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Think twice before heading to the airport with that huge wad of cash | Crime-and-courts

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When he heads to airports now, Samuel Haile thinks of that day at Buffalo’s airport a few years ago. The government took $12,000 from his carry-on and wouldn’t give it back.

Haile was not charged with a crime, but he had to prove his cash was not a windfall from a drug sale or wasn’t about to be spent on illegal drugs.

“I was angry,” Haile said. “But there was really nothing I could do.”

Dozens of passengers have suffered such a loss in recent years in Buffalo. With an X-ray machine, a screener spots a dense mass in a piece of luggage. If it’s an unusually large sum of cash, the government takes it on the suspicion that it’s drug money. 

At Buffalo Niagara International and every other airport in the country, the Transportation Security Administration screens bags and people in the name of airline safety, not because police have probable cause to think a crime is underway.

Still, those searches enrich law enforcement.



TSA officer inspects baggage at Buffalo Niagara International Airport

A Transportation Security Administration officer inspects a traveler’s bag at a checkpoint at the Buffalo Niagara International Airport in Cheektowaga.




In Buffalo, according to internal reports obtained by The Buffalo News, airport police and federal agents seized more than $860,000 over four years – more than $17,000 a month, on average – without charging the traveler with a crime. In fact, the dozens of travelers relieved of their money were sent on their way.

In this age of credit cards and debit cards, most people need not carry large sums. Yet some people do, and no law prohibits flying within the United States with any amount of cash. Those travelers explained they were off to buy cars, legally gamble or relocate to new homes. But to agents and officers at the airport, many stories did not pass muster. The bills were dropped into evidence bags.

TSA screeners can only seize objects that might imperil an airliner, and cash does not pose such a threat. Yet the screeners set the wheels in motion. The documents obtained by The News through the Freedom of Information Law show that after spotting amounts as small as $6,000, screeners turned to supervisors, who turned to Niagara Frontier Transit Authority police. The police called in their federal partners in a joint task force, usually the DEA or the FBI.

Typically, someone asked if the traveler minded being driven over to the police station on Aero Drive for a few questions. Inside, a video camera was clicked on, and the traveler was asked to elaborate about occupation and income. Any hesitation or inconsistency was noted.

A drug-sniffing dog was led in. Most paper currency in the United States has come into contact with drugs, research has shown. The dog, in cases reviewed by The News, consistently confirmed the scent of narcotics. That gave the officials the final measure of probable cause needed to keep the cash. In a few weeks, the traveler received mailed instructions on how to appeal for the money’s return.

Because the NFTA police worked with federal agencies, the money was seized under the federal asset-forfeiture system. Under this route, the police agency is eligible to keep up to 80%, depending on how much work was involved. That’s a larger share than it would keep under New York’s law. Further, with the federal system, the police need not make an arrest.

NFTA Police Chief George Gast

NFTA Police Chief George Gast.




George Gast is chief of the NFTA police, a former FBI agent who occasionally worked undercover and supervised agents targeting organized crime and the drug trade. He says the money seized from travelers has gone to buy weapons, vehicles, Narcan and to finance many other law enforcement purposes.

Not all the travelers who are spotted with large sums of money have it taken, Gast says, “not by a long shot.”

“Am I confident we always get it right? Nobody’s 100%,” he said when asked if he believes his officers and federal agents are always correct in assuming a traveler had illegal motives when they seized money.

“But just because money is seized, doesn’t mean it is forfeited,” he said. “Whenever the money is seized, the person that money comes from has an opportunity to appeal that seizure.”

When the travelers went to court to get their money back, Richard D. Kaufman was often the government official working against them. Before he retired in June, Kaufman was an assistant U.S. attorney and an expert in the forfeiture law. He would gather facts in an attempt to show the money was gained illegally or the traveler intended to use it for illegal purposes.

When asked why many travelers who go to court to get their money back end up compromising and letting the government keep a portion, Kaufman acknowledged the expense of fighting back.

Travelers see the futility of paying a lawyer, say, $20,000 to recover $10,000, he said. Lawyers, Kaufman said, will advise clients to “cut your losses.”



