Seniors Legal Rights

Investments and Lending

Careful Investing

Your money is too valuable to throw away on investment scams. Here are some guidelines to help you identify and avoid fraudulent investment schemes:

• All securities, which most investments are considered to be, must be registered with the Minnesota Department of Commerce. Call the Department at (651) 539-1638 or (800) 657-3602 to find out if an investment is registered before spending money on it.
• Persons selling securities must be licensed by the Minnesota Department of Commerce. Call the Department at (651) 539-1638 or (800) 657-3602 to find out if the seller is licensed.
• Watch out for high or guaranteed profits. All investments involve some risk.
• Understand the investment. Don’t invest in complicated schemes that the seller can’t or won’t explain to you. Watch out when a seller says “It’s too complicated,” or tells you to “Trust me on the details.”
• Ask for information in writing, such as prospectuses, brochures, and the corporate history. If information is not available, be wary.
• Check out the business in person if you can. Be wary if the facilities are “secret” or “confidential,” or if you have a difficult time reaching the seller.
• Ask a friend, an attorney, or an investment professional to review the opportunity.

If you run into problems or have questions, you can call the Attorney General’s Office at (651) 296-3353 or (800) 657-3787, or the Department of Commerce at (651) 539-1638 or (800) 657-3602.

Investment Fraud

Investment scams have bilked Minnesota seniors out of their life savings. A common scam involves a salesperson who contacts you by phone to sell you an “investment opportunity.” But, in order for you to get in on this great “deal,” the salesperson will tell you to send money today. Experts estimate that telemarketing fraud accounts for $10 billion in investor losses a year, and 45 percent of seniors have been solicited for so-called “investment opportunities” by a person unknown to them. Don’t fall for it! Hanging up is often your best defense. Watch out for these signs of a scam:

• You receive an unsolicited telephone call from someone you don’t know. The caller tells you he or she represents a “business” selling an “investment opportunity.”
• You are offered investments in penny stocks, oil and gas leases, precious metals, rare coins, FCC lotteries, and wireless cable.
• You must send money quickly; overnight delivery services are often hired to pick up payment that same day.
• Incredible profits are promised.
• The only contact you have is an out-of-state business with a P.O. Box mailing address.
• A small first sale may be conducted in order for the seller to gain credibility with you. The seller’s goal is to extract larger amounts of money in the future.

Protect Yourself
Hang up the phone. If you are concerned about your income, talk to someone you know and trust. Consult with a trusted financial planner, stock broker, or banker.

Predatory Lending

Predatory and abusive lending can take many forms, but generally these lenders take advantage of people in difficult financial situations. They also look for people facing financial problems as a result of an illness, injury, or natural disaster. Predatory lenders count on consumers’ lack of financial knowledge. You should be on the lookout for the following factors that indicate predatory lending:

• High interest rates and fees. Loans may contain high closing costs and other hidden fees. These unreasonable fees may appear in loan origination or underwriting fees, broker fees, and transaction and closing costs. Many of these fees are negotiable. Don’t be afraid to ask your lender or broker to explain the basis for any fee that appears on your loan paperwork.
• Small monthly payments with a large balloon payment at the end of your loan period. Sometimes lenders stretch out payments so that a large unaffordable payment is left at the end. This, unfortunately, can rope consumers into yet another high interest loan to help make the final payment. Make sure and pay special attention to how payments will be made over time.
• Adjustable Rate Mortgages (ARM). As opposed to a fixed rate loan, the interest rate on ARMs fluctuates according to the market. Watch out for ARMs with low introductory rates. Just because you can afford mortgage payments at the present interest rate doesn’t mean that you will be able to do so if the interest rate rises.
• High loan-to-value. A loan based on home equity that exceeds the home’s actual value puts both the home and the consumer’s financial record at great risk. Make sure to be extremely careful of lenders who pressure consumers into more money than they need.
• Other charges and hidden fees. Abusive lenders may add on extra charges that seem to have the consumer’s best interest at heart, though the opposite is true. These extra costs may include “commitment fees” or high-rate homeowner’s insurance. Make sure to check all of the costs associated with the loan, and do not be afraid to challenge questionable costs.

If you run into problems or have questions, you can call the Attorney General’s Office at (651) 296-3353 or (800) 657-3787, or the Department of Commerce at (651) 539-1500 or (800) 657-3602.