Who Pays With Cash, and Why or Why Not?

By Robert L. Cain

Cash is king, at least for $19.99.  If $25 or less will bill buy it, chances are that’s what you’ll use, at least if you’re under 25 or over 45.  A Federal Reserve study, “2018 Findings from the Diary of Consumer Payment Choice,” examined how people use cash and found that cash beats cards hands down for purchases under $25 across all age groups.

People still do carry cash.  The Federal Reserve report found that the amount of cash people have on hand was $59 in 2017, little changed from previous years. Why is it that people opt for paying cash over using a card, especially for smaller purchases

Most of the evidence is anecdotal, relying on individuals willing to explain why they prefer cash to paying by card, but their reasons make sense. I did a quick, completely unscientific survey just to get an idea of people’s opinions of cash.  One person wrote back to me, “It depends! If I’m buying a beer at the local pub—cash. If I’m filling my RV with gas—card. Anything that might have a warrantee— card.”  But another response was, “Card, 2% cash back on everything. Different card for gas, 4% cash back there. Everything is inflated, have to try and get some back.”  Still another man wrote me, “Cards (debit/credit) for most everything. My cash is my ‘rat-hole’ money!!!!”  I can only speculate what “rat hole money” is.

Dollar bills are accepted almost everywhere.  Amazon opened no-cash stores, but they backed off and accept real money now, and several cities have even prohibited stores from refusing to accept cash.  Even when someone might otherwise use a card, sometimes cash can be the only option to pay because some small stores don’t accept cards.  Then there’s the incident at Target a couple of months ago when their online payment portal went down.  Wanted to pay with a card? Too bad.  Paying with cash? Step right up.

The benefit that people mention most often is convenience.  A creditcards.com study found that 40 percent of people prefer cash because it is faster and easier. Just take the money out of your wallet or purse and pay.  All done, no hassles, and it’s fast.  Yes, it has gotten faster to pay with a debit card than when the chip cards were first introduced, but there must be as many card terminals as there are stores, every one different.  Unless you’re a regular at the store, it may take a few extra, sometimes aggravating, seconds to sort out how the terminal works.  Some you can put your card in before the cashier finishes ringing up; others if you do that, the whole thing blows up and you have to start again.  Then you have to read the screen to find out what you’re supposed to do next. For example if you want cash back, with all of the terminals different, it could move from the upper left corner to the lower right or lower left, or who knows. On each screen snares lurk that can mislead the less–than-attentive or more distracted.  Then you get to start all over. Grrr. But with cash, just get the change and out the door you go.

Some gas stations give discounts for cash, but you have to go inside, probably twice, and pay in person, once to give them the cash so they turn on the pump and then to get your change when you’re done.  Is it worth the extra 25 cents to 50 cents for 10 gallons of gas to pay at the pump by card?

The tendency to spend less is another reason people may appreciate cash.  Using real money is painful. Take it out, hand it over, and it’s gone.  As a result, you are more likely to decline the add-ons and extras because spending real money is real and hurts more sometimes.

Plus, if you want to enjoy your purchases more, pay with real money.  “Individuals who pay with more painful forms of payment [cash among them] increase their emotional attachment to a product, decrease their commitment to non-chosen alternatives, are more likely to publicly signal their commitment to an organization, and are more likely to make a repeat transaction,” found a 2013 Journal of Consumer Research  study. It is because “Consumers must physically part with cash in a transaction, so they can easily feel the money they are spending.”  “I use my card. The money in my pocket is too valuable to waste,” one respondent posted to me.  Not so much with a debit card and not at all with a credit card because the money doesn’t seem real.

There’s no debt with cash.  Use a credit card and the bill comes at the end of the month. Pay with real money and there’s no bill and no interest.

Then there’s the privacy issue.  Pay with a debit or credit card and those who want to know can track the purchase, what it was, where it was made, and how much it cost. Broadcast to anyone who has access to bank records, in real time, and to businesses who pay for the information, they can inundate you with offers for their products and services.  If you want to keep a birthday present purchase secret from your husband , wife, or significant other, you’d better pay cash.  A debit card charge shows up immediately on the bank’s website and a credit card purchase on the bill at the end of the month.

One important warning by financial adviser and friend Sal Boenzi, “I’m currently working on a continuing education class and the topic is Elder Financial Abuse. One of the recommendations listed to help prevent this abuse is to ‘limit the use of cash, and use checks and credit cards instead, which leave a paper trail.’”

Pay with cash and it is anonymous.  Pay with a card and all bets are off. One person wrote, “I think that the government is at war with everyone who wants to use cash.”

Cash is easy, but maybe cards are easier and hurt less when we use them.  For smaller purchases, cash is convenient and preferred at least by people under 25 and over 45.

Written for Zip Reports where they provide applicant screening services.  Visit their website.

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The War on Landlords

By Robert L. Cain

Own rental property?  Homelessness is all your fault. Shortage of available rentals is all your fault. Higher rents are all your fault.  State legislatures are on the warpath to make housing better for renters but are punishing rental owners and damaging the rental property business.  In New York, Oregon, and California, and the city of Seattle, increased restrictions on the rights of rental property owners are making owning rental property a bad business decision driving landlords out of the business.  What those who want to improve tenants’ situations forget is that you can’t do just one thing.  They believe that they can pass laws and the parties who are negatively affected will just stand by and eat it. They won’t.

Rental owners have a couple of options for counteracting the effects of the laws states and municipalities enact that negatively affect their businesses.  We’ll look at those at the end

This year the New York State legislature passed what the sponsors described as the “strongest tenant protections in history.”   What it really does is ensure that rental properties in New York will deteriorate. If a landlord wants to make a capital improvement on a property, those include such things as boilers, roof replacement, or, according to the IRS “Addition of new or replacement components or material sub-components to property,”  anything that “Extends the useful life of the property” and “Ameliorates a material condition or defect.” The new law caps such expenditures at $15,000 on individual apartment improvements for 15 years for which the landlord can increase rent.  Then the rent reverts to what it was before the renovation.

Spend more than $15,000, it comes out of the landlord’s pocket.  Landlords can only raise the rent 2 percent a year to pay for the improvements when before they could raise it 6 percent.

New York also caps the maximum rent increases for rent-controlled tenants. Those are to be set at “the average of the last five Rent Guidelines Board annual rent increases of one-year, rent-stabilized renewals, or at 7.5 percent, whichever is less.”

If a tenant complains about a rent “overcharge,” the court or state Division of Housing and Community can go back six or more years, up from four, looking at rent history to determine if the overcharge was too high.

And that’s for existing tenants.  New tenants get protections, too.  A New York Times article reports, “Security deposits will be limited to one month’s rent and procedures will be improved to make it easier for renters to get their security deposits back. Tenants who were seen as troublemakers by landlords — perhaps for standing up for their rights — would sometimes end up on blacklists that would be shared among rental agencies. That practice would be banned.”  In addition, “[existing] Tenants would be better protected during the eviction process, particularly against retaliatory evictions.” No, there won’t be an official “blacklist,” but landlords can still call other landlords for references.

