On this week’s Marketplace Money, Chris and Scott talk about a sorority’s collection agency threat, dissolving an LLC, timeshares and digging up an investment firm’s past.
TEXT OF GETTING PERSONAL (FIRST SEGMENT)
Scott Jagow: Do you have a question about money that’s just burning a hole in your brain and if you don’t get it resolved, it’s going to drive you crazy? Well, we’re here to set your mind at ease because it’s time for Getting Personal, where we try to answer those burning questions about personal finances. The good doctor is in: Chris Farrell, how are you?
Chris Farrell: I’m doing well and welcome and I’m going to try not to drive you crazy, Scott.
Jagow: All right. Our first call is from Jennifer in Memphis, Tennessee. Hi, Jennifer.
Jennifer: Hi.
Jagow: So I understand that you have a daughter in college who is about to graduate?
Jennifer: Actually, she graduated two weeks ago.
Jagow: She just graduated. Well, congratulations to you and her.
Jennifer: Thank you very much.
Jagow: And I understand she’s been in a sorority throughout her college years?
Jennifer: Yes.
Jagow: Can you tell me a little bit about that?
Jennifer: She joined when she started school and at the time, I guess, she was informed ahead of time of what the fees would be and she went in with full knowledge of what she was getting herself into. And I think her junior year, the sorority decided to build housing. Apparently they were unable to fill all of the rooms in the housing, so the sorority informed the girls that everyone who wasn’t living in the sorority would have to cover the cost of the unrented rooms and so each girl was assessed $400. And my daughter was willing to pay it and she spoke with her advisor and told her that she would work out a payment plan and she would pay monthly. Apparently, nobody bothered to follow up on that and now, a couple weeks before graduation, she got a notice that because she hadn’t paid that fee, she was going to have her name sent to a collection agency and all of the girls who had any unpaid fees, their names would be sent to collection agencies.
Jagow: Yeah, you know, I actually was in a fraternity in college and was the President of the fraternity for a while, so I understand this from both points of view. So what is your question for Chris?
Jennifer: My question is does she really have to pay that? I mean, are they legally able to say, “Because you’re not paying this, we can give your name to a collection agency,” because she definitely doesn’t want her credit ruined?
Farrell: Sure, and I’m not an expert in the finances of fraternities and sororities, but two things that I do know. One is in order to refer someone to a debt collection agency, that is supposed to be in the overall contract that comes out of national headquarters as one of the options. The second thing and probably even more important is to check: every college and university that has fraternities and sororities has an office of fraternities and sororities and I was looking through a number of them the other day and they have very clear and fairly rigid rules and regulations for how fees and debts are to be treated before you end up with a debt collection.
Jennifer: Okay.
Jagow: Another question here is, you know, $400 is $400, but still, when you weigh that against the hassle you might go through, Chris is it worth it just to kind of let this one go and just pay it?
Farrell: Well yes, if it were me, I’d just pay it, put it behind me a little bit disappointed in the way it’s been handled. It’s a $400 “I don’t want to have to deal with you again” fee.
Jennifer: OK.
Jagow: All right, Jennifer. Thanks so much and good luck with your situation there.
Jennifer: Thank you and I will make those phone calls.
Jagow: Take care.
Jennifer: All right. Bye bye.
Jagow: Our first e-mail of the day comes from Chris in Orlando, Florida. About a year ago, Chris started an LLC, a limited liability company, and it’s just like it sounds: the person who sets it up has less liability for the actions and debts of the company than a corporation. So Chris had this grand idea about an LLC in the beginning, but he hasn’t really done anything with it since then. Now all the paperwork and fees are starting to get the better of him and he wants to know what the easiest and cheapest way is to close it. Chris, what do you think?
Farrell: It’s very simple. You go to the Florida Department of State and you go to all the forms that they have for incorporation and LLCs and one of them is called “dissolution” and you fill it out and you pay the various fees and then you dissolve the LLC. And every State has its own procedures, but essentially every state has its own dissolution form and it’s very simple and again, there is a small cost associated with removing this corporation from the universe.
Jagow: Is there anything else he might be worried about here? Identity theft, perhaps? Any danger of that?
Farrell: You know there’s always some risk of identity theft. Most of the identity theft that’s going on these days, Scott, I really think is you’re doing business and it’s being stolen essentially from that business. That seems to be where the really big trouble in identity theft is. So there’s probably a small risk, but you are dissolving the corporation, you’re doing it through the Florida Department of State. It’s a legal document, so that gives you a fair amount of protection and then, of course, I’m going to give my standard answer which is important. You’re always going to want to be checking your credit report to make sure that nobody is running up debts or buying islands in the Caribbean under your name.
