Reality Check: Lending Rip-Offs
[Modified from the Bergen Record financial literacy curriculum]

Grade 11-12
Consumer and Personal Finance

Name: Dr. Barbara O'Neill, CFP
Agency: Rutgers Cooperative Extension
Name: Dr. Celia Hayhoe, CFP
Agency: Virginia Cooperative Extension
Lesson Plan: Phyllis Garnant, NJDOE

Students will be able to:

1. Define terms and give examples related to lending rip-offs/financial exploitation.
2. List and explain some of the most expensive ways to borrow money.
3. Explain how to identify predatory lenders.
4. Compute the "amount above cash price" for several lending methods.
5. Explain how to avoid rip-offs/financial exploitation.

**Goal/Overview/Purpose/Summary**

Students completing the activities in Money…What Young Adults Need to Know, "Reality Check: Lending Rip-Offs" (http://www.nj.gov/njded/aps/cccs/career/resources.htm) learn that most reputable and community minded lenders charge a fair price for the use of borrowed money. There is a small group of lenders, called predatory lenders, who take advantage of community members.

Complete the following activity:

1. Tommy decides that he wants to purchase an entertainment center for his bedroom. He checks into the cost at a few different electronics stores. Then he sees a television commercial about renting an entertainment center through a local rent-to-own store and how he can own it after a certain number of payments. This sounds like a great idea to Tommy so he tells his parents about the commercial. Tommy's parents tell him to compare the costs of the rent-to-own store and the layaway plan at a local retail store.

• What are some other ways that Tommy might consider paying for this entertainment center?

2. Read pages 14-15 in Money…What Young Adults Need to Know About Money, "Reality Check: Lending Rip-Offs." (http://www.nj.gov/njded/aps/cccs/career/resources.htm)

• Create a glossary of the following terms: 1) predatory lending, 2) foreclosure, 3) payday loans, 4) pawnshop loans, 5) car title loans, 6) check cashing store, 7) advanced fee loan, 8) rent-to-own plans, 9) credit unions, and 10) electronic transfer accounts.
• Explain the characteristics of predatory lenders to another person.
• Explain four tips on comparing costs of buying options.
• Explain how to avoid rip-offs in buying.

3. Visit the Responsible Lending Organization's Web site, http://responsiblelending.org/practices/rent.cfm, and review their information on rent-to-own service contracts.

• What should you know before you might decide to sign one of these contracts?
• Why should you ask about how much interest is charged for the item you rent?

4. Read materials on the topic. Examples might include:

• Better Business Bureau: http://www.bbb.org has Web pages devoted to scams related to predatory lending.
• Federal Deposit Insurance Corporation: http://www.fdic.gov/consumers/consumer/news/cnsum02/cvrstry.html featured "High-cost Predatory' home loans: How to avoid the traps" in their Summer 2002 FDIC Consumer News series.
• Federal Trade Commission: has many free, online publications related to predatory lending by visiting: http://www.ftc.gov.

** Assessment **
(Must "match" objectives! Include rubric if possible)

Complete the Predatory Lending Learning Extensions on page 15 of the
Money…What Young Adults Need to Know About Money, "Reality Check: Lending Rip-Offs.” (http://www.nj.gov/njded/aps/cccs/career/money/FinTab14-15p.pdf).

Have students write and act out a scene depicting Tommy buying an entertainment center.

Have students write and act out a scene depicting Tommy renting an entertainment center.

Have students write and act out a scene depicting Tommy using lay-a-way to purchase an entertainment center.

Additional information and resources can be found at http://www.ext.vt.edu/niemoney/predatorylending.html.