Click for Denver Post story

Click for Denver Post story

I’ve described the many flaws in Ubernomics before, and you’ve about sexual assault allegations.  Here’s a new Uber problem that users should understand.  A Colorado man has been arrested and accused of returning to a passenger’s home after dropping her off at the airport to burglarize the home, seemingly because he believed the place would be empty.  The victim’s roommate was home and stopped the alleged crime.  You can read more at Denver station KUSA or at The Denver Post. 

I have a lot of concerns about Uber because I think it is using unfair market tactics that could have serious long-term negative impacts on both taxis and mass transportation.  I wish those issues received more focus.  Understandably, Uber crime gets all the attention. In fact, it even ended up as the plotline in a recent CSI:Cyber TV episode. 

Let’s be clear: Anyone can use information gleaned from digital cookie crumbs and try to rob your house. That was the point of a website named “PleaseRobMe” a few years ago.  People do all kinds of dumb things that let potential criminals know they won’t be home for long stretches. I’ll bet there’s a “Yea! A week in Mexico!” post in your Facebook wall right now.  So it’s not fair to overstate the Uber element of this alleged crime.  A taxi driver dispatched to your home for an airport run could pull the same stunt.  However, there are several items to consider here.

Anyone can be an Uber driver.  That’s the point of Uber. There’s no permitting process, no licensing, no medallion to buy, and so on.  Professional taxi drivers can be criminals too…many are petty criminals, which is the real reason Uber exists in the first place.  But outside a cursory background check, the kind I’ve often criticized for their inaccuracy, Uber drivers can come from anywhere. They make almost no up-front investment to join.  Obviously, you’re more likely to get a creep or criminal with so little barrier to entry than with a firm that requires real investment by drivers.

What should you do? The alleged criminal in this case was obviously not very smart.  While you can imagine he might have gotten away with the crime once, if he tried this three or four times, someone would have figured out the pattern.  There is no reason to believe there’s a rash of Uber robberies like this, or will be. Still, some common-sense precautions might be wise. If you can, when heading to the airport, leave from a neighhbor’s house, or the office, or a main street near your home, as you might when flagging a taxi.  I always ask Uber drivers how long they’ve been with the company (a shocking number say, ‘A few weeks.’).  If the driver is relatively new, I perk up my spidey sense for long routes or other shenanigans.  Someone who’s been with Uber for a while has a lot more to lose from misbehaving than a newbie. And while a driver can obviously lie, it’s pretty easy to tell during normal conversation if someone is a vet Uber driver or not. (What was your worst passenger?  Are you making enough money to do this full time?). At a bare minimum, be vague about your trip, and it’s always worthwhile leaving the impression that someone else is home, or you will be back quickly, or you have very observant neighbors, or you have a lot of cameras installed, or….you get the idea.

Be careful out there.  I think Uber has great potential, if it doesn’t destroy itself and the concept in the process.

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paydayCFPBPayday lenders would face a new set of restrictions under rules being proposed Thursday by the Consumer Financial Protection Bureau. The rules include requirements that lenders ensure borrowers have the ability to repay the loans, and limits to the number of times consumers can renew the loans. The proposal covers a wide set of short-term, high-cost lending products, including title loans.

“Many lenders make loans based not on the consumer’s ability to repay but on the lender’s ability to collect,” CFPB Director Richard Cordray said. “Our research and analysis indicates that when loans are made on ability to collect, consumers are put at serious risk.”

The proposed federal rules are sure to generate controversy; payday lenders say state laws already heavily regulate their product.

Cordray described the new rules as an “outline” during an event in Alabama and said the bureau is open to feedback from lenders and consumer groups. The rules will first be reviewed by a Small Business Review Panel, and then be subjected to public comment before they are finalized.

(This story was first published on Credit.com. Read it there.)

President Barack Obama voiced his support for the proposal on Thursday.

“As Americans, we believe there’s nothing wrong with making a profit,” Obama said in statement given to reporters, according to USA Today. “But if you’re making that profit by trapping hard-working Americans in a vicious cycle of debt, then you need to find a new way of doing business.”

One set of proposed rules would cover short-term loans that are 45 days or less; a second, similar set covers longer-term loans with interest rates higher than 36%, and where the lender has direct access to a bank account or a car title.

Lenders are offered one of two options, described as “debt trap prevention” or “debt trap protection.”

The “prevention” rule would require lenders to conduct underwriting when issuing loans to ensure consumers can pay them back while also paying for basic living expenses. Consumers who renewed their payday loan would have to be re-evaluated. And in cases where consumers take three loans in quick succession, a 60-day cooling off period would apply before that consumer could borrow again.

The “protection” rule would require lenders to decrease the principal amount for subsequent payday loans until the debt is paid off. Or, lenders would have to offer a no-cost extended payment plan to consumers who can’t pay off the loans.

The rules for longer-term loans would cap interest rates at 28% and repayment periods at six months or limit monthly payments to 5% of a consumer’s gross monthly income.

The new rules would also require lenders to notify consumers three days in advance that they will withdraw money from deposit accounts for repayment. And it would limit lenders to two unsuccessful attempts at such withdrawals to prevent consumers from being hit bycascading overdraft fees.

“The goal behind these parts of our proposal is to block lenders from harming consumers by abusing their preferential access to the consumers’ accounts,” Cordray said. “Of course, lenders that are owed money are entitled to get paid back. But consumers should be able to maintain some meaningful control over their financial affairs, and they should not be subject to an array of fees and other costs that can be generated entirely at the whim of the lender.”

The $50 billion payday lending industry is likely to fight many of the proposals.

“The bureau is looking at things through the lens of one-size fits all,” Dennis Shaul, CEO of the Community Financial Services Association of America, a trade association representing the payday lending industry, told the Associated Press.

But Cordray says the bureau has spent years studying the issue and, given that half of all payday loans are currently renewed before they are repaid, deems that new rules are necessary.

“In the end, we intend for consumers to have a marketplace that works both for short-term and longer-term credit products. For lenders that sincerely intend to offer responsible options for consumers who need such credit to deal with emergency situations, we are making conscious efforts to keep those options available,” he said. “But lenders that rely on piling up fees and profits from ensnaring people in long-term debt traps would have to change their business models.”