Buffalo Niagara International Airport

Travelers walk to the Transportation Security Administration checkpoint at the Buffalo Niagara International Airport




The law

Haile, of Rochester, and countless travelers across the country became poorer because of Title 21, U.S. Code, section 881 (a)(6). It lets federal authorities take “all moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance or listed chemical …”

Sometimes, the authorities in Buffalo had good reason to be suspicious about money they saw. In January 2017, for example, the police and agents kept $9,928 found in luggage along with a marijuana grinder, gummi bears made of marijuana and instructions on how to grow marijuana. The traveler admitted he had grown marijuana in the past, records say.

Months later, NFTA police and the DEA took $64,000 from three people who said they were traveling to Houston for a birthday party. The officers and agents felt they were given vague answers as to how they came by the cash. Three days later, the NFTA police learned from officers in Houston that one of the travelers had just been arrested with a kilo of cocaine.

The News found two other cases where travelers who had their cash taken were later charged in large-scale drug investigations.

Haile and many others were different.

“I was a party promoter, and I dealt with a lot of cash,” he told The News.

An interrogation

In June 2016, Haile went to the Buffalo airport for a flight to Houston to visit friends. He and the friends were to drive to New Orleans for a festival, and Haile was eventually to fly to California to visit other friends. He explained to the officials that he carried the $12,000 because he had bad credit and his bank withdrawals were limited.

He told them he earned the money in three ways: He owned three taxis. He had started a small home improvement store. He owned “Train to Go Entertainment,” a party promotion business.

The money included 515 $20 bills.

The prosecutors found $20 bills suspicious. “Small denominations are more commonly used than other denominations in street-level drug trafficking,” they said in court papers.

Small denominations are used to pay taxi drivers, too, Haile countered, and to get into special parties and events, he said. As his case headed to court, Haile filed papers that included a flyer from an event he promoted: A ticket cost $20.

His father, a registered nurse in Rochester, wrote a letter to the federal judge. “I assure you that money was not collected by selling drugs,” he said. “I will never allow my son to be a drug dealer.”

But prosecutors also cited a minor conviction in his son’s past, attempted drug possession. The case had been disposed of with a conditional discharge three years earlier.

Inside the NFTA police station on Aero Drive, Haile watched as his money was placed in a cardboard box and one of the NFTA’s drug-sniffing dogs was brought in.

Richard D. Kaufman, a retired assistant U.S. attorney in Buffalo, explains civil forfeiture law and the government’s position.

Research led by a scientist at the University of Massachusetts in Dartmouth found a decade ago that up to 90% of U.S. paper currency contains traces of cocaine. Researchers have also found traces of heroin in as much of 70% of bills and lesser percentages of codeine, amphetamines and methamphetamines.

Kaufman, the now retired federal prosecutor, acknowledges those findings but relies on a court-tested study in Miami that showed dogs are not hitting on traces of contamination but on the scent of drugs, and the scent can dissipate in 48 to 72 hours unless the bills have been wrapped in say, cellophane, or materials that trap odors. To him, the Miami study proves a dog’s hit confirms the currency has been in recent contact with drugs.

Researchers have also found, however, that handlers can affect a dog’s findings. At the University of California at Davis in 2011, 18 police handlers were asked to lead their dogs through controlled searches for drugs, and they were told some hiding places were marked by a piece of red paper. Handlers weren’t told that no search area contained drugs. In the vast majority of searches, the dogs hit on a drug scent when they shouldn’t have. To the researchers, it indicated that a handler’s expectations can sway the outcome.

Gast said the dog is the final investigative technique used to establish the money is connected to the drug trade.

That was indeed true in Haile’s case. He watched as an NFTA dog scratched the box containing his money.

“The suspect was then advised that his currency was being seized,” the NFTA’s report says.



John Roneker

Law enforcement officers seized $36,000 from John Roneker, of Buffalo, at Buffalo Niagara International Airport in 2015, although he was not charged with a crime. He said he planned to use the money to buy a car in Oregon. 



Sharon Cantillon



$36,000 seized

Kaufman said authorities suspect that some travelers are taking large sums of money to three states where recreational marijuana is legal – California, Washington and Oregon – to buy large quantities and drive it back.

John E. Roneker, of Buffalo, was traveling to Oregon in February 2015 when he had $36,000 seized. But Roneker was flying a few months before the state completed its system legalizing marijuana.