Jagow: All right. Thank you, Chris.
TEXT OF GETTING PERSONAL (SECOND SEGMENT)
Jagow: We’re back with Getting Personal and our next question comes from Darrell in Enid, Oklahoma. His question relates to timeshares. Seems that a company cold-called his house touting the long-term value of owning a timeshare and offered he and his wife a vacation package to attend a seminar — you know, one of those seminars. Darrell is in government service so a forced vacation, he says, isn’t the worst thing that could happen, so he and his wife went there and no surprise, the company was really pushy and offered a very hard sell. While they didn’t agree with the timeshare company’s tactics, he didn’t want to dismiss the concept entirely. So Chris, are there any timeshares out there that are decent?
Farrell: Well, I’m going to give my basic answer and then every time I give this basic answer, in the weeks following someone will come up to me and say, “You know, we have been using a timeshare for the past 20 years and we’re really happy with it.” It does work out for some people, but boy, I got all kinds of warning bells. First of all, I don’t buy anything that comes through a cold call. I don’t know about you, Scott, but that’s just sort of uh-uh, put that down, not going to deal with that. Secondly…
Jagow: It just gives me the creeps.
Farrell: It does. Here’s the big problem with timeshares; they’re very easy to buy, but once you own one and you want to get rid of it, good luck. There’s not much of a market for selling timeshares. Now, right now the market is essentially dead at the moment if you think of what’s happening with housing and condos and townhomes. It’s not surprising that the timeshare market is not doing well, but even in the best of times, to sell a timeshare, you’re going to have to take a big haircut in order to get rid of it. My bottom line: I am not a timeshare fan.
Jagow: I can see that.
Farrell: Yes.
Jagow: OK, so say you think you might still jump in and do a timeshare despite the reservations. What should you look for?
Farrell: The only times it works is if one: you like the property; two: it’s a place you really want to keep going back to and you want to find out if there is an exchange program, which often there is. So example: you have your timeshare in Colorado and, you know, you don’t want to go to Colorado this summer; you’d like to go to Arizona.
Jagow: Or every summer for the next 20 years.
Farrell: Exactly, so I’d be doing my research there.
Jagow: OK, good advice, Chris. Dave from Indianapolis, Indiana has our next e-mail. Seems he met with a new investment broker and at first, this broker seemed on the level: sound opinions on asset allocation and diversification. But Dave wanted to do a little more research, so he went to the SEC web site to research the broker and the company. It turns out the broker seemed OK, but the company had numerous hefty fines against it. Dave is no expert, but he was surprised by the extent of the penalties against this company. Chris, what does this mean? Should he be worried?
Farrell: The first thing is it’s good that he researched the broker. It’s good that the broker has shown up to be clean. And then I would be looking not just at the extent of the penalties, but what kinds of penalties. Is there a lot of turning of customer accounts? Is there issues about just lots of faulty advice? In other words, if it’s a large firm and it’s doing a lot of business, it can have a lot of problems, but you can be satisfied with your own broker. If you’re worried about it, you know what? Then I wouldn’t do business with them. And I’d shift… you know, I’m a big fan of doing it on your own through index funds, build your own diversified portfolio and not deal with this problem. That’s one way that I avoid it, but I’d come down to what’s your comfort level? How confident are you in the relationship with the broker and it’s not just the extent of penalties, but what kind of penalties are against the company?
Jagow: I mean, is this a case where a lot of these companies have SEC fines against them because there are so many different rules and regulations the companies need to follow or is it a case where you know you really do need to watch out for exactly what the penalties are?
Farrell: That’s what I think. You need to watch out for what the penalties are. There are a lot of businesses; they can run afoul. You always have some, you know, a few bad apples. You know I hate that expression, but the fact of the matter is you hear it a lot on Wall Street: “You know, it’s a few bad apples.” Well, the fact is they’re right; there are a few bad apples in any organization that’s dealing with people’s money. But if you’re having systemic turning of customer accounts, a lot of promising customers one thing — “I’m going to give you a diversified portfolio,” this is a common one — and then all of the sudden it turns out that everything — and this is around 1999 — everything went into one high-tech stock. And there are some firms that have reputations for that and there are other firms that have a reputation for not doing that. I would really look at what are the penalties and are they the kind of penalties that would really set off all kinds of alarm bells? But I think it’s good that he’s done the research and I think it’s good that he’s found a broker that has, according to him and I think it’s true, a clean record.
Jagow: Well, Dave certainly did his homework and that is to be applauded. Chris, thanks as always for the great advice.
Farrell: It was fun, Scott.
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