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Pee-a-boo!  I see you, Verizon coverage map

Pee-a-boo! I see you, Verizon coverage map

It’s fun to watch the wireless carriers struggle to keep their prices sky-high while still dipping into the “low end” of the market.  It’s quite a contorted two-step.  It requires downgrading certain phones and services, or otherwise hampering them from working at full efficiency to make a low-value product, but also creating an arm’s length sub-brand so as to not tarnish the main brand (or offend customers who are paying double and triple the price).  The sub-brands must pull quite the inside straight — they have to appeal to the poor credit and coupon-seeking crowds alike, but still somehow carry enough stigma that the high-priced customers wouldnt’ want to be caught dead with one.

The cell phone brand two-step reached new heights a few weeks ago when Verizon quietly launched “Total Wireless.”  The service is operated by TracFone but, critically, uses Verizon towers.  You wouldn’t know Verizon is involved from looking at the Total Wireless website – Verizon’s name isn’t on the “about us” page.   The coverage map, many observers have remarked, is obviously a map of Verizon’s towers, however. Total Wireless didn’t even change the color scheme.

You’d have to wonder why Verizon would be embarrassed about this new product.  Well, here’s why: individual data plans start at $35 per month for 2.5 gigs of data, when you bring your own phone. That’s about double what the parent brand plans cost ($75 for 2 gigs on the plan I spied). Even better (worse?) — overage for Total Wireless costs $10 for 1.5 more gigs, while it’s $15 for 1 gig on VerizonWireless.   It’s the same data. It just costs less for the discount brand.  

Well, not exactly.  While the coverage for Total Wireless is the same as Verizon Wireless, the speed is not. Total wireless phones don’t get access to Verizon’s fast 4G network.  Search the firm’s website with care and you will eventually find the catch on the terms and conditions page– customers can only use the slower 3G service on Total Wireless.  Note, this isn’t obvious from the Total Wireless home page, which boasts only that “Lucky for you, we are on America’s largest network.”

Now, there’s nothing wrong with segmenting the market. Want basic smartphone access? Pay about $40-50.  Want super smartphone access? Pay about $100-$125.  That’s fair enough. I just wish it didn’t have to be so intentionally confusing.

Of course, Verizon didn’t invent this problem. In fact, it’s late to the game. All the big wireless carriers do it - The AT&T discount service is called Cricket Wireless, Sprint’s is Boost Mobile, and T-Mobile is GoSmartMobile.  All of them let folks have smartphones at a reasonable price, and that’s great. The phones will leave behind users who want to take advantage of the latest apps, video, and of course, snazzy new iPhones and Androids, but that’s not the end of the world.

The folks at SaveOnPhone.com think phones are changing so quickly that no-contract phone are really the way to go.

“Whatever plan you choose, do not sign a contract for cell service,” says John Oldshue “Find a good used phone or buy one, but don’t fall for the “free phone with a contract” which all big four carriers offer. Prices are dropping so quickly, so there is no longer any reason to be locked in a contract for an extended period of time.”

That’s certainly advice many folks should take to heart, though there are still some lingering reasons to go with contract phones — mostly, to get the latest phone. But I believe leaps between phone generations are also getting smaller, which means one-year-old smartphones aren’t as stale as they would have been a few years ago. So, get to know your secret sub-brand and check out your choices. You no longer have to sacrifice service availability to get discount smartphone service.

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CMU.EDU (Click for research)

CMU.EDU (Click for research)

Even for researchers experienced at examining technology that might be invasive, this warning was alarming: “Your location has been shared 5,398 times with Facebook, Groupon, GO Launcher EX and seven other apps in the last 14 days.”

The warning was sent to a subject as scientists at Carnegie Mellon University were studying the impact of telling consumers how often their mobile phones shared their location and other personal data. Software was installed on users’ phones to better inform them of the data being sent out from their gadgets, and to offer a “privacy nudge” to see how consumers reacted. Here’s how one anonymous subject responded when informed a phone shared data 4,182 times:

“Are you kidding me?… It felt like I’m being followed by my own phone. It was scary. That number is too high.”

(This story first appeared on Credit.com. Read it there.)

Mobile phone users are told about the kinds of things that might be shared when they install apps on their phones, but they have a tendency to “set and forget” the options. That means a single privacy choices, usually made in haste when clicking “install,” governs thousands of subsequent privacy transactions.

“The vast majority of people have no clue about what’s going on,” said Norman Sadeh, a professor in the School of Computer Science’s Institute for Software Research, who helped conduct the study.

But when consumers are reminded about the consequences of choices they make, “they rapidly act to limit further sharing,” the researchers found.

The study covered three weeks. During week one, app behavior data was merely collected. In week two, users were given access to permissions manager software called AppOps. In week three, they got the daily “privacy nudges” detailing the frequency at which their sensitive information was accessed by their apps.

Researchers found that the privacy managing software helped. When the participants were given access to AppOps, they collectively reviewed their app permissions 51 times and restricted 272 permissions on 76 distinct apps. Only one participant failed to review permissions. The “set and forget” mentality continued, however. Once the participants had set their preferences over the first few days, they stopped making changes.

But privacy reminders helped even more. During the third week, users went back and reviewed permissions 69 times, blocking 122 additional permissions on 47 apps.

“The fact that users respond to privacy nudges indicate that they really care about privacy, but were just unaware of how much information was being collected about them,” Sadeh said. “App permission managers are better than nothing, but by themselves they aren’t sufficient … Privacy nudges can play an important role in increasing awareness and in motivating people to review and adjust their privacy settings.”

Of course, it’s hard to say if the research participants would have kept futzing with their privacy settings, even inspired by nudges, as time wore on. Sadeh suspected they would not: Privacy choices tend to wear people down. Given the new types and growing numbers of apps now in circulation, “even the most diligent smartphone user is likely to be overwhelmed by the choices for privacy controls,” the study’s authors said.