Look for buildings and units to fall into disrepair because landlords simply can’t get financing to pay for improvements and repairs. A lender has to be able to show that the property owner could get enough more rent to cover the loan payments.  No financing, and the rental owner won’t be able to make the improvements. That in turn decreases the value of real estate because unresolved repair problems and deteriorating buildings drive down real estate prices.

The regulations will hit the “mom-and-pop landlords hardest because many of them are surviving month to month.  Any inability to raise rents appropriately can result in their simply abandoning their properties as has happened in the past. A coalition of four real estate groups, the Taxpayers for an Affordable New York, said, “This legislation fails to address the city’s housing crisis, and will lead to disinvestment in the city’s private sector rental stock, consigning hundreds of thousands of rent-regulated tenants to living in buildings that are likely to fall into disrepair.”

What’s just as bad is that if a property owner wants to move into his or her own property or have a family member move in, he or she may not be able to because only one “owner use” conversion is permitted.

As if that isn’t enough, there’s more, though not so egregious, that is easy to find by doing a search for New York rent laws.

That’s just New York. Landlords are the targets of recent restrictive legislation in other states, as well.

Seattle has for many years been on the forefront of attacks on landlords. Washington state Landlord-Tenant Law provides for a 20-day, no-cause termination notice.  That didn’t work for the City of Seattle.  Instead, they passed the just-cause eviction ordinance many years ago.  That requires a one-year lease and a “just cause” for terminating a tenancy.  “Just cause,” of course, can include non-payment of rent and violation of lease terms.  But it cannot be because the landlord wants the tenant out and doesn’t want to deal with a formal eviction and with court and court costs.

Then the city of Seattle recently passed two ordinances designed to “combat racial discrimination.”  The 2016 “first in time” ordinance and the 2017 “Fair Chance Housing Ordinance” are supposed to keep landlords from slyly avoiding renting to minorities.

The “first in time” ordinance required that landlords rent to the first applicant who meets their rental standards. That law was overturned on March 28, 2018 by a trial judge because it violates a property owner’s right to choose whom to allow on his or her property.  However, the Fair Housing issue is still in place.  If a member of a protected class believes he or she was illegally discriminated against, the Fair Housing enforcers will investigate beginning with the assumption that every landlord wants to illegally discriminate and it is their job to catch them.  One method to avoid having to rent to a first-in-line unacceptable tenant who “meets” rental criteria is to begin numbering rental applications with the number 3.  Another, and better, method is to create rental standards that are so stringent they keep less-than-desirable applicants from even thinking about applying.

Now in the courts is the “Fair Chance Housing Ordinance” that prohibits landlords from considering an applicant’s criminal record. The Pacific Legal Foundation described it as “Landlords can deny someone tenancy if they are on a sex offender registry for a crime committed as an adult, but only if they can prove to the Seattle Office for Civil Rights that they have a ‘legitimate business reason’ for doing so.” Deciding what a “legitimate business reason” is makes work for lawyers and judges.

Then there’s Oregon.  Governor Kate Brown called SB 608 “a critical tool for stabilizing the rental market throughout the state of Oregon.  It will provide immediate relief to Oregonians struggling to keep up with rising rents in a tight rental market.”  Once more, landlords are being blamed for too few rentals that cost too much to rent.  Ethan Blevins attorney for the Pacific Legal Foundation believes, “As housing costs have skyrocketed, blame has tended to be placed on landlords, rather than land-use and zoning regulations that have often been a key driver on housing affordability. From what I’ve observed, there is also a tendency to exaggerate the role of discrimination in landlords’ rental decisions.” Oregon is notorious for restrictive land-use regulations, but those certainly aren’t the fault of rental owners..

SB 608 reverses the prohibition for rent control in the Oregon Landlord Tenant Act and mostly prohibits no-cause evictions.

No-cause evictions have been a valuable tool for landlords who simply want a marginal or bad tenant out but don’t want the hassle of a legal eviction.  The previous law made that possible with a 30-day, no-cause termination.  The tenant had no recourse in court but just had to leave.  That was a benefit to a tenant because with a court-ordered eviction, it appears on a credit report for any landlord to see when the tenant applies to live in a new place.  Not so with a no-cause eviction.  Only if the prospective landlord calls the old landlord and gets a straight answer would the truth come out.

Under the new law, only in the first year are no-cause evictions allowed.  After the first year, landlords can end a month-to-month tenancy with a 90-day notice but only for a “qualifying landlord reason.”  Those don’t include just because the tenant is an irritation or the landlord doesn’t want to go through a court-ordered eviction.  Those “qualifying reasons” can include wanting to move into or have a family member move into a unit.  It can also be because the landlord is selling the property to a person who plans to be an owner-occupant.   Then, if the landlord takes possession for a “qualifying reason,” he or she has to pay the renter one-month’s rent when the notice is delivered.

As if that weren’t enough, rents can be increased no more than 7 percent a year plus the “yearly change in the consumer price index.”  The law specifically exempts properties less than 15 years dating from their first occupancy certificate.

The law covers all rental properties, both apartments and single-family.

Saving California to last because there’s such a diverse situation to deal with. Individual cities sometimes have their own laws that negatively affect landlords. However, just discussing 2019 changes, as of August 1, 2019, the city of San Diego requires landlords to accept Section 8 vouchers and forbids stating that they do not participate in the Section 8 program.

Then AB 2343 extends the notice requirements to 10 days for nonpayment of rent and five days for a nuisance excluding Saturdays, Sundays, and legal holidays; that’s up from five days all around.

The state has had its share of emergencies in the past year and the legislature responded with AB 1919 that makes it a misdemeanor to raise the rent more than 10 percent after a state of emergency is declared.  In addition, it would make it a misdemeanor to evict a tenant after the declaration of a state of emergency and rent or “offer to rent” at a higher rental price.

If a third-party pays the rent for a tenant, AB 2219 allows a landlord to require that the person paying the rent acknowledges in writing that they are not living in the property and that acceptance of the rent does not create a tenancy with that third party. That’s actually landlord friendly in that it keeps tenants from sneaking in people who have not been screened by the landlord.

The National Apartment Association in their white paper, “The High Cost of Rent Control,” reports that economist and housing-policy expert Dr. Anthony Downs wrote “the economic and social costs of rent control ‘almost always outweigh any perceived short-term benefits they provide.’”  In addition, he found that rent control are both “unfair to owners of rental units and damaging to some of the very low income renters they are supposed to protect.”  As I mentioned at the beginning, you can’t do just one thing.  Passing a law will make those negatively affected by the law to do what they need to do to keep themselves afloat.

