I recently read an article about a local woman in her 20s who was having financial difficulty and applied for a loan online only to later find the interest on the loan was 350 percent. The article went on to explain that the woman had received an unsolicited mailing from the lending company claiming that if she applied for the loan online she could have the money in her account the next day. She applied for the loan and the money was transferred to her account. Not surprisingly, she ran into difficulty in repaying the loan. The article further went on to discuss whether the interest rate charged by the lending company was legal. The woman now has an attorney who is attempting to file a class-action lawsuit against the lending company. What the outcome of that case will be is anyone’s guess. However, what I wanted to address is our responsibility.
It seems that in today’s world no one reads anything. People sign documents all the time without any knowledge of what is in them. It’s sort of like people believe there are no consequences to their signature, but there are; particularly when borrowing money from a financial institution.
When you’re borrowing money, at a minimum, you need to know the terms of the loan, what your payments will be, when the loan is due, and what interest rate you are being charged. These are the basics that you must understand before you sign your name on the dotted line. In fact, if you don’t know these terms, the only course of action is to walk away. I don’t care if you’re borrowing money from the most reputable financial institution in the country; it doesn’t matter, you need to understand the terms of the loan.
As far as I’m concerned, it’s not just when you borrow money, it’s whenever you sign your name, you must make sure you understand the underlying document. I remember a year or so ago, I was at my doctor’s office and they gave me a form to sign which basically said that I received a copy of their privacy policy and that I understood it. When I told them that I had not received a copy of the privacy policy, their answer to me was that’s okay, I can sign the document anyway. My answer to them was no; I’m not signing. After looking at me funny, they said fine. It’s not that I was trying to be difficult, but I want to make sure I protect myself, and one way of doing that is to make sure I read a document before I sign it.
I recognize that some of these legal documents are very difficult to read. However, that doesn’t relieve you of your responsibility when you sign a legal document.
Recently, a friend‘s daughter was buying a home and had just received her legal documents. I asked her if she had someone review the documents to make sure they were accurate. Her answer to me was no, she trusts her mortgage company, so she’s not worried. My answer to her was that it has nothing to do with trust, because if you didn’t trust them you wouldn’t do business with them. Rather, it has to do with good business. Every bank and every financial institution in America makes mistakes. It is just the nature of the business. However, what you don’t want is for their mistake to cost you, which many times it may. That is why you review the agreement to make sure you understand its terms.
As adults we have adult responsibilities and one of those is to take seriously documents that we sign. I appreciate that many times you’re given an agreement to sign and in reality, they don’t want you to read it. My answer to that is so what. I have no problem taking my time to read a document and asking questions. You also should have no problem taking time to read an agreement and if you don’t understand it and you’re talking about a material sum of money you should have no problem telling whoever wants your signature that you need more time to review the document, and potentially have someone professionally review it. Remember, whoever is asking you to sign the agreement, more likely than not, had an attorney draft the agreement for them. I can assure you when the agreement was drafted it was drafted for their benefit, not yours.
Good luck!
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Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.