The findings will be presented at the Conference on Human Factors in Computing Systems in Seoul, South Korea, next month. The research is supported by the National Science Foundation, Google, Samsung and the King Abdulaziz City for Science and Technology.

For now, what can smartphone users do to better protect themselves? It’s not easy. For example: A study by IBM earlier this year found that roughly two-thirds of dating apps were vulnerable to exploitation, and in many cases, would give attackers location information. The AppOps software used in the Carnegie Mellon study used to be available to Android users, but was pulled by Google in 2013. The firm said the experimental add-on to the Android operating system had a tendency to break apps. So Android users are left to manually review app permissions one at a time — not a bad way to spend time the next time you are waiting for a bus. It’s always a good idea to turn off location sharing unless you know the software really needs it, such as map applications. IPhone users have the benefit of privacy manager software, but it doesn’t offer great detail on how data is used, and it doesn’t offer privacy nudges or any other kinds of reminders. A manual review is best for iPhone users, too.

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Center for Responsible Lending

Center for Responsible Lending

A couple of years ago, I started hearing from consumers who said their cars were wrongly repossessed by a bank named Santander.  I knew Banco Santander from spending time in Spain, but as I researched these claims, I was surprised to learn of Santander’s rapid expansion in the U.S., driven by a surprising part of the banking market. Even though the recession was still making most lenders timid, Santander was making a big play into the auto lending market — and specifically, into lending money to less-than-ideal borrowers.

There were growing pains, however. A series of lawsuits accused the company of repeatedly breaking debt collection laws.  One consumer accused the firm of calling 800 times.  Many accused the firm of wrongly repossessing cars of active duty U.S. military members. You can see my reporting in a Red Tape Chronicles archive here — “the accusations are as outrageous as they are plentiful,” I wrote at the time. The firm at the time denied wrongdoing, but recently agreed to pay $9.35 million to settle charges it violated the  Servicemembers Civil Relief Act. It admitted no wrongdoing.

Santander is just one player in the rapidly growing subprime auto loan market that has since drawn the attention of mainstream business journalism.  Plenty of folks are worried that it’s just another financial bubble puffed up on the backs of naive consumers.  On the other hand, you won’t find any shortage of industry analysts who think it’s unfair to link subprime auto loans to subprime mortgages.   I explored this topic recently for Credit.com. you can read the text below, or read the entire story at Credit.com.

Is there a subprime car loan bubble?

Auto loans are hot. Consumers can’t seem to get enough of them, and the average loan has soared from $14,700 to $17,400 in the past five years, according to TransUnion. Wall Street can’t get enough of them either: Santander Consumer USA just sold off $700 million of its subprime loans to investors within a few hours, even though the average FICO score of the borrower was 552, and 13% had no score, according to Structured Finance News.

But auto loans are also hot for a different reason, and many observers have begun uttering the dreaded “B-word” about the market. “Bubble.”

(This story first appeared in Credit.com. Read it there.)

Meanwhile, state and federal government agencies are lining up to subpoena firms that cater to less-than perfect borrowers who need wheels, known as the subprime auto loan market. Capital One disclosed in a February Securities and Exchange Commission filing that the Department of Justice has issued subpoenas looking for information on its subprime loans. Ally Financial said it has received similar inquiries from the SEC. The Massachusetts attorney general’s office has opened inquiries in a handful of lenders, according to the Boston Globe. New York City’s Department of Consumer Affairs issued subpoenas to Santander in November. And Santander recently settled a lawsuit with the Justice Department alleging it wrongly repossessed more than 1,000 cars with loans being paid by active duty servicemembers. The firm paid $9.35 million but admitted no wrongdoing.

Plenty of observers and government officials are worried that the subprime auto loan market is starting to look and act like the subprime housing market of the last decade.

“Studies show that subprime loans, which have been blamed for the country’s mortgage crisis, are growing at a staggering rate of more than 130 percent since the financial crisis,” said new York’s DCA Commissioner Julie Menin in a statement announcing that office’s probe. “For many families, especially those with low incomes, a car is one of the biggest purchases they make and if they are looking to a subprime loan, it’s because they are already struggling financially.”

The subprime auto loan market might seem like an unlikely place for the next argument over Wall Street financial innovation. After all, what do dealers hawking cars to drivers with poor credit have to do with the mortgage market? A lot, it turns out — the same risk-reward calculation that was wildly profitable for banks and financiers, until the market turned against them.

Subprime auto loans carry interest rates that can be double or triple what a buyer with good credit can qualify for — rates for so-called “deep subprime” loans can climb as high as 20%. Even if default rates are high — analysts predicted nearly 25% default rates for the loans Santander sold off earlier this month, according to the New York Times — those high interest rates keep the subprime category profitable.

Other factors make subprime car loans even more attractive to investors than subprime mortgages. For starters, cars are much easier to repossess than homes are to foreclose. Even technology has made this easier – Credit.com recently reported on systems that allow lenders to remotely disable cars when borrowers miss payments.

Repossessed cars have value, too, and can be sold in used car lots, often to other subprime customers in a thriving used car market. Some cars are sold multiple times by the same dealer. And consumers also tend to pay their auto loans more faithfully than their mortgages or credit card debt, even during the Great Recession; many Americans live in places where life without a car is nearly impossible.

Santander’s $700 million bond offering promised Wall Street investors about 1% returns, according to zerohedge.com, which is nearly eight times the return that Treasury bonds are getting. With interest rates for traditional savings instruments so persistently low, Wall Street’s appetite for auto bonds seems voracious. GM Financial issued $1.2 billion in securities backed by about 63,000 car loans last year, which saw $17 billion in subprime bonds floated from January to September, according to Bloomberg.

That’s the part that has some regulators comparing auto loan market of 2015 to the housing market of 2005. The total amount of outstanding car loans is soaring, and stands at about $950 billion today, a record. Subprime loans are consuming a larger and larger slice of that market — from 20% of originations in 2009 to 27% in 2013, according to the Center for Responsible Lending. And there are other worrisome signs. Some buyers are borrowing for longer and longer terms — 96-month car loans are now being offered. The average subprime auto loan term is 71 months, or about a year longer than a prime loan. And theaverage monthly payment is $500, about $50 more than prime.