Attorney Ethan Blevins of the Pacific Legal Foundation says the biggest threats to landlords now are “Probably the resurgence of rent-control policies and the rise of draconian tenant screening restrictions, such as bans on criminal background checks.”  Even more difficult is just keeping track of the changes in the laws that could result in fines and even jail for a misdemeanor.

How to deal with these gross attempts by state and local governments to damage the businesses of rental owners.  Carefully drafted tighter rental standards and policies followed by meticulous screening including landlord references will go a long way toward ensuring that quality tenants rent a property.  To avoid the business-killing restrictions, such as rent control and inability to evict bad tenants, the only workable solution is to sell rental properties to owner-occupants and buy other rental properties in states and cities that want responsible landlords to do business. The top landlord-friendly states as ranked by several websites are Texas, with Colorado, Arizona, Florida, Indiana, and Georgia also welcoming rental owners.

Written for Zip Reports where they provide applicant screening services.  Visit their website.

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Account Takeover Fraud Is on the Rise

By Robert L. Cain

By the time the Tucson police pulled her over, Randi Marie Hartjen had severely damaged the credit of six Phoenix-area women using stolen identities to rent or purchase six vehicles.  How she did it shows how easy it is for someone to take over the credit of another person.

Since the institution of the EMV chips in credit cards, credit card fraud has diminished, but bad guys always find a way.  Of course, as we would suspect, online sales using stolen credit card information have increased some.  Crooks buy things online with stolen cards and have them shipped to a UPS store or other neutral site so the owner of the card won’t wonder where that package came from and won’t see the charge until the bill comes.

Many companies and industries are easy victims of account takeover because they “have had little reason to invest in the tools, tactics, and personnel to effectively prevent, detect, and resolve fraud,” said Al Pascual of Javelin Strategy & Research in an article in Enterprise & Cloud, March 18, 2019.  As a result, they are easy targets.

It’s a relatively easy process.  Most of the time, they need only a Social Security Number, name, and address.  But in many cases, as shown by Ms. Hartjen, you don’t even need a Social Security Number. She stole six vehicles from companies using stolen driver’s license information.  Three of the vehicles came from Enterprise Rent-A-Car and three from Carvana.  She rented the cars and never brought them back.  With Carvana, not even a credit card or Social Security Number is required.  I went to their website to see how they operate.  They sell cars online and offer prequalification explaining “When you pre-qualify with Carvana, you see real, personalized terms without affecting your credit score. We do not complete a formal credit inquiry until you place an order with your Carvana Financing.”  I partially filled out a pre-qual form online (using dummy information, of course), just to see what they asked for.  They never asked for a Social Security Number to check credit, but they implied that on their website.  So all Ms. Hartjen had to do was show up with a phony driver’s license and drive off with a free, seven-day trial drive.  Then she just didn’t bring the cars back and disappeared.

Here’s how she did it. Once she had the correct driver’s license information of the women she took over the accounts from, she simply went to DMV and changed the address on the license then got to renting, test driving, and stealing.  Smooth sailing from there, at least until she saw the flashing blue lights in her rear-view mirror.

That was just to steal cars.  If a crook has someone’s Social Security Number, opening new accounts is a piece of cake.  Half of all identity theft involves credit card fraud.  Once they steal someone’s Social Security Number, they can open new credit card accounts and turn them into cash.  And it can all be done through the mail.  Some 200 million people get credit-card offers in the mail and dutifully throw them in the recycling bin.  Bad guys root through that and presto, they have everything they need to get themselves a new credit card in the name on the application.  The banks sent out the pre-approved letter, so they don’t look too hard at them when they are returned dutifully filled out.  Within 10 days, a crook has a new credit card ready to cash in on.

Do it online or on the phone, and it’s just as easy.  Using a public computer terminal, so the IP address doesn’t help the authorities any, and a burner phone, the thief is anonymous.  Fill out the form or call in the application, and 10 days later, brand new credit card.

Eric Kraus, fraud management vice president of FIS is quoted as saying the bad guys think, “If I can’t steal cards, the next best option is taking another individual’s information and getting a card sent to me.”

Then there’s Instant Credit.  How many times have you been offered a store credit card when you made a purchase to get 18 or 20 percent off your next purchase?  Clerks get commissions for signing people up, so they aren’t particularly diligent.  In 20 minutes or less, with a stolen or even fake SSN, the “customer” has credit and the clerk a commission.

How do the bad guys get SSNs? An article in The Balance suggests “doing some searches via public records and finding the deed to their home online may provide one with an SSN.”  Other times, they buy SSNs off the internet.

Every time someone’s SSN appears anywhere, it is ripe for theft.  Even doctor’s offices ask for a person’s SSN on their forms.  And many doctor’s office staffs are less than vigilant in protecting the information they have.

Other times, it’s closer to home.  Sometimes the crook knows the person he or she is about to ruin.  The promotional pricing of a Friends and Family Plan can make taking over an identity simple.  In fact, some 51 percent of this kind of fraud comes from people the victim knew.  Then the victims end up eating the damage with few of them willing to prosecute a friend or family member.

The amount of fraud from account takeover is $4 billion a year and new account fraud is $3.4 billion a year. The crooks have shifted to these targets since the banks and credit card companies have short-circuited credit card fraud with the EMV chipped cards and paid close attention to anomalies in credit card charges.  That has resulted in a drop of $1.7 billion in losses from 2017 to 2018. Now the fraudsters take over other people’s accounts and run up bills that hit consumers directly that can mean months or years recovering their identities and restoring their good credit.

Randi Marie Hartjen’s case is just one example of how easy it is for someone to take over another person’s account. She will no doubt be going to prison, but so many more are taking her place.

Written for Zip Reports, where they do employee and tenant screening.  Visit their website.

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Living With Mom and Dad? Maybe

By Robert L. Cain

Kids are moving back home with mom and dad more than at any time in recent history. The Census Bureau reports “More young people today live in their parents’ home than in any other arrangement: 1 in 3 young people, or about 24 million 18- to 34-year-olds, lived in their parents’ home in 2015.”  And that’s up considerably from 10 years earlier when arrangement “in 35 states. . . the majority of young adults lived independently in their own household,”

The numbers are staggering.  The Census Bureau reports that 31 percent of 18-35 year olds live with mom and dad.  What’s more, “almost 9 in 10 young people who were living in their parents’ home a year ago, are still living there today.”  Add to that another 21 percent who have “Other” living arrangements.  The Census Bureau doesn’t break “Other” out, but it includes people living with relatives other than a spouse such as siblings and grandparents. So the percentage of young people living with relatives including parents could exceed 40 percent.

And some of them are just mooching off parents and relatives. One in four of the people living “at home” doesn’t have a job and isn’t going to school.  What’s more, even those who have jobs sometimes don’t see any need to contribute to the family by paying rent or buying food. But that’s their parents’ problem.

