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FTC questions income claims made by multi-level marketers
The agency says MLM networks tend to exclude data about low-earning participants
of ConsumerAffairs
In todays economy, lots of people are looking for a side hustle to make ends meet. A multi-level marketing (MLM) opportunity might sound appealing, offering money for not a lot of work.
Glossy brochures recount success stories of people who have not only supplemented their income but built wealth. However, the Federal Trade Commission (FTC) staff has issued a report that focuses on those income claims made by 70 MLM companies.
In the report, the FTC staff found many issues with the income statements they reviewed, saying that most statements omit key information when calculating the earnings amounts they present.
Specifically, the report notes that most of the reviewed statements do not include participants with low or no earnings in their display of earnings amounts and also dont account for the expenses faced by participants, which can outstrip the income they make. The report notes that these omissions are often not plainly disclosed in the income statements.
In an MLM operation, a member signs on to sell a product or service directly to consumers. They make a small profit on those sales.
However, they are also asked to recruit other consumers to also sell the product. The recruiter gets a small piece of whatever the other person sells. People who join in the early days of an MLM tend to make the most money.
How many people actually make money?
In addition, the staff report notes that most of the disclosure statements the staff reviewed present earnings information in a potentially confusing way, like giving average earnings amounts for groups that could have very different actual incomes, or using annual income figures that arent based on what an actual group of participants made for the year.
The FTC staff has concluded, based on data in the income disclosures, that many participants in those MLM networks received no payments from the MLMs, and the vast majority received $1,000 or less per year less than $84 per month, on average.
Before joining an MLM network, experts say there are several questions you should ask. First and foremost, is the company product-focused? If its not if it stresses recruiting other members that could be a bad sign unless you happen to be really good at recruiting friends and acquaintances.
Second, do you have to build a team in order to make good money? If so, that side hustle starts to look more like a full-time job.
Fri, 06 Sep 2024 11:58:12 +0000
Nearly a third of homeowners say they are ‘house poor’
For many, its impossible to keep housing costs at 28% of monthly income
of ConsumerAffairs
There are no doubt millions of Americans who wish they could buy a home. But there may be a lot of current homeowners who now regret their decision.
A study by Lane Surety Bonds asked over 1,000 homeowners about their perspectives about homeownership and found many say they have to make sacrifices each month so they can pay their mortgage.
The survey found that:
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Nearly one in three homeowners consider themselves house poor
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One in eight homeowners pays over 50% of their income toward their mortgage
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27% of homeowners live paycheck to paycheck, due to housing expenses, and 40% rely on side jobs to make ends meet
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22% of homeowners have skipped paying other bills to cover home expenses, and more than one in eight (14%) have had to forgo medical care
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46% of homeowners can't afford necessary home repairs and upgrades
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Nearly one in five homeowners (18%) can't afford groceries after covering home expenses
Gen Z feels it the most
The burden of home ownership appears to fall heaviest on the youngest buyers. In a demographic breakdown, 43% of Gen Z homeowners think they are house poor while only 21% of baby boomers think they are in that category.
Personal finance experts suggest following some hard and fast rules to avoid being financially stressed by home ownership. One rule is to spend no more than 28% of your monthly income on housing costs a formula that is very hard to meet these days.
Heres an example: with a monthly income of $4,000, you multiply that number by .28. That gives you $1,120 for a mortgage rate. With todays high home prices and relatively high interest rates, it might be very find a home with that kind of monthly payment, depending on where you live.
Putting more than 20% down can lower the monthly payment but many buyers struggle to meet that threshold. Back in June, when mortgage rates were nearly a point higher, researchers at real estate marketplace Zillow crunched some numbers that dramatically revealed just how big a burden it is.
To be able to afford the monthly payment on the median-priced home costing $360,000, a middle-class household would have to come up with a six-figure down payment - $127,750.
Fri, 06 Sep 2024 13:03:12 +0000
Over 80% of workers are considering delaying retirement due to finances, study finds
Many consumers are already planning to work longer than they originally anticipated
September 5, 2024Are you scared of retirement?
This was one of the questions in LiveCareers recent survey that asked over 1,000 American workers about their thoughts on retirement. The questions ranged from retirement finances, biggest retirement fears, saving for life after work, and more.
One of the biggest findings: over 60% of respondents said that they fear retirement more than death.
Jasmine Escalera, a career expert at LiveCareer, broke down the survey findings for ConsumerAffairs, highlighting exactly what consumers need to know about retirement.