Some observers and government officials are expressing concern that loan standards are being lowered, or abandoned altogether, in order pump up the volume so loans can be sold off to Wall Street.

There are signs of increasing trouble. Auto loan borrowers’ failure rates are rising. According to TransUnion, delinquency levels for subprime borrowers have grown from 4.2% in the third quarter of 2012 to 5.3% in last year’s third quarter. Repossessions are up, too. The repossession rate jumped 70% from the second quarter of 2013 to the second quarter of 2014. It has since dropped, but observers worry the relief is temporary.

The auto lending market continues to look and act bullish. TransUnion’s annual auto loan forecast calls for the average auto loan to rise to $18,244 at the end of 2015. If the prediction holds true, it would mean 19 consecutive quarters of increases since the beginning of 2011.

Santander, a Spanish bank,  became one of the largest players in the subprime market when it spent $650 million to become the majority shareholder in Texas-based Drive Financial. It renamed the company Santander Consumer USA.

Laurie Kight, vice president of communications at Santander Consumer, told the New York Times in a statement that the lender has a “rigorous and active dealer control operation, which is part of the company’s overall compliance framework.” She added, “This operation audits, investigates and — if necessary — ceases operations with any dealers who conduct fraudulent or high-risk activities.”

Santander declined to comment for this story.

Many lenders and dealers say the booming subprime auto loan market is good for consumers, many whose credit was blemished by the recession and are in need of reliable transportation to stay employed.

Writing last year for Moody’s, analyst Cristian deRitis acknowledged some problems in the auto lending market, but cautioned against overreacting.

“Vigilance is needed to protect borrowers, but expanded lending activity with some deterioration in performance may be symptoms of a lending market returning to normal rather than overheating,” he wrote. “Instances of fraud and questionable lending need to be addressed before they become systemic issues. Yet in some respects, auto lending is a victim of its own success.” He also points out that the auto loan market, while significant, is dwarfed by the mortgage market, and a failure in the auto loan market would not have anywhere the impact of the housing meltdown.

But others worry that if left unchecked, a subprime auto loan bubble will burst with painful consequences.

“Regulators and law enforcement … should pay more attention to well-known and well-documented abuses in the auto lending market to stop increasing levels of default,” warned the Center for Responsible Lending. “Recent evidence suggests that the problems are already systemic.”

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PUBLISHED DEC. 9, 2011 — The accusations are as outrageous as they were plentiful:  Hundreds of “robocalls” —  in one case, 800 to a single person — to collect auto loan debts;  illegal repossession of cars from active duty military deployed overseas;  late fees assessed three years after the fact and then compounded into $2,000 or $3,000 bills; harassing calls to friends, neighbors, co-workers — even children — on cell phones. And now, a flurry of lawsuits filed around the country, and lawyers fighting over potential clients.

The defendant in the lawsuits is Europe’s largest bank, Banco Santander S.A., which is preparing to make a big push into U.S. retail banking. But many Americans already have been introduced to the Spanish financial powerhouse, a first encounter that many liken to a nightmare.

Santander’s most visible presence in the U.S. market is the result of a buying spree begun in 2009, when the bank began purchasing billions of dollars in auto loans — many of them subprime loans for used cars — from Citibank, HSBC and a host of other banks.

But if the cascade of complaints and lawsuits are accurate, Santander Consumer USA has tried to immediately turn those receivables into lucrative assets by assessing massive penalty fees and repossessing cars under dubious circumstances.

“They have a good business model if you are a crook,” said lawyer Johnny Norris, who filed one of the first class-action cases against Santander Consumer USA, the Spanish bank’s U.S. arm.  “It’s a very lucrative but unlawful business plan. … It’s really terrible and we’re trying to put a stop to it.”

Laurie W. Kight, vice president of communications for Santander Consumer USA, said the company would not consent to an interview for this story.

“(Santander) declines to comment at this time,” she said in an email.

While the Internet has been awash in complaints about Santander’s debt-collection practices for months, legal proceedings are just now reaching a fever pitch.  Norris said he’s filed more than 100 individual cases against Santander and he’s considering hundreds more.  One of his clients was called more than 800 times by an automatic dialer, he said, alleging that the calls represent a violation of the Telephone Consumer Protection Act. If so, each call could net a penalty of $1,500 for plaintiffs.

“Our cutoff is 100 calls” when the firm screens potential new clients for Santander lawsuits, he said.

The class-action case, with seven lead plaintiffs, was filed in federal court in Alabama.

One plaintiff, Leslie Haynes, purchased a used BWM in 2007 from a dealer in Birmingham, Ala., according to court documents. A year later, Santander collectors began peppering her with demanding calls. The lawsuit claims agents misled her about the balance of her loan, tried to trick her into making additional payments, then refused to stop calling her at work. Agents also repeatedly frequently called relatives, even harassing her sick stepfather and his live-caregiver in the months before he died, it alleges.  The court filing does not indicate whether Haynes had made all payments on time.

Another plaintiff in that case, Victor Shortt, alleged that Santander agents repeatedly called his minor daughter’s cell phone, ignoring pleas to stop. A third, Jacob Glassmoyer, said Santander officials called his parents’ cell phones repeatedly, at a time when one of them was undergoing chemotherapy, according to the lawsuit.

Norris said Santander routinely uses another tactic after acquiring a loan from another lender: It searches records for past slip-ups — such as a payment that was late by a few days — then assesses fees retroactively, sometimes years after the fact. By calculating the loan forward from that point, and “cascading” the fees, the firm sometimes claims clients owe thousands of dollars in late fees, and demands immediate payment or threatens repossession.

Another class-action case, filed in a federal court in California, accuses Santander of ignoring the Servicemembers Civil Relief Act, claiming the firm repossesses cars while active duty military are deployed overseas and refuses to lower interest rates to 6 percent, as required by law. The plaintiff in that case, Sgt. Charles Beard of Lemoore, Calif., serves in the U.S. Army National Guard, and was deployed abroad on Aug. 16, 2008. On Feb. 3, 2009, Santander repossessed his Kia Sportage, even after the bank was informed that a court order is necessary to repossess a deployed soldier’s car.