The reason for this mass moving home is of course that young people today are often facing huge debts and can’t find jobs that pay enough to cover everything such as rent and child care.  It’s in the news almost daily. And we have to feel bad for those who are saddled with huge student loan debt and poor employment prospects.

But claiming to live at home can be a convenient ploy for people who may have worn out their welcome in rental housing.  So when someone applies to rent and says he or she has been “living at home,” for the past however many years, are we to take that claim at face value?

The maxim “verify everything” is more important than ever.  We have to find out if they actually are and have been living with mom and dad, or grandma and grandpa, or a brother or sister, or if they are just covering up a questionable rental history.  We have any number of ways to ferret out the truth.

First, on their application they will list where they live and the phone number to reach parents.  Many times it will be a cell phone number and a determined bad tenant will have a friend claim to be mom or dad.  First, check county tax records online to see who owns the property they say is mom and dad’s.  If that checks out, see if there’s a landline for the house.  If there is, call it instead of the cell phone number on the application and talk to mom or dad.

They will probably claim that they haven’t lived anywhere but at their parents’ home since they got out of college or whenever.  But to rent, they have to have a job or other verifiable, consistent income.  When you call the employer, not only verify employment but also ask, “just to be sure, I have their address as. . . is that the same as you have?”

In addition, there are two databases to check: credit report and Social Search.  On the credit report, it lists current and past addresses in addition to how well that person pays bills.  The Social Search lists every place a person has lived that the Social Security Administration has a record of.  Are there any addresses that seem to contradict your applicant’s claims?  If there are, that’s grounds for immediate rejection or at least a credible explanation for why it isn’t listed as an address. It’s also an opportunity for some entertainment if an odd address shows up.  Check the ownership of the address and call the owner or manager of the apartment. It could be interesting.

Then there’s the driver’s license trick. You get picture ID from applicants, so it only makes sense to take full advantage of it.  Obviously you are making sure the person you are talking to is the person he or she claims to be, but a driver’s license also has the person’s address on it.  Does that address match the address on the application?  If not, does it match any former addresses?  Oh, wait, your applicant claimed to have been living with mom and dad ever since college.  Thus any address other than mom and dad’s gives you reason to be suspicious and ask hard questions. When was the license issued?  Every state has a different system for showing when a license was issued and how often someone has to renew it.  Usually renewals come on a birthday.  What if the license was just renewed and it wasn’t your applicant’s birthday?  Why? Is it to cover up a recent address your applicant would rather you didn’t know about? More had questions to ask.

Any anomaly is worth pursuing. Your applicant needs to explain anything that doesn’t make sense to you. Yes, the number of millennials living with parents is huge and far more than anytime in recent history.  Chances are, your applicant is legitimate, but the maxim always applies, verify everything.

Written for Zip Reports where they do applicant screening for rentals and employment.  Visit their website.

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Facebook and Fair Housing and Fair Hiring

By Robert L. Cain

The Department of Housing and Urban Development is going after Facebook for running ads that violate the Fair Housing Act. Facebook and the government have already worked out agreements for ads that might illegally discriminate against people in the hiring process. Don’t count on any fines or other assessments against Facebook. Facebook has an army of lawyers who can tie up a court case for years costing the federal government millions of dollar in legal fees.  Chances are HUD and Facebook will work out an agreement. Landlords and small business owners, on the other hand, probably have neither the option of avoiding a fine for perceived illegal discrimination nor the legal teams to protect them.

HUD Secretary Ben Carson pointed out, “Using a computer to limit a person’s housing choices can be just as discriminatory as slamming a door in someone’s face.”  Where you run an ad for a rental or employee is every bit as important as what the ad says.  A March 28 article in the Washington Post explained, “HUD claimed that Facebook mines users’ extensive personal data and uses characteristics protected by law — race, color, national origin, religion, familial status, sex and disability — to determine who can view housing ads, even when it’s not the advertiser’s intent.” Facebook provides broad categories for targeting ads such as zip code, personal interest and demographics, including ethnic categories.  Advertisers can select targets or just let Facebook use its algorithms to do it for them based on the advertisers personal data, such as his or her contacts and news choices. Many advertisers are unaware that Facebook does any targeting; they just run their ads and hope for acceptable applicants.

In spite of the fact that this targeting may have been without the knowledge or desire of the advertiser, the federal government appears unconvinced that landlords who advertised were innocent.  The government asked Facebook to provide it access to Facebook’s “user base” so it could look around and maybe ferret out landlords who asked that their ads go only to select, albeit discriminatory, groups.

To their credit, Facebook declined to provide any user data, but their reason is less than reassuring.  Joe Osborne, a Facebook spokesman, said “While we were eager to find a solution, HUD insisted on access to sensitive information—like user data—without adequate safeguards.” We can only speculate what those “adequate safeguards” might be, but Facebook appears willing to hand over user data if it is satisfied that “adequate safeguards” are in place.

That brings up the question of what should landlords and business owners do?  That can be a difficult decision. Go to Facebook’s ad manager and look at the available selection criteria.  One option, detailed targeting, offers numerous choices under demographics, interests, and behaviors.  One is “multicultural affinity,” where an advertiser can select by race, Asian, African American, and three categories of Hispanic.  Another allows a selection by politics, liberal, neutral, or conservative.  Think about how someone could ensure that only conservatives could see an ad and think about how many African Americans and Hispanics are conservative.  Now imagine a HUD representative seeing that selection when investigating an advertiser.  The ad may be neutral, but it embodies something called disparate impact. The National Fair Housing Alliance explains the concept:

Disparate Impact is a legal doctrine under the Fair Housing Act which states that a policy may be considered discriminatory if it has a disproportionate “adverse impact” against any group based on race, national origin, color, religion, sex, familial status, or disability when there is no legitimate, non-discriminatory business need for the policy. In a disparate impact case, a person can challenge practices that have a “disproportionately adverse effect” on those protected by the Fair Housing Act and are “otherwise unjustified by a legitimate rationale.”

The decision as to whether a policy is necessary to “serve a . . . legitimate interest of the housing provider” per an April 4, 2016 HUD “General Counsel Guidance,” is left mostly up to HUD.   The only thing HUD has to prove, is that a “less discriminatory alternative” is possible.  The advertiser wanted the ad to go to everyone and anyone, but somehow it got “targeted” so that far fewer, and a select fewer, ever got to see the ad.

With all that in mind, what to do?  One option is not to run ads on Facebook at all.  And that may be the safest way. If Facebook decides which demographics your ad will target, you may appear to be illegally discriminating.  Numerous other online advertising option are available, such as Craigslist and rental housing and employment marketing websites.

Just as important is the wording of the ad, ensuring that it in no way seems to exclude any protected class.  But that is an entirely different and complex subject that we haven’t room to discuss here. Cedrsolutions.com offers advice for writing a legal job ad.  In my book, Get It Rented, available on Amazon, I provide complete instructions for writing a legal and effective rental ad.