Roneker said he didn’t try to conceal the money. He had read online advice telling him to notify the TSA screener that he was carrying a large amount of currency, so he did.

Roneker said he travels to car auctions or private sales to buy cars to resell. Sellers balk at personal checks, he said, and he has found that even cashier’s checks are looked at warily when presented by an out-of-towner. Cash makes sellers more comfortable and, he said, helps him bargain.

“Having cash gives you leverage,” he said.

Roneker showed the screener a business certificate for his company, Nickel City Wholesale Auto of Buffalo, and paperwork for the car, or cars, he had his eye on.

He was soon driven to NFTA police headquarters.

A DEA task force agent began making calls. People at the businesses in the Portland area that Roneker had dealings with didn’t back up every detail he had offered to the TSA or the police. For example, Gilbert Enterprises Auto Auction, near Grimsby, Ore., had no auctions scheduled for the day Roneker said he would be there. And it didn’t have a 1967 Barracuda, one of the cars Roneker said he intended to buy.

Roneker later responded in court papers that he never said he was going to a Gilbert auction and never said Gilbert had the Barracuda.

The DEA agent found Roneker had a criminal record and pulled out a marijuana-related arrest from 1989, when Roneker was 17 years old. In 1991, he was charged with resisting arrest and pleaded guilty to disorderly conduct, a violation. In January 2000 he was charged with assault but, the DEA found, the charge was dismissed a month later. In July 2014, he paid a $100 fine after admitting to a violation for possessing a personal amount of marijuana.

The vast majority of Roneker’s cash was in $20 bills – “characteristic of currency received by drug distributors from their customers,” the authorities wrote in court papers.

At police headquarters, an NFTA officer brought in Deuce, a dog “capable of detecting the odors of marijuana, cocaine, methamphetamines and their derivatives,” court papers said. When Deuce was done, the police told Roneker he could fly to Oregon but his money could not.

“They put me through hell for no reason,” Roneker said. “You were assumed guilty and you had to prove you were innocent.”



TSA-Buffalo-Niagara-International-Airport-Mulville

Travelers go through the TSA security checkpoint at the Buffalo Niagara International Airport.



Mark Mulville



The authorities found no criminal record to use against Daniel A. Sherer. Regardless, they took his $49,900. Most of it, $45,000, was held in two document-sized envelopes in his carry-on bag in 2015. The rest was in a fishing boot in his checked bag.

Sherer told police the $45,000 came from an insurance settlement after fire destroyed his fishing boat 10 years earlier, in Dana Point, Calif. At the time, Sherer explained, he was dealing with alcoholism and gambling issues, so he gave the settlement money to a friend for safekeeping. A decade later, Sherer and the friend had a falling out, and he flew to Buffalo to retrieve the money. The friend, a Cheektowaga resident, met him at a Dunkin Donuts near the airport and handed it over, Sherer explained to authorities.

The NFTA police and an FBI agent figured the money was drug proceeds because some of the bills had been printed after 2004 or 2005, when Sherer asked the friend to hold the money. Most of the bills were twenties, “significant in that law enforcement believes that the $20 bills are often an indicator of drug traffickers,” the authorities said in court papers. Further, a specially trained dog had found that “controlled substances had recently been in contact with the currency.”

Cash is the defendant

Travelers who have their cash taken can file a “petition,” asking the federal agency involved in taking the money to return it. Travelers also can take their case to federal court.

They are asking that their money be pardoned because in the eyes of the federal government, the cash is the defendant. For example, Sherer’s one case was titled “United States of America v. $49,900 in United States currency.” The lawyers call the money “the defendant currency.”

Money lacks the same rights as a person. To convict a person of a crime, prosecutors must prove their case “beyond a reasonable doubt,” the highest legal standard. To forfeit money or property, prosecutors can win with a “preponderance of the evidence,” the lowest standard. They need to show only that it’s more likely than not that the cash was obtained illegally or will be spent for illegal purposes.

It’s also more likely than not the government will keep the seized money no matter how the traveler fights back. In March 2017, the Justice Department’s Office of Inspector General reported that over 10 years, the DEA returned money 8% of the time. Part of the reason might lie in the fact that not everyone tries to get the money back. Claims or petitions were filed in just 20% of the DEA’s total seizures. Of those 20%, cash was returned in roughly four out of 10 cases.