“One of defendants’ representatives told Mrs. Beard that she would go to jail for a stolen car if she did not turn in the vehicle,” the lawsuit alleges. Santander also ignored complaints from Army legal assistance, and sold the repossessed auto at auction in March of that year, according to the lawsuit.

The lawsuit claims such violations by Satandar of the Servicemembers Civil Relief Act are routine.

“Defendants have a policy of failing to verify, prior to undertaking voluntary repossession, whether the person whose vehicle is subject to repossession is serving on active duty,” it claims. “Defendants routinely ignore service members’ rights under the SCRA and wrongfully repossess their cars without obtaining the requisite court orders.”

Used car loans might seem like a hard way for an international bank to make money, but they’ve actually proven to be more resilient and recession proof that other forms of lending — particularly mortgage lending. Cars, at the moment, appear to be better collateral than homes and are much easier to turn into cash after a borrower defaults. That’s part of the reason that Santander was the most profitable bank in the world outside of China last year, and has been on the acquisition trail since the financial meltdown.

The Spanish bank is Germany’s largest auto lender, and has enormous auto loan portfolios across Central and Eastern Europe, said Mauro Guillen, a Wharton Business School professor who wrote a book about Santander called “Building a Global Bank.”

“Auto loans are low margin, but high volume gives you a good return,” he said. “It’s a typical way for Santander to enter a market.”

It’s also lucrative. Santander Consumer USA earned a tidy $455 million in 2010.

“It’s a cash cow for them,” Guillen said.

Santander has big designs for U.S. retail banking. It completed the acquisition of Sovereign Bank, largely a regional lender based in the Northeast, in 2009.  It recently received approval to convert from a savings bank to a national bank, and plans to begin rebranding 747 Sovereign branches as Santander early next year.

But as the bank brings its impressive balance sheet to the wider U.S. market, it apparently has also exported its reputation for mistreating consumers.  Last year, a flurry of news stories in the British press labeled Santander “Britain’s worst bank,” after it registered more than 160,000 complaints from account holders in a recent 6-month period, by far the most of any bank. The complaints typically involved frustrations with fees and customer service.

Santander usually receives the most consumer complaints in Spain, too, Guillen said.

Santander’s move into U.S. auto loans has been aggressive.  In November 2009, it acquired $1 billion in loan receivables from HSBC for $900 million. It raised the stakes much higher in June 2010, when it announced it purchased $3.2 billion in loans from CitiFinancial, and also agreed to service another $7.2 billion in auto loans still held by CitiFinancial.

Combined with a series of acquisitions from smaller lenders, and the loans it inherited from Sovereign, and analysts estimate Santander’s U.S. auto loan holdings at $17 billion.

The banks’ preference is for high-interest, subprime auto loans, which were reliably lucrative before the financial collapse, Guillen said.

They still are, argued lawyer Norris, because of what he says are the bank’s illegal practices.

“They are taking these subprime loans while the loan is still active.  They are piling that loan as high as they can with fees, making as much money from the borrower as they can,” he said. “Then they repossess the car, and sell the car.  Maybe there’s a difference between the outstanding loan amount and the price they get at auction, but guess what:  Santander didn’t pay 100 cents on dollar for the loan. They bought the car at a discount to start with.”

The Internet is awash with complaints of unfairly repossessed cars and sudden demands for lump payments by Santander. Many focus on confusion around the transfer of the loan to the Spanish bank from the original lender.  Thomas Tupper of Irvine, Calif., purchased his car through Citibank, but when the loan was transferred to Santander in September 2010, he says he ended up with nothing but trouble. Automated direct payments were received by Santander, and credited to his account, but he was still reported late to the nation’s credit bureaus and assessed late fees by the bank.  Then, when he sold his car, Santander cashed the payoff check but still reported him as late. That forced him to make extra payments on the loan, even after the loan was paid off. He’s only received partial refunds of the overpayments. (For more on his trouble, click here)

Donovan Rogers, 34, of Abeline, Kansas, said Santander repossessed his 2005 Dodge Durango this year after purchasing his loan from the original lender. Rogers said he wasn’t alerted to the bank change. He claims he continued to send payments on time via money order to his initial lender, but Santander would later tell him it never received the payments. He says was unaware of the problem until weeks before the car was repossessed in May. He says he received nearly 500 phone calls from the firm during that time, and was threatened with criminal charges. Even though the pickup was sold at auction in June, he said he still receives calls from Santander demanding payment.

“They’ve made my life a mess.  When I tell people my story, they are in awe,” Rogers said. “I thought I was alone until I found all these other stories online. I’m living a nightmare, but now I’ve seen stories of people with much worst nightmares than mine.”

Accusations of unfair fees and repossessions don’t figure into the lawsuits Santander is facing, however.  Lawyers are flocking to the cases because of potentially lucrative violations of the Telephone Consumer Protection Act and the Fair Debt Collection Practices Act. Santander agents routinely fail to identify themselves, use obscenities, call people other than the actual debt holder and reveal to those people details about the debt, the lawsuits allege — all direct violations of the latter law. The bank has also used automated dialing systems and prerecorded messages directed to cell phones without permission, the lawsuits allege, a violation of the Telephone Consumer Protection Act. Willful violations of that law offer a $1,500-per-phone-call bounty to the plaintiff.

Missouri lawyer Gary Green, who is also readying a series of lawsuits against Santander, thinks that the bank many have just overlooked consumer law when it raced to expand its U.S. presence.

“I think that they’ve stumbled in without doing research,” he said. “And they figured the claimants would act like most claimants and not realize they had any rights.  They figured they could take advantage of these people thinking individually they would have no voice. And maybe they just didn’t read the federal law.”

Even outside of consumer issues, Santander’s reputation is not pristine. Alfredo Saenz, the bank’s No. 2 executive, received a pardon last month from lame duck Socialist Party officials in Spain, sparing him from a previously imposed lifetime ban from working in banking. In 2009, he was convicted of making false criminal accusations in an attempt to recover a $5 million loan dating back to 1994.

