The Elder Law Forum by Professor Michael Myers Editor's Note: The Elder Law Forum is a public service of the University of South Dakota School of Law, an extension of the SENIOR LEGAL HOTLINE available at no cost to persons 60 and older at 605-677-6343 and firstname.lastname@example.org during regular business hours.
Retailers Impose "Croak"
Insurance, High Interest
We are, individually and collectively, swimming in a sea of debt. We should know better. After all Proverbs 22:7 warns us that the "borrower is servant to the lender."
We "servants" � with our car, mortgage, time-share and student loan payments � are at a record number. Never in the history of humankind have so many owed so much to so many. And, as debtors, we aren't performing well.
Personal bankruptcies last year were at a record 1.6 million, or 185 an hour, nearly double the rate of 1993. Household debt is at $8.9 trillion, a record high relative to disposable income. During the past four years credit card defaults rose more than 55 percent while home mortgage foreclosures rose 45 percent.
A fellow "servant" called the USD Senior Legal Helpline. She said she owed Sears about $2,100 and over the past year had been making $70 monthly payments.
"But the amount I owe never seems to go down. Why is that?" she asked.
Two reasons, I advised. First, Sears is charging an interest rate that in some states would be usurious. Secondly, it sold her credit life insurance, otherwise known as "croak" insurance, at a premium that only the na�ve pay.
From her last $70 payment, $36.50 was applied to interest expense and $13.90 was applied to credit life insurance, reducing the outstanding loan balance by $19.60. On a $2,000 balance, even with payments eventually being applied to the principal, she will be sending $70 checks to Sears for years to come.
I told her to drop the credit life insurance. She said she had tried but the Sears representative persuaded her not to, contending that if she died, her family would have to pay the balance.
"Is that true?" she asked.
No, I advised. Only your spouse is responsible to pay for your "necessities."
"Cancel it, and this time be firm," I counseled. For each dollar paid into these credit insurance plans, only 15 cents is returned to the insured, compared to a return of 85 cents on legitimate life insurance plans. "Also, shop for a lower interest rate and pay off Sears," I said. Retailers, car dealers and electronics stores generally earn greater margins from financing than from the products they sell.
The money-lenders are everywhere. Avoid them, lest thee become a servant.