Facebook doesn’t have to worry about paying huge fines for illegal discrimination because they have the legal resources to fight it.  But owners of rental and businesses are in no position to take on government regulators to defend against a perceived violation of the fair housing or fair hiring laws. It is best to avoid any advertising medium where it could be construed as impacting a protected class—race, color, national origin, religion, family status, gender and disability.

Written for Zip Reports where they provide applicant screening services for rental owners and business owners.  Visit their website

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Financial Knowledge Grade: F

By Robert L. Cain

My old friend John Clark drove a Toyota Camry.  Nothing unusual about that except that John owned one of the biggest real estate companies in Portland, Oregon, and could have paid cash for just about any car he wanted.  But John saw no reason to buy a Mercedes, BMW, or Lincoln Town Car. The Camry served him well and he didn’t have a car payment.

John came to mind because of three things I just read.  First, in the March 1 edition of USA Today was an article about Americans “suddenly paying $550 a month for new cars.”  Car shoppers are having to pay more and more every month for that new car they just “had to have.”  And the average is $551 a month!  That’s 10 percent more per month than three years ago. With car prices at an all-time high of $36,000 in 2018 according to Kelley Blue Book, and with interest rates creeping up ever higher, the borrowing has increased and the term of loans has gone “to record lengths.”  Lenders are writing 84 month loans now, seven years, just so people can manage a monthly payment.  And the wheels are wobbling both on the cars and the economy.

Second, some 7 million people are now at least 90 days behind on their car payments.  The article in the Feb. 12 Washington Post pointed out “Most of the people who are behind on their bills have low credit scores and are under age 30, suggesting young people are having a difficult time paying for their cars and their student loans at the same time.”  Mostly these are people who had credit issues before buying a new car.  And the majority of the delinquencies are on loans financed through car dealers. With the economy improving, car dealers have begun using lenders who charge 14.5 to 20 percent interest, depending on the buyer’s credit score while credit unions may charge between 4.5 and 6 percent.  For a $36,000 car with a net loan of $29,000, after down payment and trade-in, over 84 months the monthly payment at 15 percent from a car dealer would be $603, while from a credit union at 4.6 percent, the payment would be $442.

Trouble is, many of these problem loans go to car buyers who simply wouldn’t qualify for a credit-union loan.  They buy a car they can’t afford, or can only afford as long as they don’t lose any of their incomes, and dealers provide the financing through the lenders who reward them for writing the loans.

Behind this overpaying for cars and taking on unaffordable loans is the third thing, a lack of financial education.  A 2013 study by the National Foundation for Credit Counseling found that 40 percent of American adults would give themselves a bad grade, a C, D, or F, for their knowledge of personal finance.

Heidi Moore formerly of The Guardian, pointed out “We have an entire generation if not several generations who have grown up with the belief that finance should be in the hands of the experts. So they’re signing documents, mortgage documents, loan documents, credit card documents, without knowing fully what the implications are or even how to begin to read what they’re signing.” Or they think they’re just “not good at math.”  So many people think that anything that has to do with adding, subtracting, multiplying, or dividing is beyond them and they just have to trust the computer to figure it out, and then, of course, the lender to be fair.

It’s parents’ job to provide money education for their children, but they are unable to because they never got any themselves.  After all, they may be the ones making the $550 a month car payments.  And schools don’t provide much help, if any at all.  Even grandparents are unlikely to have the financial education and perspective to teach how to avoid dumb financial decisions.

Put all three of those factors together, high monthly payments, increasing loan defaults, and no financial education, and the ingredients of the recipe for disaster are mixed together and ready for the frying pan.  Already, those 7 million people behind on their car loans are affecting society.  The USA Today article pointed out that people being three months behind on car loans is “the benchmark for many lenders to trigger a repossession.”  The vicious cycle is once the repossessions hit, people can’t get to work so they don’t earn a paycheck and they can’t pay the rent.

While they are juggling insufficient income and before they lose their cars, people have to decide who gets paid.  Phaedra Wainaina, a recent law school graduate from Michigan, was quoted in the article, “I had to make the decision between paying car notes and buying food.”  People sacrifice other less essential debts to keep their vehicles.  One of those debts could be rent.

This shouldn’t be our problem, but it has become ours. It’s too bad parents and schools have failed to teach anything our children about responsible money management, but they have.  Businesses and rental owners may benefit by helping educate their employees and tenants about financial matters.  There’s plenty of free material that we can provide.  It can come in the form of a newsletter that we send out or just informal email updates.  For example, I get a weekly email from my friend Sal Boenzi, an investment adviser, where he forwards all kinds of interesting and helpful information about good money sense that he receives from the company he represents. Other financial advisers provide a similar service.  They are happy to have us pass along  their information to our employees and tenants as long as we say where it came from.

My friend John Clark was from the old school that valued good financial decisions and avoiding debt. His business was successful because he valued responsible financial management. Peer pressure and advertising have made that seem silly in this day and age.  It is far from silly if our employees and tenants dig themselves financial holes they can’t climb out of affecting their ability to work and live.

Written for Zip Reports where they provide employee and tenant screening.  Visit their website.

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The Synthetic Applicant

By Robert L. Cain

Kelvin Lyles had been busy.  When police raided his home in Atlanta in December 2015, they found “information for over 300 synthetic identities, fake driver’s licenses, a fake social security card, and numerous credit cards held in the names of individuals other than Lyles,”  reported the US Attorney’s office. Police said that “Lyles attempted $435,862.10 in fraudulent credit card transactions and succeeded in obtaining approximately $350,000.”  Lyles is now spending three years and 10 months in federal prison for wire fraud.

He had used synthetic identities to establish credit histories involving false Social Security numbers with credit reporting agencies.  He had created synthetic identities to obtain credit cards in the names of people who did not exist, then used online credit processing to charge transactions to credit cards with all the ill-gotten funds going directly to him.

The news release from the US Attorney’s office doesn’t mention whether Lyles rented an apartment with a phony identity, but he probably didn’t apply for work since his criminal activity was so lucrative that he didn’t need a job.  But if he had applied somewhere, the rental or business owner would have had a difficult time finding out that who Lyles claimed to be was fraudulent.

Unfortunately, Kelvin Lyles case is rare, not rare that his crime is unusual, but rare that he got caught and prosecuted.  Synthetic identity fraud is a growing criminal activity and rarely results in a prosecution much less a conviction simply because the crooks are hard to find.  “It’s almost like a ghost is committing these crimes,” said prosecutor Warren Kato with the Los Angeles County District Attorney’s Office. Synthetic Identity fraud has become the largest kind of identity fraud accounting for some 80-85 percent of identity fraud, reports ID Analytics.

Because it’s a danger to anyone who checks the qualifications of applicants, it’s up to us to protect ourselves.   With synthetic identities, it’s hard to know if the person who is applying is actually the person he or she claims to be. Synthetic people are hard to pin down, but you can do it with careful screening, by believing only what you can confirm. We’ll look at how in a minute.