The bank’s CEO, Emilio Botin, and other relatives are the focus of a tax evasion inquiry by the Spanish government involving a secret Swiss bank account that dates to the days of the Spanish Civil War in the 1930s.

Santander also operated a so-called “feeder” fund that essentially acted as a front to entice investors for disgraced Ponzi scheme operator Bernie Madoff; clients lost a staggering $3 billion.  The bank says it, too, was duped by Madoff, and has already paid $235 million to the fund set up by Madoff trustee Irving Picard. It has also offered nearly $2 billion worth of stock to victims to settle pending lawsuits.

But Guillen, who wrote the book on Santander, thinks it might be unfair to single out Santander for alleged aggressive debt collection tactics.

“What bank doesn’t have a lot of complaints right now? I can’t imagine (alleged illegal tactics) are a part of an explicit business plan,” he said. “Are they doing this more than other banks? Banks are desperate for cash right now. I don’t know if Santander stands out as being more aggressive than other banks.”

And despite the complaints and lawsuits, he predicted the bank will successfully expand into U.S. retail markets.

“And I would predict other acquisitions for them,” he said.

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Where are they hiding the listening devices?

Where are they hiding the listening devices?

They might not be hiding listening devices in our cheese, as overly paranoid Rob Lowe frets in the famous TV commercial. But they are hiding microphones in our cities.  Perhaps I’m being Overly Paranoid Bob Sullivan, but I’m unconvinced we’ve had a decent public conversation about this.

On St. Patrick’s Day last week, New York became the last American city to announce it had activated a series of microphones with the stated purpose of recognizing gunshots and reporting them quickly to police.  In rough neighborhoods with out-of-control gun violence, it’s hard to argue against any innovation that might bring law to lawless areas.  I’m not going to try.  But I am going to raise questions, and you should, too. ShotSpotter is another in a long line of technologies invented for military applications that any now being deployed on the Home Front — perhaps you didn’t even realize there was a home front?  You almost certainly don’t realize that a massive network of cameras around the country logs your license plate as you drive in and out of America’s cities, sponsored by federal grants and gobbled up by gadget-hungry local cops. ShotSpotter is the next technology that law enforcement is deploying without hearty, national debate.

The ShotSpotter system has done some good things in places like Oakland, Calif., and Camden, N.J.  It’s even helped convict some bad guys. In a celebrated case from California, one shooting victim was actually heard on a SpotShotter, moments after being fatally wounded but before he died,  naming his murderer.  The case begs the question: will these microphones hear your idle chatter, too?

Today, we’re rolling out cutting edge technology to make the city safer, to make our neighborhoods safer, to keep our officer’s safer,” said NYC Mayor Bill de Blasio at any event celebrating launch of a ShotSpotter trial in Brooklyn and the Bronx.  This new gunshot detection system is going to do a world of good in terms of going after the bad guys in this town, going after people who fire their weapons and who we need to identify immediately. The ShotSpotter system is going to allow us to decrease response time getting to the site of a shooting, and it’s going to allow us to deeply enhance the safety of our communities and the communication between police and community because when something happens, we’re going to know about it instantly.”

You might be in the  nothing-to-hide crowd that finds nothing but benefit from such technologies. So long as you aren’t committing a crime, a network of microphones around your city won’t bother you.  But recall from high school civics class the notion of “Chilling Effect.” Whoever you are, you behave differently when you know you are being watched.  Civil liberties aren’t just about ensuring due process; they are about making people feel free, so they act free.

The folks at ShotSpotter have said repeatedly that the system has minimal ability to record conversation.  Microphones only pick up voices when they are spoken at shouting volumes within a few feet, and even then, only a few seconds before and after a gunshot.  That’s certainly comforting.  I’d prefer clear pledges, along with regular auditing, that shows conversation data is deleted as soon as possible, immediately after it is deemed  unhelpful to the hot pursuit of a crime.  I’d like to think any reasonable judge wouldn’t admit out-of-context audio recordings made by the devices, particularly when you consider the difficulty of establishing chain of custody for the audio.  It wouldn’t be hard to hack or alter, I’m sure. 

But the concern I often express about use of these privacy-invasive technology has much more to do with an honest cost-benefit analysis.  I don’t mind giving up a little privacy for a lot of safety, but it usually works the other way around. The technology is not the panacea it’s promised to be, meaning our civil liberties have been compromised for little or no benefit.

ShotSpotter has a spotty record. A WNYC investigation of Newark’s system found police there complained about false alarms — backfiring trucks could set off the system. And the mere report of a gunshot is rarely enough to result in an arrest. Shooters rarely stand still after discharging their weapons.  WNYC found that false alarm rates were 75 percent. After 3,632 audio incidents, 17 shooters were arrested on scene. That’s not an abysmal record, but it should be enough to make folks reconsider the cost-benefit analysis.

Here’s hoping New York City officials cut through the hyperbole and make a sensible, risk-based decision.

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Click for my story on CNBC

Click for my story on CNBC

It has been gnawing at me for a while. Why are are most professional sports leagues hurting for offense?  After all, we live in the age of spreadsheets and video cameras. Every athlete has access to hundreds of angles on every action they take on the field, or in the rink.  Every swing, every shift, is chronicled by a bevy of assistant general managers and an army of bloggers.  Shouldn’t all this information be helping hitters and scorers?

Then it hit me: Big data might as well be hold up a sign that says D-FENSE! Everywhere that advanced analytics arrives, a scoring drought seems to follow.  All that information seems to be one-sided.  I started talking to sports folks and found my new theory rang true to them.  In basketball, analytics helps force top shooters just slightly out of their comfort zones.  In hockey, it helps unlock the secrets to “shot suppression.”

As the person that CNBC once dubbed the “Big Data Hater,” I realized the theory fit neatly with my skepticism of the quantitative managing that has swept through American corporate culture — the notion that if you can’t count something, it’s not valuable.  Hugh Thompson and I explored the this “data idolatry” in our book The Plateau Effect.  But here was an even more concise explanation of the problem. Moneyball, analytics, big data — whatever you call it, I worry it has put much of our culture on the defensive. I explored the theory recently in a column for CNBC.com.  The beginning of the piece is below. You can read the rest at CNBC. 