“It’s very difficult to get the money once the seizure happens,” said Paul Avelar, a senior attorney at the Institute for Justice, a nonprofit law firm devoted to, among other things, helping people recover their money. “You have to prove your own innocence. And if you can’t prove your own innocence, you lose your money.”

In its research, the Institute for Justice has found that “civil forfeiture,” which allows the government to take property without proving a crime, has become far more common than criminal forfeiture. In one of its reports on the topic, called “Policing for Profit,” the institute says “civil forfeiture laws pose some of the greatest threats to property rights in the nation today.”

The NFTA police, for example, got to keep around $1.2 million that was seized from 2012-2016 without having to make an arrest, both at the airport and in work in and around Buffalo, according to Justice Department statistics analyzed by the Institute for Justice. By contrast, the NFTA’s share of money from criminal forfeiture – after a conviction – amounted to about $23,000 over those years.



August Terrence Rolin

August Terrence Rolin and his daughter Rebecca Brown filed a class-action lawsuit in January, months after the Drug Enforcement Agency seized $82,373 from Brown at the Pittsburgh airport. Brown says she was attempting to fly with her father’s life savings to Boston, where she planned to open a bank account for him. 




Retirement money seized

In January, the institute filed a class-action lawsuit against the TSA and the DEA on behalf of August Terrence Rolin of Pittsburgh and his daughter, Rebecca Brown of Boston. Brown had $82,373 seized from her at the Pittsburgh airport in August of last year. Neither was charged with a crime.

The lawsuit lays out this account: Rolin, a retired railroad engineer, felt more comfortable keeping his cash in his home. But as he moved from his house to an apartment, he asked his daughter, to whom he had given power of attorney, to place his cash in a checking account for him. The request came near the tail end of his daughter’s visit. She figured she would open the account when she returned to Boston, and from there she would pay most of her father’s bills. She took the cash with her.

Rebecca Brown checked online and found it’s legal to carry any sum of money on a domestic flight, according to the Institute for Justice. But when the money showed up on an X-ray, the Pennsylvania State Police and then a DEA agent questioned her. The DEA agent took the $82,373. Then in early March, seven months after the money was taken and after a blizzard of publicity, the DEA relented. Brown and her father got the money back. The Institute for Justice is still pursing the class-action case.

Giving up

Not every traveler enlists a lawyer, or lawyers, to recover their money.

“I could not afford the lawyer,” said Maxie S. Cohen of Rochester, who had an attorney file court papers for him but later surrendered most of the $70,100 taken at the Buffalo airport in November 2018.

Cohen was flying with his friend Susan Fisher to Los Angeles. Fisher, who had been carrying the money in her suitcase, refused to answer the officers’ questions that day. But Cohen told The News she was thinking of relocating to California and investing in a restaurant there. In court papers, prosecutors never disputed Cohen’s explanation that the money had come from lottery winnings, and he had paid tax on it.

But years earlier he had sent $8,000 in cash to California for a Jaguar and didn’t contest that seizure after a police dog alerted handlers to the scent of drugs inside the package, the government said in court papers. (Cohen told The News he was acting as an intermediary for a friend, and it was up to the friend to recover the money.)

Because an NFTA dog in 2018 identified traces of narcotics on the currency seized at Buffalo’s airport, the government said a preponderance of the evidence showed the money was to be spent buying drugs.

Months later, Cohen agreed the government could keep $42,060. He got back $28,040.

Similarly, Haile agreed to give up a portion of his $12,000 – a little over $5,000. The rest was for him, but he didn’t see it again. The balance went to pay overdue state and federal income taxes. He said he also gave up on his trip to Houston, New Orleans and California. With his money seized, he could no longer afford to go.

Daniel Sherer, who had almost $50,000 seized, got back $20,000. The government kept the rest.

As for Buffalo’s Roneker, he was given back $20,000 of the $36,430 seized at the airport but had to use his share to pay late city and county taxes, a water bill and to pay off a judgment against him held by the Riverside Federal Credit Union.

Roneker’s financial situation was already under stress. He had lost a house in Niagara County before moving to Buffalo. Not long after the government kept more than $16,000, he filed for bankruptcy.