There are obvious reasons why someone would use a fake identity. One is credit so bad he or she would be sent packing when trying to rent a Barbie playhouse, but there are far more nefarious reasons.  One is sex offenders.  They are required to register and report their addresses forever, putting a damper on the possibility of their renting an apartment or getting a job. But if they hide their identities, if they become another person entirely, they have a “new life,” so to speak.  Then there are the violent criminals, people you almost assuredly don’t want living in any place you own or working in your business.  New identity, presto! They can live where they want or maybe even get a job.

The General Account Office reports, “Synthetic identity fraud (SIF) is a crime in which perpetrators combine real and/or fictitious information, such as Social Security numbers (SSN) and names, to create identities with which they may defraud financial institutions, government agencies, or individuals.”

Here’s how these crooks create synthetic identities.

Credit Profile/Privacy Numbers (CPN): They are called Credit Privacy Numbers (CPN), or Secondary Credit Numbers (SCN), creating “File Segregation” that begins a new credit identity. The companies that sell them promise new credit lines attached to a new credit report based on the Credit Privacy Number.  The lowest price to create a new self I found on the internet is $250 and up to $1500 for the full package of a “guaranteed 790 FICO score within 30 days and two new credit lines of up to $25,000 each.”  Sounds great, doesn’t it?  It isn’t.

These companies give their customers a new number that looks very much like a Social Security Number, and in fact may be a real one, just not theirs.  One way they do it is by going online and getting an Employer Identification Number (EIN) from the IRS.  It is nine digits long, just like a Social Security Number. Trouble is, in order to obtain an EIN, the IRS wants a Social Security Number that belongs to the person applying for the EIN.  Use a bogus one, and it’s a felony. Another way is by finding the Social Security Numbers of children with no credit history, long-term prison inmates, or dead people and selling it to the their customer as a CPN.  The General Accounting Office indicates that over 1 million children have their identity stolen each year and are 50 times more likely than adults to be a victim of SIF than adults

The third way is by “issuing” a Social Security Number that hasn’t been issued, and in fact may never be issued.  The Social Security Administration lists the ranges.  They might be any numbers that include -83-, second number set, because the SSA doesn’t issue any of those until all the numbers from -01- to -82- are issued. In addition, area numbers, the first three, run from 001-772.  Areas 666 and 734-749 are unused by the Social Security Administration.

Identity manipulation or compilation: slightly different from the CPN, they modify data  slightly to create a new identity that is not recognized by a credit bureau.  They may use an existing  Social Security Number, such as one from a dead person or a child, who has no credit record, and add a new address and such.  They create a new credit record by applying for a credit card.  Because there is no record, they get turned down, but the fact that they applied creates a credit record.  Then they apply for another credit card.  This time there’s a credit record and they may get a credit card with a $250 or $500 limit.  They use it and pay it off as agreed.  That creates a better credit record, albeit a phony one.  They apply for more and more credit, each time getting higher credit limits.  Before long, there’s a whole new person, but, of course, a synthetic one.

The more industrious among them will go so far as to start a shell company to facilitate the creation and maintenance of credit files associated with synthetic identities. The shell company gets a merchant account so it can process credit card charges. The criminal reports transactions charged through the shell company, and in the process, creates a credit history for a synthetic identity. The credit reporting agency might catch on and cancel the account, but the crook just creates another shell company to take its place.

Now they wait.  When they have enough credit built up, they “bust out,” running up huge balances and getting cash. Then they vanish.

How to catch them
If you are an employer or landlord and checking the credit of an applicant, you may see some red flags run up when you look at a credit report.  The first thing to always check is the Social Security Number itself.  By doing a “Social Search,” available from a screening company,  you can see first, the name or names the number belongs to and  second, if it has even been issued at all.  If a number has not yet been issued or is an EIN, it will come back as “no record found.”  That’s a red flag too large to ignore and entitles you to immediately reject the applicant, assuming he or she wrote the supposed Social Security Number correctly.  Another indication might be a credit file that is just a few months old and you’re looking at a 40-year-old person.  Hmmm?  Then there’s picture ID.  It’s difficult to get a driver’s license without proper ID such as a birth certificate, and the license will have the person’s picture, name, address, and birth date on it. Who was the license issued to and what’s the address on the license? Will it always work? No, nothing always works.  After all, Kelvin Lyles had phony licenses.

Doubt everything.  Verify everything.  Check everything by using a screening checklist.  The Federal Trade Commission reports that businesses lose $50 billion a year because of Synthetic Identity Fraud, and it is growing.  Don’t let it grow in your business.

When Kelvin Lyles gets out of prison, where will he live? Will some rental owner rent to him? Will he apply for a job using a synthetic identity? Check carefully.

Written for Zip Reports, employment and rental screening.  Visit their website for your screening needs.

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Let them screen you before you screen them

By Robert L. Cain

It’s harder and harder to get great employees what with more open jobs than available workers. They are out there, but so are the ones who just stumbled back into the labor force and may not be ideal candidates.  Same for tenants. The best ones, the applicants you dream about—the pleasant dreams, of course— will move somewhere.  Why shouldn’t the good ones call you? Why not to your property?  When they apply and you check them out, they are five-star applicants. But they may check you out, too.  What can you do to ensure that the top job applicants and the top rental applicants put your company or rental property at the top of their lists?

People like to do business with people they like, trust, and have confidence in.  Too many managers and landlords not only don’t qualify, but are toxic.  You know you have a well-run company or rental property.  How do you set yourself apart and entice the best applicants?  Social media is an effective way.

At least 70 percent of people use social media in some way with millennials, 22-38 year-olds, the highest percentage.  Some 80 percent of them use YouTube and 78 percent use Facebook, reports Pew Research, and can and often do use them to check out companies before they apply. The best applicants may screen you before you screen them.  With the job market where it is, attracting the best employees involves showing that your company is a great place to work, better than that cesspool where they work now for the boss who just doesn’t “get it.”  The highest quality tenants are welcomed any place they apply and expect to rent from the best landlords. They check you out through social media, Facebook, Twitter, Linkedin, Yelp, your website and others.  Here’s how to stand out and attract those applicants.

First, what do you say in any social media platform?  It’s the same thing whether you use Facebook, Linkedin, Twitter, your website or anything else.  Never miss the chance to say something good about yourself.  What’s good?  What information that you post says “Call me NOW, but hurry”?  It’s the preemptive strike.  This may be the most powerful tool in your box, and one that others would never think of using but puts you head and shoulders above competing businesses and landlords. Think about what your qualities do for your applicant.—no data dumps, only benefits.  If you have owned the business or been in the rental property business for many years, so what?  How does your experience and expertise make working for you or renting from you a better experience than that of another company or landlord?

