the irritation of Congress and consumer advocates.  The flurry of activity, which the banks say is necessary to shore up their revenue losses, has irked members of Congress, who passed a new credit card law, which was signed by President Obama in May.

The law, among other things, would prevent card companies from raising rates on existing balances unless the borrower was at least 60 days late and would require the original rate to be restored if payments are received on time for six months. The law would also require banks to get customers’ permission before allowing them to go over their limits, for which they would have to pay a fee.

Bank executives had warned that the new law would force them to increase rates and fees because it would keep them from properly managing borrowers’ risk. The argument is that if banks can’t raise rates on riskier customers, they will have to raise rates on all.

Chase is one bank that is increasing Credit Card Payments Ahead Of The Reform.

Chase told the Huffington Post that the changes would apply to less than 1 percent of its approximately 100 million active accounts.  “Chase has recently increased the monthly minimum payment on select accounts that have carried balances. Effective August 2009, impacted cardmembers will have their minimum payment increased from 2% to 5% of the statement balance,” said Chase spokeswoman Stephanie Jacobson in a statement. “Tens of millions of Chase customers have taken advantage of our promotional low rate financing over the last five years. Most of these loans have been paid back in less than 24 months. However, there have been a small percentage of customers that have not made as much progress in paying down these loans.”

Chase is not the only lender to take action that will raise costs for consumers since Obama signed the reforms into law in May. USAToday reported Monday that Chase and Bank of America are both raising balance transfer fees, and that Capital One and Citibank have raised interest rates. The Financial Times reported Wednesday that Citi is raising rates on millions of its customers in exactly the way the new legislation is supposed to prohibit.

This in all likelihood means that even more credit card debtors will be behind with their payments.  Hopefully the recession will begin to abate in the not too distant future and that will present a light at the end of the tunnel for at least some of these debt-stressed individuals.

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Reverse Mortgages Require Prudent Evaluation

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Reverse Mortgages have been in the headlines for the past few months. Seniors are using reverse mortgages to repair diminished nest eggs, as they try to stave off the damaging effects of this major recession:

Seniors’ portfolios hammered by the stock market decline are getting a boost from reverse mortgages. Such mortgages allow seniors to get monthly payments based on the equity value in their homes – the amount that the value of the home exceeds any mortgage on the home.

Aging has its compensations, at least in figuring a reverse mortgage payout. The older the homeowner, the better, because the payout increases with the homeowner’s age on the date the mortgage begins.  For homeowners younger than 70, the payout rate usually will be unattractive. But as age increases to 70 and beyond, the payout rate rises markedly, especially for larger loan amounts.

However the headline this morning states that Reverse Mortgages Leave Seniors at Risk according to the Government Accountability Office (GAO).  Meanwhile the Department of Housing and Urban Development (HUD), which usually backs these reverse mortgages, defends such programs’ safeguards.

While these reverse mortgage loans have become more attractive to seniors as the economy has soured and housing values have dropped, reverse mortgages are complex. That is why the FHA has long required that the seniors take part in HUD-approved counseling sessions before these loans are processed. The GAO report concluded that HUD “lacks effective controls” over the counseling programs.

Seniors should therefore consider carefully the reverse mortgage rates before entering into such a loan arrangement.  They should consider all eventualities that might arise and use a reverse mortgage calculator to estimate what they might be faced with in the future.  It could also be very worthwhile to consider using the AARP HUD Reverse Mortgage Counseling services too.

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Tax deductible mortgages

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Any one in the US or the UK will wonder why such a post is necessary. They all automatically have their mortgage interest payments tax deductible. Not so in Canada. However with a little work, even in Canada you may find that Tax deductible mortgages are worth the hassle. According to Jonathan Chevreau, Financial Post, the Canada Revenue Agency is unlikely to challenge if they are done properly.

Why it should take such effort is unclear. It is accomplished by applying the so-called Smith Manoeuvre, popularized first in British Columbia by Fraser Smith in a book of the same name. It has now spread across the country, apart from Quebec. Smith developed and packaged a variation on the standard tax-permissible strategy of selling off non-registered securities; using the proceeds to pay off the mortgage; then reborrowing to repurchase the securities, thereby creating legally sanctioned tax-deductible debt.

A major competitor to Smith, TDMP or Tax Deductible Mortgage Plan, has been named one of Canada’s fastest-growing companies by Profit magazine. It ranked 88th on the 21st annual Profit 100 ranking.

TDMP has a $39 per month fee charged to homeowners, a fee which is itself tax deductible. For this, TDMP takes on all the back-office work and saves the homeowner the bother of having to move the money around every month in order to make their mortgage payments and purchase securities. The fee is considered a carrying charge for administration of income from investments.

Why Canada does not follow the lead of the UK and the US on tax deductible mortgages is unclear. Such an approach does help the residential housing construction market, which can create large numbers of jobs. However until it does, the TDMP approach seems a good way to proceed.

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Beware Get-Rich Schemes That Are Too Good To Be True

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It is good to be on-guard against Get-Rich Schemers and Their “Money Making Programs”. They usually claim to have the secret to making money fast with very little effort or time. Usually there is a catch if you look closely.

