THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, August 15, 1994 TAG: 9408170375
SECTION: BUSINESS WEEKLY PAGE: 4 EDITION: FINAL
SOURCE: BY ANNE-MARIE SULLIVAN, SPECIAL TO BUSINESS WEEKLY
LENGTH: Medium: 84 lines
Navy aviator William Davis turned steaming mad when a check for $1,000 suddenly showed up in his Virginia Beach mailbox.
``It looks like a real check. It is a real check,'' Davis said. ``I could take this to the bank and cash it.''
In an era when some bankers will jiggle the rules to help borrowers qualify, Davis considered his check to be an ultimate insult, especially in a town filled with sailors and their families living on modest pay.
``I thought it was a scam,'' Davis said. ``I'm angry because I think these checks take advantage of people.''
What made him mad was in the fine print. The check was really a loan. He had only to sign on the signature line and the money was his. The interest rate of 30.79 percent was sky-high and entirely legal in Virginia.
Though he hadn't asked for the money, Norwest Financial Virginia Inc. mailed its Instant Loan Cheque to his home last month. An accompanying ad advised him he could ``jump'' on summer sales, ``conquer'' bills, even ``move ahead'' on home repairs.
Davis, a radar intercept officer in fighter squadron 101, was immediately upset. A lieutenant commander, with an economics degree from Harvard University, he's no stranger to tales of financial woe. Earlier he had been a squadron legal officer who intervened on behalf of sailors in trouble.
``A lot of the young military personnel get caught in money scams,'' Davis said. ``Some car dealers find young sailors that are tight on money and have no credit, then sell them a car from the mid-'80s for 30 or 40 percent interest, as well as insurance that only covers the loan if they default.''
Norwest Financial, of course, isn't new to the business of consumer finance. Once known as Dial Finance of Des Moines, Iowa, it was acquired in 1982 by Minneapolis-based Norwest Corp., a major banking company with almost $56 billion in assets today.
Nor is it alone in the check-by-mail business. In this era, when credit standards have been sharply relaxed, other lenders also solicit loans by mail.
Norwest views the loans as helpful, ``a convenient service for people who need a loan, but who do not want to take time off work,'' said Gary Poetting, a staff attorney at the Des Moines company.
What Norwest does is legal. Virginia law allows the interest rate. Even so, Davis blew a fuse when he saw the rate. He said the check brought back memories of his own childhood. His parents had struggled to raise a family in Boston.
``My parents may have cashed this check not realizing it for what it is,'' Davis said.
Norwest's loan at an annual percentage rate of 30.79 percent required monthly payments of $57 for 24 months. In the end, a borrower would pay Norwest $368 in interest. That's more than double the amount owed on $1,000 personal loans from many other financial institutions.
In Hampton Roads, banks and credit unions charge about 13 percent on personal loans for those who can qualify. That works out to $140 in total interest payments, or $47.50 a month for two years on a $1,000 loan.
``I'm not as worried about the 18-year-old sailors as I am about a husband and wife with two kids who are just barely scraping by on a tight income,'' Davis said, noting a $1,000 loan in the mail might tempt someone trying hard to make ends meet.
Davis isn't sure how he showed up on Norwest's mailing list but figures it happened after he financed $2,000 worth of furniture purchased from a Virginia Beach store.
``If they were legitimate businessmen they wouldn't do this,'' he said. ``I mean it's legal, but it isn't legitimate. There's a difference.''
Poetting described the instant loan as accessible cash rather than a temptation for the unwary.
Norwest distinguishes between good and bad credit risks, Poetting said.
``The instant loans are only sent to people who have financed through Norwest and have a good credit rating with us,'' he said.
``Norwest customers are qualified to make the decision whether or not they want a loan. If someone is more concerned with the monthly payment than the interest rate, then that is their decision.'' ILLUSTRATION: File photo
To William Davis, a radar intercept officer with a Harvard economics
degree, direct-mail solicitations for 30 percent loans that look
like checks are an unfair temptation for the unwary consumer.
by CNB