The financial concerns highlighted in the LiveCareer study are major drivers of retirement timing, Escalera said. A staggering 82% of participants have contemplated delaying retirement for financial reasons.
Additionally, 92% of respondents worried they might need to work longer than planned. These figures highlight the profound impact of financial anxieties on retirement planning and timing, emphasizing the need for each worker to develop the right fiscal strategies to ensure a satisfying retirement. These concerns highlight the need for additional financial planning and education, which could, in the long run, help create security when transitioning into retirement.
Are the retirement fears justified?
According to Escalera, based on the findings from the survey, consumers overall fears and apprehension about retirement are completely justified.
One section of the survey asked respondents how much money they think theyd need to be comfortable during retirement, followed up by how much theyve already saved for retirement.
Only 42% of those surveyed report feeling highly confident about their retirement savings, highlighting a sense of financial insecurity among workers, Escalera explained. This concern is also emphasized by the fact that 86% of respondents believe they need between $100,000 and $750,000 for a comfortable retirement. However, a significant majority, 54%, of respondents have less than $100,000 saved.
We also have to consider inflation and debt, which our participants state can impact retirement savings significantly. 82% of respondents state that inflation is a major barrier to retirement savings. The same number, 82% of respondents, believe their debt will impact retirement, with 35% carrying debts exceeding $100,000. This data shows that the fear of being ready for retirement is pervasive and well-founded.
Be proactive about planning
Whether retirement is quickly approaching or a long-term plan, its never too late to start being proactive about planning especially financially. One of the biggest pieces of advice Escalera has, regardless of age, is to take advantage of your companys retirement plan match incentives.
Employees should take full advantage of company match programs and other benefits available through an employer as soon as possible, she said. These incentives offered through a benefits package can help jumpstart your savings.
If you receive a bonus, consider setting aside a portion toward retirement for another way to boost your savings. By being thoughtful about the future and preparing for it, employees can start to calm the nerves associated with retirement.
Planning will set you up for success
For those in the early stages of their career, Escalera recommends starting saving as soon as possible. The earlier you start, the better position youll be in down the road.
For those nearing retirement sooner than later, Escalera encourages employees to meet with a financial advisor to discuss all of the available options, optimize savings and investments, and find the best plan to move forward.
When preparing for retirement, consider various factors beyond just savings, Escalera said. Proper planning involves more than just setting aside money. Workers should take a proactive and strategic approach that includes regularly reviewing and updating their retirement plans to account for life changes, economic conditions, and personal circumstances that might impact retirement planning.
A proactive and strategic approach can also include seeking professional advice or taking a class that helps to navigate the complexities of retirement planning.
Thu, 05 Sep 2024 20:58:51 +0000
Debt collectors hounding consumers for medical & rental debts they don't owe
Problems found in this year's consumer protection report echo those from last year
of ConsumerAffairsEvery year, theConsumer Financial Protection Bureau (CFPB) issues a report on aggressive and illegal debt collection practices, and each year it details the shady and outright deceptive tactics debt collectors use to hound innocent consumers.
This year, the report foundaggressive and illegal practices in the collection of medical debt and rental debt.
It discusses how problems with real estate companies revenue management software can result in improperly inflated rental debt amounts. The report also focuses on debt collectors attempts to collect medical bills already satisfied by non-profit hospitals financial assistance programs, as well as the fact that many medical bills from low-income consumers do not get addressed by financial assistance in the first place.
Medical debt collection
Tens of millions of people are pursued by debt collectors for purportedly unpaid medical bills every year and today's report finds problems that have persisted since last year's report, when consumer complaints about medical debt in collections made up about 11% of all collections complaints received by the CFPB.
The complaints submitted by consumers and the CFPBs own research show that debt collectors:
- Attempt to collect already paid medical bills or bills eligible for financial assistance:Medical debt collectors often attempt to collect bills that have already been satisfied by non-profit hospitals financial assistance programs. Additionally, non-profit hospitals fail to properly address medical bills from low-income patients that should receive financial assistance and instead send the bills to debt collectors.
Many consumers describe poor communication and information-sharing between the debt collector and the hospital, so the burden often falls on the patient to prove that they do not owe the debt. - Aggressively pursue patients for bills arising from medical payment products: The CFPB continues to receive complaints about medical financing products, which are offered to patients by some non-profit hospitals as well as other healthcare providers, without considering whether the patients may be eligible for financial assistance.