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Village of New Paltz might expand eligibility for revolving loan fund | Local News

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NEW PALTZ, N.Y. — The village is considering expanding eligibility for a little-used revolving loan fund to include the needs of businesses being hit hard by the COVID-related economic slowdown.



Village of New Paltz trying to help residents get refunds from waste haulers

Village of New Paltz Mayor Tim Rogers




Mayor Tim Rogers said Tuesday that the $500,000 loan fund could be used to help businesses with more than just the purchase of personal protective equipment allowed under state and federal programs.

“We’re trying to piggyback off of the existing language for the revolving loan fund,” he said. “We just wanted to make it somewhat broad in terms of recognizing COVID impacts.”

One thing the village is considering is eliminating the rule that prohibits the use of the fund for emergency situations or business operations.

“Here we are flipping it and saying that you can,” Rogers said.

Guidelines for the loan program, which was established with funding from the U.S. Department of Housing and Urban Development, were last updated in 2013. The loan fund’s current interest rate is 3%.

Rogers said the fund has received only two loan applications over the past six years, and one of those was rejected.

“There’s only been one that we awarded and one that we straight up denied,” he said, noting that the rejection was because of the applicant’s bad credit history.

Rogers said the COVID-19 pandemic has created something of an economic irony in the village: decreased foot traffic in the business district but a significant increase in applications for building permits.

“[Village Safety Inspector] Cory Wirthmann believes our busy Building Department is partially a function of people traveling or vacationing less,” the mayor said. “ Money they would have spent is now going to home improvement wish list projects or just deferred maintenance, like finally choosing to replace the old roof.”

Comments about expanding the revolving loan fund should be emailed to  assistant@villageofnewpaltz.org. A loan application and information about the process can be found online at bit.ly/npaltz-loans.

For local coverage related to the coronavirus, go to bit.ly/DFCOVID19.

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Will Missing One Car Payment Hurt My Credit Score?

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The short answer is yes: skipping one car payment can hurt your credit score, but not until it hits a certain mark. One missed payment doesn’t destroy your credit score forever, but it can stay on your credit reports for years.

Missed Payments and Your Credit Score

One or two missed payments may not be enough to completely ruin a good credit score, but they can lower your credit score quite a bit. How much your credit score can drop depends on many things, including how much credit history you have and how much time has passed since your missed payment.

How much a missed payment can impact your credit score is heavily influenced by how many missed payments you currently have reported, your current credit score, your credit utilization, how many accounts you have, and more. In other words: your drop in credit score due to one missed car payment is likely to be unique to you. The drop in points could be anywhere from 10 to 100 points, or more.

Will Skipping One Car Payment Hurt My Credit Score?If you have a thin credit file or little to no credit history, one missed car payment can be devastating to your credit score. And, in some cases, having a good credit score and then a reported 30-day missed payment could hurt your credit score more because you have more to lose.

The severity of the missed payment matters too. If you’re 30 days on the payment, it’s not as bad as being 90 days late. Most creditors report missed payments in these timeframes: 30 days; 60 days; 90 days; 120 days; 150 days; and then delinquent/charge-offs after that. The longer you let that missed payment go on being missed, the worse it is for your credit score.

To bounce back from a missed auto loan payment, be sure to make that payment as quickly as you can. The sooner you make up that payment, the better off you are.

How Long Are Missed Car Payments Reported?

Missed and late car payments can remain on your credit reports for up to seven years. How much they damage your credit score lessens each year, but it can still impact your overall credit score years afterward.

Your payment history is the most influential part of your credit score: a whopping 35%. In terms of credit repair, this means making all of your bill payments on time is important. If you have an auto loan that isn’t currently being reported – meaning your loan and on-time payments don’t show up on your credit report – the missed and late payments are likely to be reported anyway. Even auto lenders that don’t generally report their loans to the credit bureaus typically report missed/late payments.

If you think you’re about to miss a payment and you want to avoid hurting your credit, you have some options to explore.

Ask Your Lender for a Deferment

Lending institutions understand that times can get tough. If you think you’re about to miss a payment, contact your lender right away and ask what options are available to you. Keep your lender in the loop if you’re going through rough times – the sooner you get ahold of them the better.

This is especially true right now, given the current pandemic. Many borrowers left without work have been forced to find alternatives to making payments and needed assistance with their car loans and mortgages. There is a process that allows borrowers to take a breather and gather themselves, and it’s called a deferment.

