Misinformation and insomnia make great bedfellows. Late-night television is filled with too-good-to-be-true solutions for everything from unmanageable mortgages and other debt woes to healthcare. These advertisers must know that their primary target is a viewer with money problems that keep them awake.
The words "As seen on TV" should be an immediate alert to seek confirmation of that advice elsewhere, like with a financial planner. If TV advertising or network programming — even advice on popular daytime cable business shows — offer financial advice, it's wise to seek a second opinion. Some key areas to watch closely:
Credit cleanup: There's one ad that features a woman in a darkened kitchen literally cowering whenever the phone rings — when her answering machine picks up, it's the sound of a familiar and persistent bill collector. It's very effective and promotes a particular credit repair service with an 800 number. There's nothing illegal about credit repair services as long as they work within present legal guidelines, but if you're having credit problems, credit repair agencies should be a last resort. Why? Because most of these agencies charge fees to help you manage debt in ways you can do on your own. A 2006 Georgetown University study reports that counseled borrowers are much more likely to declare bankruptcy during the two years following counseling.
Payday loans: TV ads for payday loans show friendly, clean offices that allow people to borrow small amounts of money — $300 is an average — against their paycheck for a short period of time — usually two weeks or a month at rates sometimes exceeding 15 percent. The industry has gotten hugely popular and profitable in recent years — a 2003 University of North Carolina study noted that while "virtually no payday loan outlets existed 10 years ago, industry analysts estimate there are now up to 14,000 of them, with total loan originations of between $8 billion and $14 billion in 2000 alone." Payday loan agencies can be legal places of business, but they are an even worse source of cash than high-rate courtesy checks from credit card companies.
Legal settlement and annuity loans: In recent years, legal financial institutions have sprung up to buy annuities or lend against structured court settlements that otherwise would take years for an individual to collect. There's one ubiquitous ad that mentions the words "cash now" at least three times within a 30-second spot. There may indeed be solid reasons for selling off all or parts of these income streams, but you'll pay for the privilege.
Mortgage and home-equity loans for the problem borrower: Even with the current subprime lending debacle, advertising continues for no- and low-down payment loans at attractive rates — as if these institutions are the only ones able to make affordable loans while most reputable lending institutions have pulled in their oars. Again, these lenders are reaching out for desperate borrowers, but don't buy the hype. A financial adviser, qualified real estate attorney or experienced licensed real estate agent are better sources of borrowing advice no matter what your current financial circumstances.
National bankruptcy and personal-injury law firms: Despite a tightening of the U.S. bankruptcy laws, there are still plenty of attorneys on the airwaves promising to "rescue" you by helping you file. Indeed, there are legitimate reasons to file bankruptcy as well as file lawsuits against people or institutions that have done you harm. The concern about these multi-state law firms promising you a successful bankruptcy or legal defense is that they tend to handle thousands of cases in multiple states without a lot of personal service. You may not get the same quality advice as you can get in your own community, including whether or not to file in the first place. Such matters are too serious to be solved by dialing an 800 number — for many, bankruptcy can and should be avoided, and many lawsuits for personal injury and other causes may not be winnable. A financial planner cannot dispense legal advice unless they are a licensed attorney, but they can generally give you the pros and cons of such legal actions and refer you to qualified legal counsel if necessary.