If you are wondering why you feel your place at your company is so fragile, why your creativity has trouble fitting into your annual review forms, or why you are feeling so restless, I think this is part of the problem.  Here’s the top of the piece to whet your appetite:

Is big data behind scoring drought in professional sports? And your business?

As spring training brings the familiar sounds of baseball, and the annual renewal of foolish optimism that this might be the Cubs’ year, Major League Baseball is hoping for something even more dramatic — more runs. From anyone.

Baseball is in a crisis not seen since the 1960s. Pitchers ran circles around hitters last year, with runs per game and batting averages at decades-long lows. There was an epidemic of defensive 2-1 ball games last year — this at a time when baseball is struggling to remain popular with younger, supposedly attention-span-challenged fans.

But it’s not just baseball. The National Hockey League has an offense problem, too. The game’s biggest star, Sidney Crosby, has only 20 goals three-quarters of the way through the season. Goals per game have shrunk since the 2005-2006 season. And in the NBA, hot-shot scoring has also declined. In the2007-2008 season, there were 27 players who averaged more than 20 points pergame. Today there are 15.

What in the wide-wide-world of sports is going on here? If you own spreadsheet software, you know that advanced analytics are the biggest change to hit professional sports in the past decade. As Michael Lewis explained in his book “Moneyball: The Art of Winning an Unfair Game” that popularized the revolution, sports franchises will do almost anything to get a leg up.

Geeks with video cameras track everything now. Baseball has its spray charts. Defensive shifts based on those charts are so effective that some critics have suggested banning them. Hockey has its Corsi and Fenwick, which measure shot attempts during ice time. The National Basketball Association uses PPP, or points per possession now.

But a funny thing is happening on the way to refining these sports — big data had chosen sides. Moneyball tactics seem to help the defense more than the offense. The tiny tweaks and refinements suggested by nerds are simply better at stopping players than enabling them.

It’s a lot harder to find and exploit defensive weakness than offensive weakness. There’s a lot more available data on what offenses are trying to accomplish than on what defenses are trying to suppress. To play a little loose with an aphorism, it’s a lot easier to criticize than create.

What does this have to do with your business? Businesses are projected to spend nearly $40 billion in big data technology this year,according to collaboration site Wikibon.org,most of it with the idea of Moneyball-ing their companies.

It seems like a no-brainer — run a few spreadsheets, find a few million dollars. But I think there’s a flaw in big data that’s big enough to drive a slap shot through. As in sports, big data helps defense more than offense. That might mean companies are spending a lot of money so they can be penny-wise and pound-foolish.

In the corporate world, playing defense means things like limiting overtime and shrinking health care benefits costs. Offense means finding new markets and inventing new products. Big data is great at optimizing work schedules to minimize labor costs, but not nearly as good at giving employees extra time to tinker with a potentially profitable idea.

Economist Tim Harford, author of the book ”The Undercover Economist Strikes Back,” has been a critic of big data because its users often seem to forget that no matter how large a dataset is, it’s still subject to sample bias that leads to errors. It remains true that 5,000 carefully-selected survey takers provide better results than a billion random Google searchers. And he thinks sample bias might be part of why data helps defense more than offense.

“Data analytics are excellent at finding subtle historical patterns that might then be exploitable. They are much less useful at suggesting something radically new, or producing a response to something new,” he said. “Analytics favor the optimiser, the tweaker, but usually not the radical disruptor. Analytics help Google and Facebook optimize their services, but they didn’t really help Jony Ive and Steve Jobs create the iPhone.”

Read the rest of this column at CNBC.com

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Homewise.org

Homewise.org

The biggest barrier for many would-be homeowners is the pile of cash that’s needed before a bank will even discuss a mortgage. The Federal Housing Administration, in an effort to boost the housing market, recently lowered down-payment requirements to 3.5% of the purchase price, but by the time would-be buyers consider closing costs, they still need roughly 7%. Even in an FHA loan, families buying a typical $300,000 home need a $21,000 bank account — no small feat when median American household income is about $54,000.

(This story first appeared on Credit.com. Read it there.)

Building up a $6,000 mortgage war chest is a lot easier, and puts homeownership within reach of far more low and moderate-income families. That’s the goal of Homewise, an organization that arranges low-cost financing that covers 98% of the purchase price for buyers. But an easy-to-reach down payment requirement is only one benefit of Homewise, which serves New Mexico residents. Borrowers also get to skip high-cost mortgage insurance, high upfront FHA fees, or expensive second loans often required of less-than-20%-down purchases. And, if they use Homewise real estate agents, they pay a lot less in closing costs, too.

To qualify, buyers must complete a program designed to teach them the ins and outs of homeownership, including what it takes to ensure mortgage payments arrive on time. And their household income can’t exceed about $82,000.

Combine low down payments, cheaper monthly costs, and educated borrowers and what do you get? Default rates that are stunningly low compared to traditional low-down-payment FHA loans. The Urban Institute recently released a study of Homewise, and found that the organization’s 90-day delinquency (“serious delinquency”) rate was 1.1% for loans serviced between 2009 and 2013. This rate is well below the 7.3% serious delinquency rate of FHA-backed loans at the end of 2013.

“This is a neat model that appears to work,” said Brett Theodos, who wrote the report. He’s a senior research associate in the Metropolitan Housing and Communities Policy Center at the Urban Institute. “And they’ve captured something like 25% of the (low-cost loan) market share in that area.”

Thanks in part to the low default rate, Homewise is profitable, making it potentially repeatable around the country, Theodos said.

So far, Homewise is still relatively small: it’s financed about 3,000 home purchases, while working with 11,908 clients, said spokeswoman Rachel Silva.

Plenty of nonprofits have offered housing counseling before; separately, others have offered low-cost loans. Part of the Homewise charm is it works with buyers through the entire process — from helping them open special down-payment savings accounts, tosigning closing papers. Most nonprofits’ housing counselors prepare would-be homebuyers and then hand them off to traditional banks, where things might not go smoothly. And those nonprofits have to struggle for funding.

