Consumer Protection For Debt – FAQ About Consumer Protection Laws Applying to Financial Institutions

Have you ever come across FAQ about the consumer protection laws applying to financial institutions? If not, this article will take you for a walk and you will know certain things which were till date unknown to you. There are several questions which seek attention and you must know about them as they will definitely help you in deciding what to do with the unsecured debts that you have.

Q: Has amendment in bankruptcy laws helped the financial institutions?

A: The answer is a big “YES”. With amendment in bankruptcy laws, the consumers are now finding it difficult to file for bankruptcy at their will. This means that the number of bankruptcy filings has decreased significantly. As this happened, a number of things changed. The loss that the financial institutions were taking because of loss of liquidity has decreased significantly. The creditors are now able to get back at least a part of their liquidity through settlement. This means that they are able to cover up some of their costs. The rest of the costs are covered by the stimulus cash which has been released in the market by the government. This directly implied that the financial institutions are now able to maintain a certain degree of financial equilibrium within the organization. This has made the economy stable and it is slowly drifting away from recession.

Q: With settlement, the consumers pay less money so, what happens to the profit of the financial institutions?

A: It is true that when the consumers opt for settlement, the creditors lose a part of their money that they give out to the consumers as credit. This means that the portion of the money that they lose will not generate any profit. This loss is profit means loss of income for the creditor. This loss gets augmented it the government continues to charge the same amount of taxes. If this happens, the credit institutions will again become unstable. So, the government covered up this cost by introducing creditors tax breaks. This means that when the creditors agree for settlement, they enjoy a reduction in the taxes that they pay. This covers up the loss of income for the creditors.

Choosing a Financial Advisor and the 4 Rules of Financial Institutions

When choosing a financial advisor, it is very important to understand that financial advisors represent financial institutions. These institutions are the insurance companies, banks, mutual fund companies, stock brokerages, mortgage companies, etc. They are simply the companies that provide the product your financial advisor will be using in building your financial plan. Since financial advisors are heavily influenced by these institutions it is important to know the 4 basic rules by which they all operate. This information will help dramatically when you are choosing a financial advisor.

The 4 rules are:

1. Get Your Money

2. Get It Often

3. Keep It As Long As Possible

4. Give Back As Little As Possible

At first glance this list may seem offensive, like you are under attack by these institutions. In reality, they are simply running a business and trying to make a profit, and if you were in their shoes, you would follow the exact same list. So let’s look at each of these a little more closely and discuss how you can use this knowledge when choosing a financial advisor.

1. Get Your Money

Imagine you opened a bank today. What is the first thing you would need to do to get your bank up and running? You would need deposits, right? And how do you get those deposits? By offering your prospective clients something they want in return for their money.

All financial institutions rely on getting clients to place their money with the institution. All of their advertising and sales are based on attracting people’s money. The financial advisor is part of the sales arm of the institution and his primary role is to get money for the institution.

This is not a bad thing. Done properly, every party in the transaction wins. The institution gets your money to work and profit with, you get a higher interest rate or higher possibility of gain than you had previously, and the financial advisor makes a commission for finding a new client.

Just be aware of that dynamic when choosing a financial advisor. The advisor represents the financial institution and will get paid by them for bringing you in as a client, but he also must be truly acting in your best interests and do what is right for you. A good financial advisor understands that by doing what is truly right for you, he also is doing what is in his own and the financial institutions best interest.

2. Get It Often

Imagine again that you are the bank president. How often do you want people to deposit their money into your bank? As often as possible, and on a very regular basis, right? How do you accomplish this? What if you could create a way where people automatically deposited their money with you every single month on a regularly scheduled basis?

That is why direct deposit and automatic billing were created. It is also why the IRS has automatic withholding for your income taxes. And you thought it was simply created as a convenience for you.

Yes, these things are convenient, but their true intention is to get your money on a regular basis every month without you having to put a lot of thought into it.

Understanding this puts you more in control of the situation when choosing a financial advisor and when working with financial institutions. You do not have to blindly do what they tell you. You can use this convenience to your advantage when you understand its underlying philosophy and purpose.

