If you read my earlier post, it takes a minimum of navigating your way through four links on the Chase student loan website to find the range of interest rates available to private loan borrowers (in case you were curious the range is 3-month LIBOR + 4.75% to 3-month LIBOR +12.25%). Of course, many borrowers may have stopped on the page titled "Interest Rates" which had the following description:
School Certified Private Loans
Chase Select is a school certified loan product. This means your school must offer this loan product for you to be eligible to receive it and it also requires school certification.
|Interest Rate Index
For Chase Select
It was with much trepidation, therefore, that I applied as a co-signer for a $5,000 loan for a Chase Select loan. Would Chase "hide the ball" when it came to interest rates for approved loans too? I was about to find out. Having completed the co-signer application (after the borrower application had been completed), I hit the Enter key and got the following message:
We still need to verify your application information, so we need more details to complete your application.
Hmm.The old good news/bad news scenario. The good news is that I have been approved for a loan but the bad news is that I don't know the rates. OK, take a deep breath, relax, Chase just needs some additional information on me before they can get me those rates. So, I dutifully completed the remainder of the application. Upon completion, the message on the final screen of the application process highlighted these next steps:
I also received this most excellent reassurance in the Application Summary:
You have successfully applied for the following loan
Only one problem: I still didn't know what the interest rate on the loan was. Oh, I get it, the interest rate must be in the promissory note, since Chase certainly seems to be encouraging me to sign it:
I also got an email the morning after I applied (seems they really want me to sign this note!):
"URGENT, REPLY NEEDED"
On the day you applied, we advised you that unless we receive these important documents from you:
Proof of ID
Your conditional approval will expire 90 days from the day you applied and we will be unable to give further consideration to your application. You should act quickly so you can receive your funds as soon as possible!
So, I dutifully printed out the promissory note and began to quickly scan through it. Eight pages into it, I came across what I was looking for (hooray!), the margin on the variable rate loan:
(a) Margin. The Margin will be disclosed on or with the Disclosure Statement.
Now, regarding that Disclosure Statement, that was on page seven:
Hmm...OK, I think I got the drill now. Sign the promissory note, thereby committing myself to a Promise To Pay (that's #1 in the Promissory Note) and then the curtain will rise, the Grand Underwriter will suddenly appear, and I will find out what the margin on my private student loan is.
Before I get to that, I know some of you are thinking:
Of course, you would be correct. I can cancel the loan, but there are a few hoops to jump through first (not as simple as one phone call unfortunately), according to the promissory note:
So I implore you, Chase, please spare me the trouble and tell me the margin on my approved loan! There is a great body of consumer research described as "incremental decisions and escalating commitment" which suggests that once a consumer takes an hour or more to complete the application process, find a co-signer, have their application approved and then complete more paperwork to keep the process moving...well you get the picture. As the Federal Reserve notes in several instances in their Regulation Z proposals, student loan borrowers are not all that sophisticated:
Hmm..so what better way to take advantage of unsophisticated borrowers than to ask them to sign a promissory note before telling them what their loan costs are? How amazing is this lack of transparency in this day and age! Sorry, I am hyperventilating. Have we learned nothing from recent history?
Still with me? Not exactly a Robert Ludlum thriller here, but you have made it this far. Suddenly, I peer across my desk and there it is, the telephone. I dial the number and get through quickly to a pleasant customer service representative. I explain my conundrum and wonder if I am the hundredth caller today seeking to uncover the secrets of the Grand Underwriter or just the first. So I ask:
Her response, to paraphrase (drum roll, please):
OK, enough with the caveats. What's the number? Here it is the answer you have been on the edge of your seats waiting for:
I leave you with one statement and one question:
- The Federal Reserve's Regulation Z to improve the transparency of private loans cannot be implemented soon enough (for my comments on the proposals, go here and here and here)
- Why would a lender go to such lengths to prevent a borrower from knowing the true cost of their loan?
Update: I heard from a Chase representative today that the lender would be updating their disclosures by the end of May so that a borrower would receive the interest rate information simultaneous with their loan approval.