As a rental owner, for example, many landlords don’t respond to repair complaints the same day. So you say, “we respond to repair complaints within eight hours,” (or whatever time). The next landlord they talk to will then be forced into the position of answering a question he or she never thought about before or thought was important.  You have made it important because you brought it up. Other landlords may do the same thing you do, but the key is, if you say it, that sets you up as the expert, the standard of performance. People don’t know unless you tell them.

Another example, many businesses have high turnover, but your average employee stays with you for at least five years because you pay attention to employee satisfaction and that has helped make you successful.  Say how you do that.  It sets the criteria for a pleasant workplace.  It is important because you brought it up and sets you up as a great place to work.  Once again, people don’t know unless you tell them.

How long have you been in business or doing what you do?  Many years?  So what?  How does that benefit an employee or renter?  Many years of experience shows you are a stable company, one that most likely won’t go out of business.  That’s a benefit because employees and renters like to be able to depend on where they work or live where they won’t have to look for a new job or a new place to live until they are ready.  Combine that with what a great place you have to work or live and you create a model of desirability.

The most important thing is to think in terms of how whatever it is you do benefits the people who rent from you or work for you.  Just throwing out facts and figures doesn’t relate to any benefit.  Explain the benefit.

Demonstrate expertise.  You most likely make a good case for it on Facebook or your website.  But you can do more.  You may post a blog, but that requires considerable work and may not be something you can do well or even want to do yourself.  Of course, you can hire someone to do it, and that’s the best solution, but you can also reprint information about your industry because you keep up with the latest trends and news. Many websites welcome your reprinting their articles as long as you say where you got it and provide a link to their site. Be extremely careful here and only reprint information from sources that invite you to do so or that have given you written permission.  Reprint an article where the author has warned it may not be reproduced in any form without written permission could well result in a cease-and-desist letter from the website’s attorney and a demand for payment.   When in doubt, ask first. Provide new information regularly so people are enticed to keep coming back.  Good tenants will think, “I want to live there,” and excellent employees will think, “I want to work there.”

Something else to post on social media is your elevator speech.  What do you say when someone asks you about your business?  Many people create a 20-second or so speech that explains about them.  I won’t go into how to create one here.  There’s considerable information about how to do that on the internet.  Write it out and put it on social media.  Then be ready to say it when people call you.  So what if the applicant has already seen your elevator speech on Facebook.  Most likely they won’t remember it word-for-word, just the basic information you provided.  And your repeating it reinforces what you wrote.

But what if you don’t get any visitors after you have done the work? By doing it, you have sold yourself to yourself.  Just coming up with that information and those ideas reminds you of what an outstanding business you have, one that your competition will envy, but probably could never meet the standards of.

Good people like to rent from and work for good people.  The less-than-desirable ones figure there’s no chance they could rent from the top landlords or work for the top companies, so they don’t bother to apply to them. Wouldn’t it be great if after your applicants had screened you, your job of choosing which one to hire or rent to would be made a job of picking from a slate of five-star applicants?

Written for Zip Reports, employee and tenant screening company. Visit their website.

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Cashless Coming to a Store Near You?

By Robert L. Cain, written for Zip Reports, employee and tenant screening company.  Visit their website.

If you shop at an Amazon bookstore, don’t bother bringing cash. They can’t accept it. Likewise at clothing retailers such as Bonobos, Indochino, Everlane and Reformation.  Then there are Drybar hair styling, The Bar Method fitness studios, and United and Delta airlines. None of them accepts cash, either.  It’s a growing trend to force people to pay with credit and debit cards and their phones.

Of course, the credit card companies are all for it.  Last year Visa doled out $10,000 to 50 businesses for creating videos glorifying going cashless and how it would benefit their bottom line.  The trend is growing, being pushed hard by credit card companies and providers of digital wallets such as Apple Pay and Google Pay.  Jerry Sheldon vice president of IHL, a firm that consults for retail and hospitality businesses, believes 40 to 50 percent of restaurants and stores will be cashless in the next 10 to 15 years.

As it is now, only about 30 percent of payments to businesses are made in cash, reports IHL, that’s down from 40 percent in 2012, with fast food leading the charge with 41.1 percent cash sales, followed by convenience stores and gas stations at 33 percent and mass merchants at 32.1 percent.  At the bottom of the cash acceptors are department stores with only 12.5 percent of their sales in cash.

Indochino, a custom men’s clothing chain, began life as an online business but added brick and mortar, is “prioritizing other payment methods” besides cash.  Their demographic is 25 to 44 year-olds, many of whom have grown up using digital payments, cards or phones.  In fact only 21 percent of 23 to 34 year-olds pay in cash, down from 39 percent five years ago, reports a Gallup poll.  Sheldon says, “Their lives are wrapped around their little phones.”  In fact, some 70 percent of Generation Zers use mobile banking every day and 68 percent want instant peer-to-peer payments.  They will make up some 40 percent of the population by 2020 estimates Accenture.

Businesses reasoning for refusing cash is tenuous, at best.  Tender Greens salad restaurant for example says that accepting only cards shaves about 10 seconds off taking orders.  Wow! Some savings. And having cash on site also involves more expenses, they say, such as armored cars, running to the bank for change, employee theft, and robberies.  For customers who would rather use cash, too bad.

Some cities and states have responded. Massachusetts, for example, has had a law on the books since 1978 that prohibits businesses from refusing cash.  Philadelphia and Washington, DC, are considering similar laws.

Of course, the credit card companies are ecstatic about the cashless prospect.  An ad in the Washington Post from T. Rowe Price claims “Experts predict that nearly 2.1 billion consumers worldwide will use mobile wallets to make payments in 2019.”  They add, “Mobile payment apps are successful because they make consumers’ lives far more convenient, saving them time and money.”  What they fail to mention is that every sale made through any cashless system has a two or three percent discount that goes to the credit card issuer.  Hence their ecstasy.  Then there’s the advertising revenue.  Every sale will be tracked and merchants will have the opportunity to buy ads touting a product or service similar to what the consumer just bought.  Just the way Google tracks searches now, the mobile carriers and credit card companies will be able to track purchases.

Speaking of ecstatic, the hackers are beside themselves with anticipation. First, there are the mobile phone payments.

Is it the fantastic innovation for consumers that companies such as T. Rowe Price claim it is?  John Rampton in the article “Hacking in Mobile Payments Space” wrote, “There have already been a number of mobile payment platforms that have been jeopardized.

Troy Leach, CTO of PCI Security Standards Council, states in a March 24, 2015 Forbes article, “The risk is that there are many different ways payments can move through the mobile payment platform from SIM, to host card emulation (HCE,) to in-app purchases.” Leach also said, “Each unique type of transaction requires unique risk for how criminals may attempt to circumvent controls to steal cardholder data or commit fraud.” No, I don’t know exactly what all that means, but bad guys probably do.  And you know it isn’t good news for people using their phones to pay for something.