3. Keep Your Money As Long As Possible

Think like the bank president again for a moment. Once clients have put their money in your bank, when do you want them to take it out? Never, if possible, correct? The longer you, the bank, keep their money the more opportunity you have to make a profit with it.

This is the reason all of your qualified plans (like the 401k and IRAs, as well as many Annuities, and Variable Life Insurance policies) have long withdrawal penalty periods. The qualified plans, with very few exceptions, cannot be touched without penalty until age 59 and a half. It is not uncommon to have 15 year withdrawal penalty periods in the Variable Life Insurance and Annuity contracts.

These long withdrawal penalty periods are in place simply so the financial institution can use your money longer.

Be aware of this rule when choosing a financial advisor. Make sure you know the exit provisions of any financial product you are discussing.

4. Give Back As Little As Possible

Think like the bank president again for a moment. When it comes time to actually return the money to your depositors, how much do you want to give back to them? As little as possible, right? What would you do to discourage them from withdrawing that money in one lump sum, or better yet, to leave the money in your bank even longer? Create rules for withdrawal? Tax it? Penalize it?

The way many of these plans are taxed is designed to keep the money inside the plan for as long as possible, thus allowing the financial institution to keep using that money indefinitely.

Financial Institutions want to keep your money as long as possible. Recently there has been a surge of new ideas and products about passing the money inside qualified plans on to succeeding generations to avoid paying the taxes on the money. Essentially, you leave the money locked inside the plan forever.

Great idea, but for whom?

There you have it, the 4 Rules of Financial Institutions. All financial institutions, and thus the financial advisors who represent them, operate on these rules. They are not necessarily bad rules. When you were thinking as the bank president in each of the examples, you too would have acted in the same manner and followed the same rules.

Choosing a financial advisor is no small matter. Interacting with the financial institutions behind the financial advisor is no small matter either.

If you understand the rules of financial institutions you can use them to your advantage because you know the game they play. You will also choose a financial advisor and products that are in line you’re your goals and ambitions for life.

You must understand and use the 4 Rules of Financial Institutions to create a financial model that truly benefits you.

Consolidating Debt Will Help You to Get the Assistance of Financial Institutions

Studies show that the more expenses you have, the more debt you are going to be faced with. Today’s generation is used to earning an average income and spending more than that. Credit cards offer some assistance but this too ends up as a debt when people are unable to make on-time payments for it. The more debts you have, the more burdened you will be with life’s day to day problems. Why do you think people consolidate debt? The main reason is to reduce their monthly payments. Individuals who consolidate debt get the assistance of financial institutions such as reputed banks and apply for a consolidated loan. This is actually a combination of all the loans they have to pay for.

Individuals who consolidate debt prefer this method because a consolidated loan will come with a fixed, low interest rate. This is very different from how much a usual loan would require. When you consolidate debt in this manner, you’d be able to pay for the debts you took on your credit cards, student loans, automobiles, etc.

When you consolidate your debt, you can reduce the monthly bills, pay low interest rates and also halt late charging fees. Generally, when you consolidate debt through a debt relief company, they will ask you to pay a small set up fee or a monthly fee, which is quite low.

There are many benefits when you consolidate your debt. These are basically the reduction of monthly payments, convenience of sending a single payment instead of several, and of course the elimination of calls from creditors pressurizing you to pay. When you consolidate debt, you are sure to be free of stress, worry and anxiety leading to all kinds of ailments in the body.

Although there are many advantages when you consolidate debt, there are also the disadvantages. If you are one of many who suffer from bad credit, chances are that you’d be charged a higher interest rate. This can also happen if you do not have any collateral. Making late payments can risk the loss of your home if you had applied through a home equity loan.

If you are planning to consolidate your debt, you could apply for a consolidation loan online or by visiting a reputed bank or lender. There can be benefits such as low interest rates if you decide to apply online. Instant approval is also another benefit when you consolidate debt by getting a consolidation loan online.