A deferment, in a nutshell, pushes the pause button on your auto loan. Most times, lenders pause the car payments for up to three months and add those payments to the back of the loan term. If you qualify, you may be able to recenter yourself and get back on track. After the deferment is up, the car payments resume and you continue paying as normal.

The only downsides to this option are that your interest charges continue to accrue, and your loan term is extended. However, in the grand scheme of things, a few more months of a car payment and interest charges is better than default or multiple missed payments!

There is a common stumbling block to deferments though: most lenders don’t approve these plans unless your current on the loan. If you’ve already missed one payment or more, then the lender isn’t likely to approve it.

Is Refinancing Your Auto Loan an Option?

If you’re struggling to keep up with your current car loan, refinancing for a lower monthly payment could be the answer.

Refinancing involves replacing your current loan with another one, typically with a different lender. Most borrowers refinance to lower their monthly payments by either lowering their interest rate or extending their loan term (sometimes both).

To refinance, you also need to be current on your auto loan. Most lenders that offer refinancing don’t consider borrowers with multiple missed/late payments on their car loan. Additionally, you generally need to meet these requirements for refinancing:

  • Must have equity in the car or the loan balance must be equal to the vehicle’s value
  • The car is under 10 years old with fewer than 100,000 miles
  • Your credit score has improved since the start of the loan

You may need to meet other requirements, depending on the lender you choose. Refinancing doesn’t typically require a “perfect” credit score, but you may need a good one to qualify.

Ready to Get a More Affordable Car?

If you’re struggling to make ends meet and worried about skipping payments, then it may be time to sell your car and get something more affordable. If you’re concerned that a poor credit score could get in the way of your next auto loan, then consider a subprime lender through a special finance dealership.

Subprime lenders are indirect lenders that are signed up with certain dealers. They assist borrowers in all sorts of unique credit circumstances, and they could help you get into a more affordable vehicle if you qualify.

Finding a subprime lender can be as simple as completing our free auto loan request form. Here at Auto Credit Express, we work to match borrowers to dealerships with bad credit lending resources in their local area, at no cost and with no obligation. Get started today!

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How to Avoid a Prepayment Penalty When Paying Off a Loan | Pennyhoarder

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Look at you, so responsible. You received a financial windfall — stimulus check, tax refund, work bonus, inheritance, whatever — and you’re using it to pay off one of your debts years ahead of schedule.

Good for you! Except… make sure you don’t get charged a prepayment penalty.

Now wait just a minute, you say. I’m paying the money back early — early! — and my lender thanks me by charging me a fee?

Well, in some cases, yes.

A prepayment penalty is a fee lenders use to recoup the money they’ll lose when you’re no longer paying interest on the loan. That interest is how they make their money.

But you can avoid the trap — or at least a big payout if you’ve already signed the loan contract. We’ll explain.

What Is a Loan Prepayment Penalty?

A prepayment penalty is a fee lenders charge if you pay off all or part of your loan early.

Typically, a prepayment penalty only applies if you pay off the entire balance – for example, because you sold your car or are refinancing your mortgage – within a specific timeframe (usually within three years of when you accepted the loan).

In some cases, a prepayment penalty could apply if you pay off a large amount of your loan all at once.

Prepayment penalties do not normally apply if you pay extra principal in small chunks at a time, but it’s always a good idea to double check with the lender and your loan agreement.

What Loans Have Prepayment Penalties?

Most loans do not include a prepayment penalty. They are typically applied to larger loans, like mortgages and sometimes auto loans — although personal loans can also include this sneaky fee.

Credit unions and banks are your best options for avoiding loans that include prepayment penalties, according to Charles Gallagher, a consumer law attorney in St. Petersburg, Florida.

Unfortunately, if you have bad credit and can’t get a loan from traditional lenders, private loan alternatives are the most likely to include the prepayment penalty.

Pro Tip

If your loan includes a prepayment penalty, the contract should state the time period when it may be imposed, the maximum penalty and the lender’s contact information.

”The more opportunistic and less fair lenders would be the ones who would probably be assessing [prepayment penalties] as part of their loan terms,” he said, “I wouldn’t say loan sharking… but you have to search down the list for a less preferable lender.”