Non-profit hospitals might partner with financial institutions to offer medical financing products because they perceive that enrolling patients in these products enables them to get compensated for bills via collections practices that would otherwise be prohibited by Internal Revenue Service regulations.
As a result, debt collectors end up pursuing patients for these bills even when the bills should never have been incurred in the first place.
Rental debt collection
In August 2023, the CFPB started accepting complaints about rental debt collection. From August 2023 to the end of that year, the CFPB received more than 1,700 rental debt complaints.
In the United States, rental debt is estimated to be more than $9 billion, with over 4.5 million households behind on rent payments.
Rental debt collectors often charge renters collection fees in addition to the unpaid rent itself. As the CFPB has observed with medical debt, many debt collectors furnish rental debt to credit reporting companies as a means of collecting debt through coercion.
The complaints submitted by consumers and the CFPBs own research show that the infusion of consumer financial products and services into the rental market raises risks for renters, including improper debt collection due to:
- Illegal price-fixing: Law enforcement officials in several states as well as individual renters have alleged that rapid increases in rent have been driven by illegal price-fixing. Landlords and management companies may have used revenue management software to collect improper amounts that ultimately end up in debt collection.
Debt collectors collecting on bills that are inflated due to illegal price-fixing may be violating the Fair Debt Collection Practices Act. - Tacked on rental fees: Renters, as well as landlords, have complained to the CFPB about rental junk fees, including fees from rental payment processing servicers added onto and required as a condition for rent payment. It is often not clear whether these fees are allowed under the lease agreement or local law, and, thus, able to be targeted by debt collectors.
CFPB Actions
The CFPB is taking steps to ensure that debt collectors follow consumer financial protection laws, including the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
It has brought enforcement actions against debt collectors for their efforts to collect on unsubstantiated debt, unlawfully threatening legal action against consumers, and other violations.
Additionally, the CFPB issued guidance to protect homeowners from illegal collection tactics on zombie mortgages. The agency also proposed a rule that, in many cases, would ban medical debt from credit reports.
In 2023, the CFPB published reports focused on several topics including trends in servicemember complaints many of which are related to debt collection, the impact of tuition payment plans on student loan debt, the effects of employer-driven debt, and trends in debt collections tradelineson consumer credit reports.
Thu, 05 Sep 2024 15:46:16 +0000
How has the legalization of sports betting affected consumers' finances?
Experts weigh in on whether or not there are safe levels of gambling
September 5, 2024
Online sports betting has grown in popularity in recent years, as its become legal in 38 states across the U.S., plus Puerto Rico and Washington D.C.
While it may seem like fun and games, there are also significant financial consequences attached to the habit.
But are there safe ways to gamble? We dove into recent research and reached out to experts in the field to learn more about how sports betting can affect consumers finances.
What are the financial risks?
Researchers across the country have recently started diving into the topic, exploring how consumers gambling habits affect their personal finances. The consensus: its not the best.
Studies have shown that, since becoming legal in 2018,consumers in states that have legalized sports betting have an increase in debt collections, debt consolidation loans, auto loan delinquencies, bankruptcy rates, overdraft rates, and more.
Experts also have found that consumers have been saving less and overall, credit scores have taken a dip. On top of that, financial institutions have lowered the available credit limits for many consumers who have a history of spending issues.
Overall, we find that the legalization of sports gambling decreased consumer financial health, wrote the authors of one such paper. These results seem to be particularly pronounced when states legalize online betting, suggesting that the ease of access to gambling increases the problems associated with it.
Moreover, we find that young men, particularly those in low-income counties, are most affected.
Are there safe ways to gamble?
While it can be easy to get carried away with sports betting, are there safe ways for consumers to participate without risking their financial health? Some experts in the field say that with the right limits in place, there can be safe ways to gamble.
Before diving into sports betting, consumers should be aware of the potential financial negatives, Robert Kraft, CEO and cofounder of Atlas World Sports, told ConsumerAffairs.
It's important to set a strict budget and stick to it, avoiding the temptation to chase losses. Understanding the odds and doing thorough research can mitigate risks, but it never guarantees wins.
Alexander Korsager, chief gambling officer at casino.org, had similar advice about setting a budget as a safeguard.
Theres nothing wrong with being a recreational bettor, but you have to factor it into your budget, as you would for any other form of entertainment, he told ConsumerAffairs. Your gambling budget should be an amount you are comfortable losing and can afford without any financial impact.
Thu, 05 Sep 2024 10:46:26 +0000
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