“Beauty Matters in Life and Loans…”

I’m working my way through Meir Statman’s interesting book, What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions. In chapter three of the book, the author makes the following statement:

Beauty matters in life and loans alike. Beautiful applicants are more likely to get loans and pay lower interest rates than less attractive applicants with the same financial information. Moreover, loans to beautiful loan applicants are bad investments because beautiful borrowers are much less likely to repay their loans than less attractive borrowers. Lenders to beautiful borrowers give up the utilitarian benefits of high interest rates and high likelihoods of being paid because they are fooled by the positive sentiment exuded by beautiful applicants. Or perhaps they are not fooled at all. Perhaps they willingly give up the utilitarian benefits of high interest rates and steady loan repayments for the expressive and emotional benefits of associating themselves with beautiful people.

The author references this paper, which you can download (I have not read the paper).

I thought the paragraph was interesting. Perhaps beautiful people get the benefit of the doubt because they appear to take care of themselves. It’s really no different that the advice we normally hear about dressing your best for a job interview. Employers typically don’t want to hire an “ugly” person even if their credentials are outstanding. Maybe this same thought process carries over into other parts of life. Maybe less-attractive people would do better to do business with QuickenLoan.com where face-to-face contact is not necessary.

Better Think Twice Before You Play the Lottery with Friends or Co-workers

This story was interesting: Florida Lottery Winners Exclude Co-Worker. Eight co-workers routinely played the lottery via a pool over the last nine years or so. Whenever a member was missing, another co-worker would chip in for the missing player and be paid back later. That was the way it worked until this time, when the group won the $16 million jackpot. They are now wanting to exclude one of the members of the group by saying she never contributed to the pool.

Basically, what they are looking at is the difference between a 1/7th share and 1/8th ($1.3 million and $1.1 million before taxes, respectively). Unless I’m missing something—and I may be because all I have to go on is the information from the story—the right thing to do would be to share the jackpot with the woman. Instead the group is going to allow this to be tied up in court and a substantial portion will go to the lawyers. It’s likely the group will end up with less per person than they would have had had they just shared it in the first place.

Class Action Lawsuits are Great for…Lawyers

My wife and I received a mailing recently informing us that we are eligible to receive a portion of a settlement with Bank of America. How much do we stand to receive? Well…

There is a common fund of $9,950,000 to pay all Class Member claims and the costs and fees of the case. If the settlement is approved, and you submit a complete and timely Claim Form in the manner described below, you will be able to receive money from the common fund. The amount you will receive will depend on how many other Class Members submit claims. For example, if 15% of Class Members submit claims, you will get approximately $14. If 10% submit claims, you will get approximately $21. If 2% submit claims, you will get $100. If all Class Members submit claims, you will get at least $2. Eligible Class Members are entitled to one payment per loan transaction during the class period. Eligible Class Members may not receive payment of more than $100 per loan transaction during the class period.

The mailing conveniently left out HOW many class members there are in the suit. After doing some digging (you can too, just visit www.creditscoresettlement.com), I found that the law firm’s take is roughly 24% or $2.38 million of the common fund. So, of the $9.95 million pot, $7.562 million is left over for the “victims” in the case. If 15% of the claimants participate in the suit, each claimant gets $14. Dividing $7.562 million by $14, gives us 540,143 participants, which represents 3.6 million total claimants (divide 540,143 by .15).

If ALL claimants participate in the suit, each claimant gets a whopping $2!

All this leads to me wonder: what’s the point of the class action lawsuit? Here is what the website provides as the reason for this class action lawsuit:

Background Facts:

During the class period, when Bank of America received an application for a mortgage loan or home equity transaction, its practice was to obtain the consumer’s credit score from a credit reporting agency. For home equity transactions, Bank of America prepared and then mailed the required credit score disclosures when its computer system indicated that a decision was made on the loan. The average time between application and those decisions during the class period was approximately five days. For home equity transactions that closed, the disclosure was not sent before the closing. For other mortgage loans, Bank of America automatically prepared the credit score disclosure when the score was received, and sent the notices at least four days later.

What the Plaintiffs Alleged:

Plaintiffs claimed that the delays in sending the required credit score disclosures to applicants violated the Fair Credit Reporting Act because they were not sent as soon as reasonably practicable, as required by 15 U.S.C. § 1681g(g). Plaintiffs sought both statutory and punitive damages, in addition to injunctive and declaratory relief.

I think the purpose is to enrich the lawyers. This particular case is small as $2.38 million is mere change to a big law firm. However, the real victims in this case are the bank’s customers who will have to pay more in fees and charges to cover the costs of the lawsuit (afterall, the money has to come from somewhere).

Class action lawsuits are nothing but a wealth transfer mechanism from companies to lawyers and the customers end up footing the bill.

Paypal’s Currency Conversion Rates Seem Like a Ripoff.

This morning I received £150 (British Pounds) in my Paypal account. Paypal took £6.05 off the top for their fees, which left me with £143.95. They then converted it to U.S. Dollars at $1.50325 per £1.00. Everywhere I looked showed the conversion to be somewhere in the neighborhood of $1.53 to $1.54 per British Pound.

The difference was somewhere around $6 on my transaction. No, it’s not a lot but it is a lot when you figure that I already paid a 4% fee (the £6.05 that Paypal took right off the top). Paying $1.50325 when market rates are quoted at $1.5426 is wrong. Especially when there’s no mention of any additional fees on the transaction.

I called Paypal to find out about this but the woman who took my call seemed lost. She kept telling me about the fees. I told her that I understood the fees and that they were taken out BEFORE the money was converted to dollars. I eventually gave up and hung up the phone.

Any of you noticed Paypal currency conversions issues?

10 Ways You Can Give This Season (without spending a lot of money)

This Christmas Season my wife and I decided to forgo gifts for each other. We decided that we really don’t need anything. Instead, we are going to treat ourselves to a new mattress set sometime next year. We have been married over 17 years and have never had a good mattress. What we are doing instead is taking the money that we would have spent on ourselves and give it away (secretly). I have to say, this has been one of my favorite Christmas Seasons ever.

Anyway, I got to thinking about all the ways people can give to each other without spending lots of money. I came up with a list of ten things. Let me know if you have something to add to the list.

1. Smile

2. Yield your place in the checkout line to someone else.

3. Take an interest in another person.

4. Let someone go ahead of you when driving.

5. Pay the toll for the person behind you.

6. Pay the tab for the person behind you in the restaurant drive-thru.

7. Compliment the employees at the businesses you frequent.

8. Report exceptional service by employees to their managers. Be sure and remember their name.

9. Be patient.

10. Leave a nice tip and a note for the servers at the restaurants you frequent.