It has to do with Near Field Communications (NFC).  But the problem isn’t with that but rather with the company that provided the hardware and software for the NFC in the store, states the Forbes article.  Over the last few years, the number of hacks of mobile pay is frightening. Companies such as Apple Pay have supposedly fixed the problem, but crooks are always one step ahead.  And they don’t even have to be particularly tech savvy.

An article on copy9.com entitled, “4 Ways to hack into someone’s cell phone without them knowing 2018,” provides easy ways to get it done providing complete instructions for getting into someone else’s phone.

But there’s more.  Several apps are on the market to get into someone’s phone.  They all provide reasons that are perfectly legal and probably legitimate such as watching what your kids are doing, hacking a spouse’s phone, or watching what parents are doing. But what they promise applies to much more than those instances. Just think, you have the capability to do: GPS geo-fencing & tracking, blocking of Internet access, restricting of calls & messages, keyword tracking alerts, logging of (e-mails, apps, keyboard), acessing contacts, browsing history, messages, messengers, social accounts, etc.) Other hacking products will do similar nefarious things.

The opinions of the experts is almost universal. In an article in Entrepreneur magazine, John Rampton cited an ISACA study that only 23 percent of the experts surveyed said they believed that mobile devices are secure enough to keep personal information safe, while 47 percent claimed that mobile payments are not secure.  The vast majority, 87 percent believe mobile payment data breaches will increase in the next year.

Then, second, there are just plain old, run-of-the-mill data breaches. Look at the data breaches of even some of the largest companies, the most recent the Marriott breach that wasn’t discovered for four years and not reported for three months after it was discovered. The list that includes Yahoo!, Equifax, Target, Home Depot, Anthem, the Office of Personnel Management, T-Mobile, Scottrade, and many more is frightening.

Hackers will always find ways to exploit any security problem. They are nothing if not persistent. But you can’t hack cash, only steal it, and the amount is limited and far more perilous to the crook than hacking on the internet. Hacking crime is like a free pass to the bad guys, the risk is miniscule and the potential profits unlimited. How many hackers get caught?  Mark Lanterman, C.T.O. of Computer Forensic Services, estimates it at less than one percent. And how many businesses have been hacked? CBS Marketwatch reports that smaller businesses (1,000 or fewer employees) are more prone with 85 percent estimated to have been hacked, while 60 percent of larger companies have suffered.  What’s worse, many companies never even realize they have lost data to crooks.

Even so, mobile payments and the cashless society may be a near-future fact.  It’s not the savior of society and the wonderful consumer convenience that credit business companies claim it will be.

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New FICO Scoring Plan Looks at 7 Million Possible New Customers

By Robert L. Cain.  Written for Zip Reports employment and rental screening company.  Visit their website.

Credit card issuers and other lenders are desperate.  Their profits have stagnated.  Credit card debt has reached the same level as in 2008, about $1 trillion.  That means, asTed Rossman of creditcards.com says, the lending market is saturated.  Where to get more business?

The lenders came up with an idea and pushed it on Fair Isaac Corporation, author of the FICO score.  Seven million people have too-thin a credit history or scores too low (the high 500s or low 600s) to be of any interest to lenders.  But the lenders still want more business and that possible market of that 7 million people makes lenders’ mouths water.  So what they proposed to Fair Isaac is that they add bank account information to the mix.

FICO, which depends on lenders paying for credit reports they pull for their income, complied and came up with Ultra FICO, a program that will include taking into consideration bank accounts both checking and savings.  If someone in the previous three months kept a savings account balance of an average of $400 and hasn’t bounced a check, he or she could be in luck and get a bump in his or her credit score that just might get that person a brand new credit card.

The credit card industry has a huge upside here.  Where those people with excellent credit can get interest rates below 10 percent, figure these new people will pay upwards of 29 percent.  Besides, many people with a top-of-the-line credit score pay off their credit cards every month, so the credit card issuers don’t make a dime off interest.  Wow! Just think of it, 29 percent interest on, say, a $1,000 balance.  That’s a payment of about $34 a month, most of which goes to interest, pure profit for the credit card company.  And even if only 3 million people were to take advantage of this new opportunity, that’s conservatively $102.5 million a month in income that they didn’t have before.

Of course, that could be a big savings for some people who depend now on payday lenders who may charge up to 400 percent interest, pawn shops, and loan sharks who may not be as forgiving as either payday lenders or certainly credit card issuers.

This program, which will roll out in early 2019 with just  few lenders and available only through Experian, is entirely voluntary for possible customers.  But count on lenders to push the program with TV and radio ads, touting its benefits to today’s non-credit worthy.

One wrinkle no one has mentioned is that at present, FICO scores do not take into consideration anyone’s income.  Pay your bills on time, have adequate available credit over an acceptable length of time, and you get a good credit score.  Income is left off the mix.  But bank records imply income.  All someone has to do is look at the amounts of deposits to get an idea of how much money someone earns.  Ted Rossman points out “Historically your FICO score has been affected by how well you manage your money, not how much money you have.”

Then there’s the sharing of data.  Maureen Mahoney of Consumers’ Union warns “Participating in this program involves sharing very sensitive banking information with third parties, so consumers should keep that in mind before” signing up.  And once lenders have that information, who will they sell it to?

Acceptance of this new FICO score could be a long way off, though.  Only a few lenders are going to use it in the beginning.  Fact is, many lenders don’t even use the latest FICO scoring models, FICO 9, which discounts the importance of medical debts and may include rent payments, or FICO XD, which adds utility payment and public records to credit files.

Thus, FICO Ultra will not be available to employers and landlords in the beginning, even though it might be a better predictor of how well someone will pay bills than an old-style credit report might be.  After all, if someone religiously pays the rent and has some money in the bank, figure that’s a positive sign.  The only thing to be concerned with is unaffordable car payments that could result in repossessions that could result in not being able to get to work.  But if someone doesn’t have existing credit, the likelihood of having a car payment is slim.

Yes, lenders are getting desperate and there’s a huge, untapped potential market that they want to figure out how to grant credit to.  Their problem will be how to ensure that this untapped market actually pays its bills once it get those credit cards and car payments.

We’ll have to wait and see because many people simply don’t want to use credit, don’t want anyone interfering in their financial lives, and are content with paying cash.  At present there are some 24 million households who are considered “underbanked,” meaning they have checking accounts but use other financial “tools” such as pawn shops, check-cashing stores, and/or payday or auto title loans. Most say they don’t have enough money to open and keep a checking account. Then there are the “unbanked,” some 9 million households. They may never have applied for or applied for credit from a bank because they feared rejection or applied and have been rejected..  They also use the same “tools” as the underbanked.  They use cash or prepaid debit cards and lenders are out of luck.

These are the people whom lenders want to sign up. They see an opportunity what with their bumping up against the maximum of the market they have now.

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