One get-rich scheme for seniors that was somewhat curious but did not have an obvious catch appeared some three years ago. Terry Savage in the Chicago Sun Times is describing how those seniors are now facing a devastating future. His article describes how a Risky insurance plan has seniors spinning with many now on the hook for huge loans – and taxes.

The arrangement was called “Spin Life”. Agents encouraged older people to take out huge life insurance policies on themselves, even though they didn’t need the insurance and couldn’t afford to pay the premiums. Investors would lend them the money to pay the premiums for the first two years, until the policy was past the “contestability period.” Then the policy would be sold to an investor, who would continue to pay the premiums, hoping to collect on this “bet” on the senior’s longevity.

Somewhat macabre but the senior citizen was tempted by an upfront “bonus” – ranging from thousands of dollars to expensive cruises — just for letting the investor bet against the insurance industry’s mortality tables and eventually collect the policy proceeds when the senior died. They were promised more money when the policy was sold after two years to investors. In some cases, the insurance companies decided that the insured should guarantee at least 25 percent of the premium loan but the seniors were assured there was no risk since well-known names in financial services were raising money to buy these policies.

With the credit crunch, the pools of investor money predicted to buy these policies has dried up and there is no money to complete the deal. Even if the insurance companies forgive the loan, the senior is liable for taxes on the forgiven loan.

To simply walk away from this deal, the policy buyer would owe huge sums – half in guarantees to the lender, half in taxes to the IRS. Or the senior could keep paying the large premiums hoping to find a buyer who would pay something for the policy with a large payout when the senior died. That’s a no-win situation.

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Alarming Debt For Canadians

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The latest findings on personal debt in Canada are very alarming as you can see from the headlines:

The CGA (Certified General Accountants) survey of 2,013 Canadians in November highlights the following situation:

Current household debt is at a "highly disturbing" level, especially considering the prospects are slim that financial security will improve in the recession. Canadian household debt is at an all-time high, reaching $1.3-trillion at the end of 2008, up dramatically from $1-trillion in 2007. That means household debt levels have climbed to $39,597 per Canadian from $23,885 in 2000 – an increase of 66 per cent in nine years.

A growing portion of household debt comes from credit cards and personal lines of credit, reflecting a rising use of credit for discretionary spending and non-durable goods. This means debt is increasingly used for consumption rather than for assets such as homes and vehicles. A CGA survey of 2,013 Canadians in November found that 58 per cent said their day-to-day living expenses are the main cause of their increasing debt, and that 21 per cent of people in debt said they can no longer manage the load.

Given that Jim Flaherty, Minister of Finance, confirms that Canada is still in a deep recession this does not bode well for the coming months.

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U.S. Credit Card Industry Faces Much Greater Regulation

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The CBS News headline, U.S. Tightens Screws On Credit Industry, was not unexpected.

With the government cracking down on credit card companies’ ability to increase rates and impose penalties, some wonder just how lenders will make up for the vast amounts of revenue they stand to lose.

And as credit card issuers ponder the ramifications of the proposed rule changes passed by the Senate Tuesday, they may face more bad news.

The Obama administration, trying to rein in abuses exposed by the financial crisis, is considering creation of a regulatory commission to protect consumers of financial products such as credit cards and mortgages, according to administration and industry officials.

On Tuesday, the 90 Senators passed what is being called a credit card bill of rights. This is expected to be signed into law by the end of the week. Under that legislation, lenders would have to give 45 days notice before a rate increase, extend promotional rates for at least six months, place bans on rate hikes on new cards during the first year and deny cards to anyone under 21 unless they can pay off their bills.

In Canada, earlier in the month, Jim Flaherty, Federal Finance Minister, indicated that Credit card regulations could come by the end of the month. Although the lenders may have concerns, their customers will be very supportive of these credit card changes.

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Obama’s Housing Plan Encourages Refinancing

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According to the President, the housing plan his administration has launched has contributed to a spike in the number of homeowners who are refinancing their mortgages.  However critics question his statement that mortgage refinancing can be equivalent to  tax cuts.  

Tax analysts told FOXNews.com that lower mortgage rates actually reduces tax savings.

“While there could be overall savings by refinancing and lower monthly payments, there also could be reduced tax benefits as less interest is paid,” said Gil Charney, an analyst for The Tax Institute at H&R Block.

For those with significant equity in their home, refinancing may be a way they can ease the budget restrictions caused by the recession.  Mortgages are one way in which you can get immediate funds that are repaid over a long period of time.  There are many alternatives to consider but by comparing refinance mortgage rates together with all the attendant terms and conditions, a better mortgage package may be obtained. 

The US Government website, makinghomeaffordable.gov,  provides full information on what is possible through refinancing in making your home affordable.  In particular, there is an evaluation form to determine whether the homeowner may be eligible for refinancing.  If the owner is current on their mortgage payments but unable to refinance to a lower interest rate because their home value has decreased, nevertheless they may be able to refinance.  It is certainly something to check out.

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