Prepayment Penalties for Mortgages

Although you’ll find prepayment penalties in auto and personal loans, a more common place to find them is in home loans. Why? Because a lender who agrees to a 30-year mortgage term is banking on earning years worth of interest to make money off the amount it’s loaning you.

That prepayment penalty can apply if you want to pay off your loan early, sell your house or even refinance, depending on the terms of your mortgage.

However, if there is a prepayment penalty in the contract for a more recent mortgage, there are rules about how long it can be in effect and how much you can owe.

The Consumer Financial Protection Bureau ruled that for mortgages made after Jan. 10, 2014, the maximum prepayment penalty a lender can charge is 2% of the loan balance. And prepayment penalties are only allowed in mortgages if all of the following are true:

  1. The loan has a fixed interest rate.
  2. The loan is considered a “qualified mortgage” (meaning it can’t have features like negative amortization or interest-only payments).
  3. The loan’s annual percentage rate can’t be higher than the Average Prime Offer Rate (also known as a higher-priced mortgage).

So suppose you bought a house last year and then wanted to sell your home. If your mortgage meets all of the above criteria and has a prepayment penalty clause in the mortgage contract, you could end up paying a penalty of 2% on the remaining balance — for a loan you still owe $200,000 on, that comes out to an extra $4,000.

Prepayment penalties apply for only the first few years of a mortgage — the CFPB’s rule allows for a maximum of three years. But again, check your mortgage agreement for your exact terms.

The prepayment penalty won’t apply to FHA, VA or USDA loans but can apply to conventional mortgages — although the penalty is much less common than it was before the CFPB’s ruling.

“It’s more of private loans — loans for people who’ve maybe had some struggles and can’t qualify for a Fannie or Freddie loan,” Gallagher said. “That block of lending is the one going to be most hit by this.”

How to Find Out If a Loan Will Have a Prepayment Penalty

The best way to avoid a prepayment penalty is to read your contract — or better yet, have a professional (like an attorney or CPA) who understands the terminology, review it.

“You should read the entirety of the loan, as painful as that sounds, because lenders may try to hide it,” Gallagher said. “Generally, it would be under repayment terms or the language that deals with the payoff of the loan or selling your house.”

Gallagher rattled off a list of alternative terms a lender could use in the contract, including:

  • Sale before a certain timeframe.
  • Refinance before a term.
  • Prepayment prior to maturity.

“They avoid using the word ‘penalty,’ obviously, because that would give a reader of the note, mortgage or the loan some alarm,” he said.

If you’re negotiating the terms — as say, with an auto loan — don’t let a salesperson try to pressure you into signing a contract without agreeing to a simple interest contract with no prepayment penalty. Better yet, start by applying for a pre-approved auto loan so you can get a pro to review any contracts before you sign.

Pro Tip

Do you have less-than-sterling credit? Watch out for pre-computed loans, in which interest is front-loaded, ensuring the lender collects more in interest no matter how quickly you pay off the loan.

If your lender presents you with a contract that includes a prepayment penalty, request a loan that does not include a prepayment penalty. The new contract may have other terms that make that loan less advantageous (like a higher interest rate), but you’ll at least be able to compare your options.

How Can You Find Out if Your Current Loan Has a Prepayment Penalty?

If a loan has a prepayment penalty, the servicer must include information about the penalty on either your monthly statement or in your loan coupon book (the slips of paper you send with your payment every month).

You can also ask your lender about the terms regarding your penalty by calling the number on your monthly billing statement or read the documents you signed when you closed the loan — look for the same terms mentioned above.

What to Do if You’re Stuck in a Loan With Prepayment Penalty

If you do discover that your loan includes a prepayment penalty, you still have some options.

First, check your contract.

If you’ll incur a fee for paying off your loan early within the first few years, consider holding onto the money until the penalty period expires.

Pro Tip

If you don’t have a loan with a prepayment penalty, contact your lender before sending additional money to ensure your payment is going toward principal — not interest or fees.

Additionally, although you may get socked with a penalty for paying off the loan balance early, it’s likely you can still make extra payments toward the balance. Review your contract or ask your lender what amount will trigger the penalty, Gallagher said.

If you’re paying off multiple types of debt, consider paying off the accounts that do not trigger prepayment penalties — credit cards and federal student loans don’t charge prepayment penalties.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.

This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.

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