In the Homewise model, modest profits from closing loans are used to fund the counseling activity. Homewise loans are ultimately sold to Fannie Mae like traditional mortgages, allowing the firm to originate new loans.

“This allows them to capture the value. What would be exciting is if this model caught hold with other types of orgs doing this kind of work,” Theodos said. “In an era where foreclosure mitigation counseling is going away, HUD counseling is being pared back, there needs to be some model that’s sustainable for helping people get into homes.”

It shouldn’t be very surprising that Homewise clients pile up success stories. Just avoiding mortgage insurance saves average clients about $130 monthly, the Urban Institute says. And there’s another serious benefit — Homewise real estate agents are paid by the hour, not a commission based on percentage of the sale price. That saves clients money and helps make sure buyers get into homes they can afford.

“Homewise’s model suggests that with a carefully structured, vertically integrated system, homeownership can be encouraged in a way that better aligns risks and incentives for the counselor, the borrower, and the lender,” the report says.

Homewise is not a nonprofit. It’s a “Community Development Financial Institute,” a set of small financial institutions authorized by the Treasury Department that have a stated goal of being profit-making, but not profit maximizing. They offer personal and business loans to consumers who might not otherwise be served by traditional banking.

One barrier to replication of the Homewise model — for-profit banks might balk at the idea, although Theodos is not too worried about that. Many banks aren’t crazy about doing these low-cost loans, anyway. That risk would only arise if Homewise started reaching into higher-income client pools.

Instead, Theodos thinks the real challenge is finding institutions that have both the heart to do counseling and the head to do loan underwriting.

“We don’t expect it will replace FHA loans, and don’t think that’s the goal or expectation,” he said. “(But) the ability of the program to make revenues … and through those efforts to fund counseling and coaching, that’s really interesting.”

Can You Get a Low-Down Payment Mortgage?

What if you want a low down-payment loan? Unless you live near Santa Fe, or Albuquerque, where Homewise is now expanding operations, you can’t work with Homewise. FHA loans are the closest alternative, with the aforementioned caveat of higher down payments, a big upfront insurance fee, and ongoing insurance premiums.

Military veterans have the option of getting a zero-down Veterans Administration loan, but they pay a “funding fee” of roughly 2% to 3%. Some credit unions offer similar zero-down, funding-fee programs, such as Navy Federal Credit Union.

Finally, many consumers can qualify for more traditional 5% down payment loans if they agree to pay private mortgage insurance. That can easily add a couple of hundred dollars per month to a mortgage payment, but PMI can be canceled once a homeowners’ equity reaches 20% through a combination of loan payments and increased housing value.

Your credit score will be a key factor in how much house you can afford, as well. If you haven’t checked your credit recently, you can see two of your credit scores for free on Credit.com.

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Percent change millenials chartYoung people are flocking to big, expensive cities, according to data crunched by housing market information service RealtyTrac, and that might not be the greatest of ideas. Well, if you look at the chart above. you will see that young folks are moving to the Washington D.C. area, which occupies three of the top 10 counties where high percentages of millennials are moving in. They are also moving to places like San Francisco, Denver,  and New York.   That’s probably not much of a surprise: Young adults go where opportunity is.

Opportunity is in the eye of the beholder, however.  That fourth column up above helps explain why those young people aren’t buying houses, which is bad for them and for the economy. That’s the average down payment made for home purchases in those areas.  Not price, down payment. So in Washington D.C., the average buyer shows up with a wallet full of $100,000…or more.  Avert your eyes from that San Francisco entry there. Even in Denver, which is clearly not San Francisco, the average down payment is $43,000.

Raise your hand if you knew where to get $275,000 when you were 25.  That’s certainly enough to keep young people up at night, and the kind of thing I’m following in The Restless Project. 

Mind you, these figures don’t represent *required* down payments. Plenty of folks are buying homes with far less cash.  There’s even a new HUD program that allows buyers to put down as little as 3 percent of the purchase price, as long as they are willing to pay higher fees.  The average figures are a bit lopsided by big-ticket purchases.  But nationwide, the average down payment is $31,000, or 14 percent of the home purchase price; while in the top 25 markets that are attracting millennials, the average down payment is more than twice that — $66,000 — with an average down payment of 17 percent. It’s hard enough to buy a home in a hot market without having to worry about being the low-down-payment bidder, which can hurt a buyer’s chances if there are multiple bids.

Taken together, it means that young folks — who remember, average some $30,000 or so in college debt — may not really find the opportunities they are looking for in America’s big cities.  But there are alternatives.

Look back at the list above, and you’ll see some surprises, like Montgomery and Davidson, in Tennessee.  Average down payments are comfortably below the national average. And if you expand the chart a bit, you’ll find some interesting places with growing populations of young people, and affordable homes without the huge down payment barrier. In markets like Durham, N.C., Columbus, Ohio, Augusta, Georgia, and Des Moines, Iowa, average down payments range within a much more reasonable $15,000-$20,000. Near Fayetteville, N.C., average down payments are less than $10,000. In all those cities, the millennial population has grown at least 20 percent since 2007, according to RealtyTrac’s data, and median down payments are 14 percent or less.   Have a look at this chart:

Best mill markets

That’s an interesting list of places.  Remember, it is possible to to get low-down-payment loans in places like New York and San Francisco, and that’s the right thing for many folks.  It’s also important to remember that such loans have their drawbacks, like big up-front fees  and/or mortgage insurance. And it’s important to at least consider some alternatives.

Bottom line: If you are weighing job prospects, don’t be fooled by a sexy six-figure salary. There are places in America where you can make a life, or at least start one, on half that amount.  Don’t count them out too quickly.

(To conduct the analysis, RealtyTrac analyzed purchase loan and sales data for single family homes and condos in 2014 in 386 counties nationwide, examining a total of 1.5 million loans.) 

(The chart at the top of this story has been updated, as have down payment figures in the text for Washington D.C., Denver, and Montgomery.)

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